PDF Summary:Shoe Dog, by Phil Knight

Nike co-founder Phil Knight urges young people and entrepreneurs to follow a calling, even if their idea seems crazy. In Shoe Dog, he discusses the story of how his own Crazy Idea turned into the globally recognized brand, Nike. He describes how he built Nike, offering insights into the difficult, imperfect process of starting a business.

In this guide, we’ll discuss the events that led to the creation of Nike (including Knight’s Crazy Idea, his first shoe company, and the challenges he faced) and Nike itself. We’ll also explore Knight’s advice and reflections on why Nike succeeded, such as creating a brand identity and surrounding himself with a great team. Along the way, we’ll offer perspectives from other entrepreneurs on success and overcoming obstacles.

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(Shortform note: By threatening to sue rival distributors, Knight was employing a common business strategy that some companies use to delay inevitable change. Ironically, in Bowerman and the Men of Oregon, Moore contends that many of the potential shoe distributors Onitsuka had spoken to—who Knight was threatening to sue—wouldn’t agree to work with Onitsuka anyway until they had formally ended their partnership with Blue Ribbon. Thus Knight’s threats of legal action to other manufacturers may have been unnecessary, as his actual opponent was now Onitsuka.)

Nike: A Successful Back-Up Plan

Worried that Onitsuka would cut ties with Blue Ribbon, Knight started searching for a manufacturer to replace Onitsuka. He created a back-up company to use while he scouted for other manufacturers. He asked his team for name ideas, and Johnson suggested Nike—a name that came to him in a dream. Although Knight didn’t love it at first, he eventually chose the name Nike for the back-up company. He also liked that Nike was the Greek goddess of victory.

Knight hired a college artist named Carolyn Davidson to design a logo, and after multiple trials, she came up with the Nike Swoosh. They paid her $35. The Blue Ribbon team agreed it looked new, fresh, and timeless, but as with the Nike name, Knight didn’t love it.

(Shortform note: The $35 Knight originally paid Davidson would be worth $247 in 2022. Knight also gave her a diamond and gold Swoosh ring and 500 shares of Nike stock in 1983. Those 500 shares, which she never sold, are now worth close to $1 million.)

Seeking financial support for his new business, Knight found a Japanese trading company called Nissho, which was willing to make loans to Nike. Nissho also introduced Knight to other shoe manufacturers.

(Shortform note: Some researchers believe that creating a back-up plan is detrimental to success, since it creates the space for failure—so why did Knight benefit from creating a back-up plan? It could be because Knight clearly defined his success by his progress toward his Crazy Idea, not by the success of Blue Ribbon—the company was simply a vessel for achieving his Crazy Idea. Knight’s back-up plan succeeded because it supported his larger goal, thus creating flexibility for achieving his Crazy Idea. So when formulating a back-up plan, identify whether you’re creating more space for success—flexibility, like in Knight’s case—or creating space for failure.)

Separating From Onitsuka

Eventually, Onitsuka heard about Nike. Kitami flew to the US to confront the Blue Ribbon team about it. Knight told him Nike was a back-up plan in case Onitsuka cut ties with Blue Ribbon. When Kitami asked if Nike shoes were currently in stores, Knight lied, telling him they weren’t. But Kitami traveled to Los Angeles and inspected the store, where he found hundreds of Nike boxes in the storage room. Kitami formally voided Blue Ribbon’s contract.

As expected, Onitsuka filed for breach of contract in Japan. Blue Ribbon quickly filed against them in the United States. In 1974, the trial began in Portland. Over several days, members of Blue Ribbon and Onitsuka were interviewed as witnesses. Knight explains that each member of the Blue Ribbon team gave questionable testimony, and Kitami lied on the stand.

After a tough legal battle, Blue Ribbon eventually won the case in the US. The judge ruled only on the trademarks and not on the contract breach, stating it seemed like a case of hearsay. He said that Blue Ribbon’s testimony seemed more truthful, ruling that Blue Ribbon could keep shoe rights and was due damages. The Blue Ribbon team was ecstatic about their win.

