How Nike Found Product-Market Fit

Nike was built backwards. Instead of building a product and taking it to market, Phil Knight first built a distribution machine for running shoes. Eight years later, he finally launched his own product (the Nike shoe) and did $3M in sales in the first year. This is not the full story of Nike. It's the story of how Phil Knight got to product-market fit.

Chapters

• 2:41 Coming up with the Idea
• 7:05 Creating a 10x product
• 12:28 Hiring the Team
• 15:55 The Importance of Speed
• 18:33 Catching a growing market
• 22:09 The Need to Pivot
• 25:02 Nike: The Distribution Machine

Transcript

Pablo: 0:00

So I'm walking my dog and I'm thinking about what we've done so far in this podcast, and I'm kind of going back to the main goal, which is I want to become an expert in product market fit. And I think that's why you are here as well. We're both investing a lot of time , frankly, you know, listening to these, to these episodes, doing these episodes. And the entire goal is, is clear, it's simple, it's, we wanna become experts on product market fit. So far, I think, you know, the way we've been doing that is interviewing these late stage founders that are well beyond product market fit, and diving deep into some of the most interesting and insightful parts of their journey, which I think has been immensely helpful. What I kind of realized is, you know, first of all, some of these founders , some of these companies, I mean, they're still early, right? We don't know if they're gonna work out, if they're not gonna work out. And we're taking all of our lessons just from kind of that sample. And I thought to myself, you know, I really wanna know how some of the biggest companies in the world found product market fit. Like, what did they do? Is, is it different? What's there to learn on that side? And, you know, the reality is it's gonna be hard to do interviews with the CEOs of those companies because either they're, they're not here anymore, or they're like, you know, top a hundred on the , on the Forbes list and unlikely to , uh, to sit down for an hour to do a podcast on, you know, how they started their company 30 years ago or 20 years ago. And so I started thinking about, okay, what , what can we, what can we do here? Like, how can we go and , and get at what we really want? Which is just that how, let's say Nike, which is what we're gonna be talking about today. Like, how did Nike find product market fit? And so what I did is I actually used, there was an acquired episode, acquired is a great podcast that, that you may have heard of. And they did a four hour episode on just the entire history of Nike. And I recommend, by the way that you check that out, I think it's interesting, it's own right? Like, if you wanna learn the history of Nike with all the kind of details around it, it's an amazing episode. If you wanna go even further, of course they're like, they're basing it on Shoe Dog , which is an amazing book that written by Phil Knight, the CEO of Nike. And that's 13 hours long. If you wanna listen to it. And again, you should listen to it because, and I have, I mean, it's, it's an amazing story. What we're doing here is different. What we're doing here is we're going to re framework the entire story. First of all, we're only gonna focus on zero to product market fit. The rest is just, it's just not what we're after. And second is like, let's re framework the entire story on, on just the steps that happened , just the events that happened that led from zero to product market fit. And, and so anyways, it's an experiment. Let's try it out. So we're talking about like now the mid nine , the mid the mid sixties, 1960s, right? This is when, this is when the , this story of Nike starts. And maybe just for context, 'cause I think it's important to understand like where things were at back , back at that point. First of all, there was no such thing as like going for a run like jogging, like, just like Amateur jogging as , as part of just general fitness, not a thing, right? So, so that didn't really exist. Of course, there was like professional running track and field, and it was a small market. Like we're talking about a hundred million dollars, $200 million worth of track shoes sold in the entire us you know, today Nike's $150 billion company doing $50 billion in revenue just themselves. So things have clearly changed quite a bit since then, but I think that's, that alone is important. And like, just to go on a tangent here, I think, you know, this idea of starting in , in a niche market, right? They , so the two, the two founders ultimately are , are Phil Knight , who's the CEO . And, and Bill Bowerman, who was his like running coach will talk about how that that all happens. But they didn't for once think about market size and there's just such an emphasis these days on market size. I'm going after a big market. The reality is the most important thing is going after something that you deeply understand that you're well positioned to, to win at, and where you can deliver clear value. So neither Bill Bauman nor nor Phil Knight really worry about the market size of, of kind of running shoes when they start. And it's a , it's a good thing, it's a good thing actually, for two reasons. Because first of all, the fact that it's a small kind of niche market means that there's probably a bunch of important but unresolved problems. And the second thing is that because it's a niche market, there's likely to be very few experts on it, right? Like if you , if you think about a massive market today, there's a bunch of people that have worked in that industry that understand it extremely well. So your competition totally changes these guys, Phil Knight and Bill Bowerman were just uniquely positioned at this time. And the other thing I'll , I'll note is like, it's easy to forget this. I think these days, especially if you watch