(Shortform note: Knight justifies separating from Onitsuka on the grounds that they weren’t loyal to Blue Ribbon because they were planning on finding another distributor, which would have put them in breach of contract first. However, in Bowerman and the Men of Oregon, Moore explains that as soon as the team sold a pair of Nike’s, they violated their contract with Onitsuka. This may not have been the most strategic decision: Many experts agree that when you suspect a party is going to break your contract, the best course of action is to reach some sort of agreement about it—not breach the contract in response.)

Financial Solutions

Despite their legal victory, Nike had financial problems to address. The company had an ongoing cash-flow problem because, in his relentless pursuit of growth, Knight insisted on placing shoe orders so large that the company could barely cover the cost. This meant that even though the shoes were selling well, the company’s bank accounts were often depleted, usually after either paying for one of these orders or after paying its financing company, Nissho.

At one point, Nike needed to make a $1 million payment to Nissho but was $75,000 short. To cover the difference, Knight depleted the bank accounts of all Nike’s retail stores and factories, causing workers’ paychecks and creditors’ checks to bounce. In response, their bank dropped them as clients, which meant they no longer had an account from which to pay workers, vendors, creditors, or anyone else.

Knight sought help from Nissho. Nissho audited Nike’s books and found that the company was in poor financial health, with debts looming and no means to pay them. However, Nissho fully believed in Nike’s potential and paid off all of Nike’s debt with the bank. Knight opened an account with a new bank soon after.

Understanding Why Investors Rescue a Failing Company

Like Nike, many of today’s successful companies received outside help to solve their financial problems. In Nike’s case, the rescuing company (Nissho) believed in Nike’s vision—and also stood to profit directly if the company succeeded. The history of business is littered with bailouts driven by similar motives: For example, Elon Musk organized a deal from investors and SpaceX to fund Tesla just hours before going bankrupt, urging investors to believe in his vision for the companies. If Tesla succeeded, the investors and SpaceX stood to profit off its success just as Nissho stood to profit off Nike’s success, giving them an immediate motive for funding it (as long as they bought into its vision).

But there are other reasons why one company might bail out another. In some cases, a competitor might help a rival because they see the competition as crucial to the success of the industry as a whole. For example, Apple almost filed for bankruptcy in 1997, but Microsoft bailed them out with a $150 million investment because they thought the competition would be better for the industry’s—and their own—future. In situations like this, the rescuing company may not stand to benefit directly, but instead hopes to benefit indirectly—less from immediate loan repayments and more from the resulting long-term health of the industry.

Nike’s First Breakthrough: Waffle Soles

After being bailed out by Nissho, Knight and Bowerman focused on innovation. They discussed how the outer sole of the training shoe hadn’t changed in 50 years. Inspired, Bowerman used his wife’s waffle iron to make a gridded pattern for rubber shoe soles. After several rounds of experimenting, he sewed the insoles to the bottom of running shoes—and they were a breakthrough. Within a few years, the waffle soles helped popularize Nike since they broke out of athletic uses. Unlike competitors’ shoes, Nike’s waffle soles became a lifestyle shoe.

(Shortform note: Many experts agree that creative innovations like Bowerman’s are critical to the growth of new companies. In this case, the innovative new waffle soles were such a critical part of Nike’s success that the original waffle iron Bowerman used is on display at Nike’s headquarters. For years, the original iron was lost, but Bowerman’s family found it buried in their backyard in 2011, and they gave it to Nike.)

Athlete Endorsements

Knight and his team continued building the Nike brand by signing athlete endorsements. His first endorser was Romanian tennis player Ilie Nastase, and his second was Olympic runner Steve Prefontaine. Nike treated their endorsers as valued members of their team, not merely as billboards to advertise their products. For example, at the time, Olympic athletes weren’t allowed to accept endorsement money from brands, which meant that Prefontaine had virtually no money to live on, as he had very little time to work while maintaining a grueling training and competition schedule. To work around the rule, Nike offered him a position as the National Director of Public Affairs and paid him $5,000 a year. Nike’s good treatment of its endorsers paid off in loyalty to the brand, as Prefontaine, Nastaste, and later, others, proved enthusiastic ambassadors of the shoes.

(Shortform note: Knight’s instinct to recruit athlete endorsers was a smart one since athletes are now one of the most sought-after product endorsers. In Influence, the authors explain that the associative persuasive appeal of athletes is deep and widespread, cutting across ethnic, regional, age, and economic demographic groups. Athletes are also linked to many positive attributes that brands are eager to associate themselves with: youth, strength, winning, prowess, and physical attractiveness. And Nike has continued signing athlete endorsements: Global soccer icon Cristiano Ronaldo’s deal with Nike is estimated at around $1 billion.)

Customs Battle

With Nike’s rising popularity and increasing sales came bigger challenges. In 1977, US Customs contacted Nike and asked for $25 million for retroactive duties on imported shoes. While Nike couldn’t afford this $25 million fine, they also couldn’t afford to pay increased duties on a regular basis. If they did, Nike would go bankrupt. The Treasury Department was unsympathetic to Nike’s dilemma.

Eventually, the Nike team took matters into their own hands and aired an advertisement that told the story of an American business being suppressed by the government. Knight notes that the ad received a favorable response. With so much pressure, US Customs decided they wanted to move on. They discussed settlement options and eventually decided on $9 million. Although Knight didn’t want to pay anything, he wrote the check, reflecting on how far Nike had come.

(Shortform note: Although Nike overcame the Customs battle, experts note that the government essentially subsidized Nike at the expense of other shoe manufacturers, who had to pay the full duty price. Nike responded to these claims, saying that the delayed duty pricing hindered their ability to grow as a company and thus catch up to their more established competitors.)

Preserving Nike’s Identity When Going Public

As part of Nike’s expansion, the team finally decided to go public. Knight and his team deliberated about this decision for a long time—they knew going public would help their finances, but Knight was concerned that shareholders would alter Nike’s identity and culture. To solve this problem, Knight and his team issued two kinds of stock—Class A and Class B—that allowed the current team to name three quarters of the board. The team also agreed that Knight should own 46% of the company—they thought Nike needed to be run by one person with a steady vision. These solutions ensured that Knight and his team kept their influence at Nike.

When they went public in 1980, the original Nike team, including Bowerman and Johnson, became millionaires. Knight was worth $178 million. But they didn’t let their newfound wealth get to their heads—instead, Knight and his team went back to work.

(Shortform note: The Nike team delayed going public because they didn’t want shareholders to affect the team’s identity—a common concern for entrepreneurs, who often worry that shareholders will exert unwanted influence on company decisions. This concern proved a long-lasting one for Nike, and in 2015—after stepping down as chairman—Knight created a limited-liability company (LLC) called Swoosh to hold 128.5 million shares of the influential Class A stock in Nike. Swoosh will make it difficult for outsiders to gain control of the company and will also determine much of Nike’s long-term direction.)

Reflections on Nike’s Success

After 40 years as Nike’s CEO, Knight stepped down, causing him to reflect on the process of building Nike and achieving his Crazy Idea. (Shortform note: Knight never gave a reason for why he stepped down, but he remained a chairman of Nike’s board of directors until 2015.)

He thought of how far Nike had come—they now had $16 billion in sales, and their products are sold in 5,000 stores worldwide. This reflection inspired him to tell the story of Nike. Knight hoped that young entrepreneurs would find comfort in the fact that even a global company like Nike started somewhere. He offers a few insights throughout the book about his and Nike’s success.

(Shortform note: While Nike had come a long way as of 2016, the company has only continued to grow in the years since the book’s publication. By 2021, Nike’s net worth had increased to over $30 billion. And on the 2021 Fortune 500 list of the largest US corporations by total revenue, Nike ranked 85th.)

Create an Identity

Knight believes that much of Nike’s success came from creating an identity as a brand. People resonated with what Nike stood for as a company, and they bought into the Nike identity, which consisted of three core values:

Athletes: Knight believes that athletes are at the heart of Nike. Because the people on Knight’s team were runners, Nike is a brand for athletes created by athletes. They understood and appreciated what it took to be an athlete, to train, and to compete. Customers resonated with Nike’s approach because Nike understood their struggles.