the movie Air, you probably know this, but back then the big guys were like Adidas, Puma, and uh , like Reebok, converse, these were already big brands, especially the first three. And so this was not like a greenfield opportunity situation, right? So the context is you got a little tiny niche market, which is like this track shoes market, a hundred million, $200 million. And in general, if you think about sporting shoes and you count basketball and soccer and all these other sports, you have already established big players that have been in the game for 10, 20 years. So let's talk about, you know, if you think about zero to product market fit, what's one of the first important most important pieces is like, how'd you come up with the idea? And this is where it's already interesting and where you're gonna see, like, the way that we're frameworking this, because we're thinking about it from how to get a product market fit perspective is not chronological. The way this all starts from a chronological perspective is that Phil Knight has that like business plan. And this is like a pretty known story, so I won't get too deep into it, but, but Phil Knight writes this business plan about how he wants to do to shoes what others had done to cameras. The idea was that like Japanese cameras had taken over the US market , he wanted to do it with Japanese shoes. So he writes this business plan when he's an MBA at Stanford, and then he goes off and actually executes it once he graduates, he goes to Japan, he starts this like distribution company called Blue Ribbon, where he buys these shoes called the Tigers from this Japanese company and imports them and sells them into the us . And that's like a 10 or so year story. None of that, as far as I'm concerned, is a startup. That's a distribution company, right? If you go and you find a product in another market and you bring it to your market or whatever, you're an import export company. You are a distributor, you're a distributor, and nothing wrong with that, it's a legitimate business, but it's not really a startup . Like you're taking zero product risk, you're not inventing anything new, you're not really even innovating. You're just taking a product and reselling it. And that's what he did for a while. So when does the idea for Nike actually start? It starts in like somewhere between like 1968 and 1971. And it's not an idea that Phil Knight actually has the idea comes from, and we'll find out how the , the merging happens, but it's actually his partner, bill Bowerman, who was a running coach at, at his university. And he trained, you know, athletes for, for many years, especially track and field athletes, and was obsessed with the equipment, especially with the shoes. He has two innovations. One of them happens while they're being kind of this distributor and working with that Japanese company. And the first idea was changing the material of the top of the shoe from leather to nylon. That was his first idea because he, he realized that nylon would be more breathable. It would be lighter. So that's like step one. The second thing, and this is like the seminal story that, that you probably would've heard of is that Bill Bowerman, 1971 is watching his wife make waffles, like, believe it or not, right? He's watching his wife make waffles with a waffle iron, and he puts two and two together because what had happened at that time is that track and field, the track that he was on in his university, a change from like, I think concrete to polyurethane. And so, and the shoes were not like responding well, the existing shoes were not responding well. So he takes this waffle, this waffle iron idea and says, well, what if I put polyurethane in this waffle iron? What would happen? And that's literally becomes like the, the foundation for his new shoe. That's the moment where it goes from Phil Knight and Bill Bowerman running a distribution company, reselling shoes that are made in Japan by some other manufacturer to putting a couple of ideas together, this nylon on the top and polyurethane, waffle, iron , uh, on the bottom and creating a new shoe and manufacturing it and producing it themselves. And let's talk about that a bit because while people will say it's all about execution, I can guarantee you that that's a complete lie. If you want, put it this way, if you wanna make the NBA, you need to be talented for sure, but guess what? You also need to be tall. If you're under six feet, realistically, you're not gonna make the NBA and if you want greatness, if you wanna make the Nasdaq, yeah, sure, you need to execute extremely well, but guess what? You also need an amazing idea. So let's talk about how he comes up with that. If you dissect how ideas happen, there's kind of form frameworks. There's the ones that are pretty classic, which is like scratch your own itch , right? So you have a problem in your own, in your own life and you solve that problem and you hope others have it too. There's creating a 10 x product, which is like what Zoom does to WebEx. There's going really deep in an industry deeper than others, finding real unsolved problems. So doing like this intense research, whether it's because you're an industry expert, you've worked in the industry for a while, or whether you do as explicitly as a founder looking for something to build, but you go deep in industry, you find unsolved problems and you solve. And the last one is kind of what Jeff Bezos did, which is you find this big trend and you kind of go in , it's kind of tops down , right? So like you see the internet growing and you're like, well , what can I build? And you go in, how did Nike come up with their idea? They used a few of these frameworks, to be honest . I mean, I think the most they accurate one is 10 x product because you had an established market of running shoes at that time. Athletes were using running shoes, they didn't necessarily consider the running shoes an an un unsolved problem. What Bill Bowerman saw was an opportunity to create a 10 x better product. That's, it's just that simple, right? If you change it from leather to not only you get lighter, if you change the bottom, you get more traction and all of a sudden your shoe is literally 10 x as good, you run faster as an athlete. But there were other other parts of that too, which, which I think are worth mentioning. Like one is he was a track , he was a track and field coach. So in a sense he's kind of scratching his own edge. You know, the lines are blurry, this is just startup land , like kind of not , nothing's black and white. And I , I'll mention this, which I think is really important. Paul Graham talks a lot about this, which is you need to, like, if you think about it, so much of these stories have to do with luck. And it's, it's this classic, like, you have to make your own luck advice, right? You've gotta put yourself in the right situation and be curious enough so that when things pop up, you know how to take advantage of them. So if you go back to it, bill Bowerman is in his kitchen watching his wife use a waffle iron, which to anybody else would just be a meaningless, you know, other Sunday morning. But for him, he puts two and two together because he's so obsessed with running shoes. He's been obsessed with running shoes for over a decade that he sees the opportunity to use that in a new way in order to create a 10 x product. So I think the lessons from there are , you know, you've got these frameworks, you've got these different ways you could come up with ideas, but at the foundation of it all is you need to be deep into something. You need to be curious about something. You need to position yourself to spot these ideas, these great ideas when they come up . Now, I think one of the most interesting things about the story of, of Nike, of how Nike found product market fit is that it's totally backwards. So if you think about how a normal startup take anyone , take Uber, take Airbnb, take Snapchat, I mean it doesn't matter, right? Take any of these startups, how do they happen? First you have an idea, then you launch it and you go to market and you get distribution, right? So it's idea first, then distribution, then go to market. Nike is the exact opposite story. Phil Knight effectively builds a go-to-market distribution machine for running shoes. And only later does Bill Bowerman, his partner, end up coming up with an innovative idea that kickstarts, you know, a truly new company, a truly new startup. So by the time he, you know, bill Bowerman has this idea, Nike just effectively takes off because the distribution machine was so well built . Before we jump into that, which is how he did kind of your typical classic , um, how he did your typical customer discovery and how he made made his first sale and these sort of things. Let's talk about how he got Bill Bowerman in the first place, because that's another critical part, right? You have an idea now you gotta go and you gotta build some sort of a team around it. It could be some contractors, it could be a couple employees, it could be one or two co-founders. And that's the way that Phil Knight approaches it. So he, when he decides he's gonna do this is back when he's still doing this kind of distribution company, not really, again, not really a startup , but he's getting into the shoe world. He goes to the number one shoe expert that he knows running shoe expert that he knows, which was his coach Bill Bowerman from university that used to coach him in track and field. And he pitches him on this idea of becoming partners on this distribution company that's gonna import shoes from Japan and resell them in in the us . Bill Bowerman decides to join and they go like basically 50 50, I think it's like 51 49 on, on the, on the partnership. There's really kind of not, I mean frankly from a, from a what can you learn from story? There's , there's, there's really only one thing because the way that he convinces Bill Bowerman , uh, is, is kind of relatively simple. Like Bill Bowerman had, he's so into running shoes to begin with. He'd already tried to do a few kind of, you know, create his own shoes. Like he was already playing in that world. And so he was, he was set up for this, right? Like when, by the time Phil Knight comes to him with this idea Bill Bauer's, like, yeah, let's do it. Like, it's kind of that simple. But I think the important thing is first of all, the , the importance of like, if you just think about Field Knight's strengths, he didn't know all that much . He had this high business kind of high level business mindset, right? In this business plan, he really was not a product guy. He didn't know all that much about running shoes . So he clearly is filling that gap. And I think that's critical is when you think about who should your co-founders be? You've gotta think about the company I'm building, what does it really need? Like what are the core strengths As a consumer car company, you're gonna have to be really good at marketing as an example, right? If it's AB two B company might be need to be really good at enterprise sales. What strengths do you have in bring to the table and what are the gaps? And that's what Field Knight does spec spectacularly well, I don't think he could have picked a better guy. And by the way, the true idea of Nike would not have happened without this other person. So literally critical to his ultimate success. The other piece is , in this case, it's pretty aggressive, right? 