Innovative shoes: Knight and his team cared about how the shoe looked, felt, and impacted the wearer. This mindset about shoes led to Nike—particularly Bowerman—constantly experimenting with their designs to improve their shoes.

(Shortform note: Nike’s shoes are consistently ranked among the most innovative shoes. Their ethos is still reflected in the company today, as evidenced by Nike’s release of a new auto-lacing shoe in 2015.)

Winning: When reflecting on the goal of Nike, Knight came up with one word—winning. Knight wanted Nike to succeed, and he also wanted people who wore Nike shoes to succeed. This ethos is evident in Nike’s “Just Do It” slogan.

Marketing Perspectives on Nike’s Identity

Knight believes Nike’s identity was a reason for its success, and from a marketing perspective, this belief has merit. In Tribes, marketing expert Seth Godin explains that consumers want to buy into a tribe, or a group of people that are connected by a belief. Nike tapped into a group of people (athletes) and connected them with a belief in using athletic excellence to win.

By promoting their “Just Do It” slogan, Nike made consumers feel capable of achieving greatness when they purchased Nike products. Then when a consumer wears Nike apparel, she reinforces her belief that she is part of this tribe and its shared belief in athleticism and winning. Additionally, members of this tribe can identify each other when they wear Nike’s products, as well as advertise the product to other consumers. Thus, Nike’s emphasis on athletes and winning represents a solid marketing strategy.

Cultivate a Team With a Shared Vision

Knight credits much of Nike’s success to his team and their hard work—he believes he couldn’t have succeeded without them. He recruited friends he trusted and who shared his vision to his team, which included Bowerman, Johnson, and Woodell. Most of them were athletes and shoe dogs, or people who saw crafting shoes as creating the connection between a person and the earth. The team brought this philosophy to their work at Nike.

While Knight and his team were all dedicated to Nike’s success, they also valued enjoying their work. For example, they called each other “the Buttfaces,” and they cultivated a fun company culture, where they were free to dress casually. Knight fought to preserve this dynamic, such as when he put off the decision to go public for fear that shareholders would ruin Nike’s culture.

Teamwork and Debunking the Myth of the Lone Entrepreneur

In Shoe Dog, Knight is generous with giving credit to his team, and he never takes credit for Nike’s success. He inadvertently debunks the myth of the sole inventor, entrepreneur, and CEO who builds their business alone, demonstrating instead that behind every great idea, invention, and business is a team of exceptional people who use their skills for the benefit of a shared vision. For example:

• Apple: Although Steve Jobs is heralded for Apple’s success, he had help along the way from his co-founders Steve Wozniak and Ronald Wayne. John Sculley and Jef Raskin also propelled Apple’s growth.

• Tesla: While Elon Musk brought much-needed management skills to Tesla, Martin Eberhard and Marc Tarpenning founded Tesla, and J. B. Straubel and Ian Wright improved the software and battery technology for the cars.

• Amazon: Jeff Bezos had help building Amazon. MacKenzie Scott was very involved in the company’s success. She worked on the company’s name, business plans, and contracts.

While these entrepreneurs certainly influenced the course and success of each company, none of them built their business alone.

Hands-Off Management Style

Knight embraced a hands-off management style for Blue Ribbon and Nike. He didn’t give his team guidance on how to complete a task, preferring to trust them and be surprised by their results. While his hands-off approach became a company joke, most employees agreed that they thrived with the freedom to do their jobs to the best of their ability.

For example, Johnson flourished without traditional management, and his work always exceeded Knight’s expectations. Eventually, Knight understood that Johnson would excel at any task he asked him to do, even if the task seemed impossible.

(Shortform note: While Knight believes his hands-off management style benefitted Nike, in Stop Spending, Start Managing, the authors argue that leaders can fall into a macromanagement trap, or when managers are so uninvolved that it’s detrimental for employees, causing confusion, uncertainty, and overworking. Leaders may fall into this trap because they prefer to rely on all-star teams, but these kinds of teams are very rare. For example, the 2004 US Men’s Olympic basketball team had many all-star players but didn’t perform well. Experts explain that guidance and freedom aren’t mutually exclusive, and managers should give employees both.)