51 49. By the way, bill Bowerman at this point, he's part-time. Like he's a full-time coach and he's gonna just like part-time help Phil Knight. And Phil Knight agrees to give him basically half his company. I dunno if I would recommend that to a part-time person. But you've gotta do what it takes to get the, the right people on the bus. Because had he not gone Bill Bowerman on the bus, none of this other stuff would've happened. The other thing I think is worth is worth highlighting in terms of how to pick co-founders. It's a little bit different, but if you think about Nike, Nike ultimately is producing shoes. So they need a manufacturing partner, which is not like a co-founder, but it's a pretty similar relationship, especially like if you're a software startup, you're gonna need obviously developers and they produce ultimately the product. In his case, what he needs is a manufacturer to produce the product. So he goes out to Japan, and this is again years into his distribution company . So he's got a network, but he's trialing a bunch of different manufacturers to see who is going to produce that, like that true first Nike shoe. He talks to a bunch of them and most of them are kind of like, they're like, okay, cool, like this is what you want made cool, come back in two weeks, come back in a week, whatever. He goes to this one manufacturer, he gives them a shoe in the morning, he's like, this is the kind of shoe I want you to make. They go for lunch, they come back that same evening, and there's a perfect replica of the shoe that's made. So of course Phil Knight says, you know, this is the partner I'm going for. And I think the key quality there that is important, clearly translatable for all types of founders is the importance of speed. That is so critical when you're thinking about who to bring onto the bus. Are they moving fast? Do they get the stuff done quickly? That's just so, it's so more , it's more important than, you know, the logos they have, the cvs, the just about anything else, honestly. I mean obviously you need a culture fit and these sort of things. You need high integrity, but speed is just so critical. You need to be able to move so fast in those early days to be adaptable. And so those people that can just put things out, that's who you wanna work with. What would be the next step typically would be customer discovery. So how does he figure out, and in this case it's a little different because he's selling running shoes. It's a market, it exists. There's people buying running shoes. Again, this is more like a Zoom WebEx. Zoom understands that there's a market for video conferencing and really for them it's about proving that their 10 x better. Same thing here. People are buying running shoes, small market, but they're buying running shoes. The key goal is for Nike to prove that there's a better, so what does Field Knight do? Like the typical thing at this point is to sell to retailers, right? If you're a distributor, you go to a bunch of retailers like, Hey, you should put my shoe in in your store and you sell that way. It's not what he does. He's like, this is, we're talking in the mid sixties at this point, like over 50 years ago, and he's doing the classic do things that don't scale. And he's, you know , putting shoes like in his trunk of his car, he's running up to track meets and he's selling shoes one by one by one. And obviously it's super inefficient, but I think there's something critical here. Again, the two things that don't scale obviously, but he's going right at his ICP, right? His ideal customer profile does track and meet events . They're a runner. Where are they? They're tracking meet events, let's go directly to them . Can that scale? No, it can't. But to start off and to get a deep sense and understanding of their customer, there's probably no better way. And the other thing I'll mention about this, 'cause Phil Knight mentions it, he says he wasn't a good salesman, he really wasn't. And I think this is important, but he believed in his product so much that he was able to sell, like he'd never been able to sell before. He tried to sell other things door to door before and just failed miserably. But when it came to selling his running shoes, this point, he's selling to be clear tiger shoes, but he believed in that product, he was great at it, and it was easy and natural to him. And so I think, again, that's an important thing is like you do need to build a product. You need to get to a place where you truly believe because that's going to come out, that confidence is going to give you the credibility that you need to display for people to actually buy from you. Another thing I'll, I'll I'll mention, which is kind of related to this customer discovery phase is at one point, bill , remember there was jogging as an activity wasn't a thing in the us Bowerman goes on a trip to , uh, to attract , meet in New Zealand and discovers the concept of jogging. And he actually ends up writing a book about jogging and how this, you know, should be a big thing. And there's this idea that, that we've talked about before, which is you have to be in the market to win the market. And it sounds so simple, it's almost like stupid, not even worth saying. Think about how that really manifests itself. Again, a normal person might go to a track meet. In fact, many of these people went to New Zealand for this track meet, and none of them really took to this idea of jogging. Certainly none of them wrote a book. Bill Bowerman did. Bill Bowerman did, because he was so deep in this market that when he saw this, it resonated with him in a different way, which just goes back to it. First of all, you don't know where things are gonna lead, but what you do need to do is position yourself to see these insights. You've gotta be really deep, you've gotta be really curious and spend the time to become an expert. This is, again, you're tying all these things together. That's why a niche market is so useful because there are few experts in that market. You can be the expert in that market relatively quick, see things that other people don't see and leverage them to dominate, which is exactly what happens here because he needs money to grow this operation. He's not selling software, he is selling real shoes. He needs to buy more inventory, he needs to hire more people. All these sort of things. And the world back then was so different than than the world today. Like there's, there was no, you know, venture capital was , was just not really a thing. So it was a lot harder for him. I think it's, IM , it's part of it is just kind of interesting from historical standpoint, but I think from the perspective of, you know, trying to , trying to find product market fit, what is I think compelling is just how hard it was for him to, to raise money. So he would go to bank after bank after bank and the banks would tell him like, you're growing , you're growing too fast, right? Because for them what they wanted was more kind of profitable businesses. And because Phil Knight was kind of plowing all of his profits back into growth just to drive that growth, he really wasn't left with a lot of profits at the end of the day. So he was seen as, as this really kind of high risk endeavor. But I think the interesting thing is that just didn't stop him. Like it just didn't stop him. He didn't even change his business model in order to fit what the finance years of that time wanted. He knew that it was all about growth, and that's what he kept pressing on. And finally at some point, again, you have to be in the market. The way the market at some point, because of his relationships in Japan ends up finding this company, this trading company's called that is going to do a deal where they're gonna help him manufacture his shoes and they're also gonna finance him. And he ends up kind of locking in this financing piece, which was actually pretty aggressive. He had , he had to give him royalties and all these sort of things. Again, the details, like if you want 'em, they're in the , they're in the book Shoe Dog , they're in , uh, the acquired episode. All these things I'm using to, to build this. But the point was, it was not easy for Nike, even though, by the way, so Nike's a company that was just doubling year after year after year after year, literally just doubling, doubling, doubling, doubling. But it wasn't all that easy for them to raise money back then. It was because banks consider them too risky. I think today they might've had that same problem because people would've considered them too niche, right? Like they would've looked at, oh, the Tam is a hundred million dollars, $200 million of running shoes. Like what is this jogging thing you're talking about? It's not even real. And easily, easily, I could see VCs dismissing Phil Knight for that reason, and clearly Phil Knight would not have stopped because it was clear to him that he was driving true value. It was clear to him that his customers really wanted this product, and as long as that's working, the rest is gonna fix itself. There's one more thing on the road from zero to product market fit that I think is worth noting. Obviously, I think, I think it's become pretty common that startups are gonna need to pivot at some point. That some of the assumptions that you've made, some of the things that you're going after aren't going work out on version one and you're gonna have to kind of change pretty drastically. So it was interesting to me to see that when Phil Knight starts making his own shoes, the first shoe that he decides to make are actually soccer cleats. And the idea is, look, Adidas is dominating the soccer market. Soccer to global sports been around for a long time. So that was one of the bigger athletic shoe markets at the time, and Adidas was making soccer cleats and they were kind of crushing it. And so Phil Knight decides, okay, well maybe we can make cleats, but instead of them being for, for soccer, we could sell 'em here in America as football cleats. So he goes and he finds this manufacturer in Mexico and he makes the kind of first version of football cleats. They look pretty good, <laugh> . Like they look like they're, they look good, they seem good, they seem like they're gonna be high quality, but they're made in Mexico, which is, you know, warm weather. So he sells them here in into the US and he gets some pretty big teams like Notre Dame football team for example, to buy them, sells thousands of shoes and the cleats break <laugh> , they crack, they crack under the weather, right? It's much colder in the US and as in Mexico and they literally crack and don't work under cold weather. The interesting piece there, which like in acquired , they highlight this , which I thought was , was worth re highlighting, is 'cause at that point Phil Knight has his distribution company, he's just starting this kind of startup idea and doing his own thing with effectively Nike, his first product totally flops. It's this football cleat . Like it just totally doesn't work. It breaks, I mean, what, what , what, I don't think anything worse can happen to a athletic shoe than it breaking during the game. He could have just said, okay, you know what, this is way too hard. Let's just stick with this distribution, distribution company. He decides not to, he continues to believe and Bill Bowerman that they can produce much better shoes than what exists in the market today. And so they kind of just keep going and they try a different shoe. Now this is the point when, when we started , how do they come up with the idea? We're actually at that point now in the story, like we're in 1971, bill Bowerman sees this waffle iron situation. He uses it to change the sole of the shoe to this polyurethane material, and he sells them to the University of Oregon football team. And so they wear it on their, their new like AstroTurf field and it's a huge success. So huge publicity. Then they change the, the soul to a blue color just to make them kind of shine that much more. They take the boxes, they make them orange just to make them shine that much more. Again, these kind of small tweaks, right? You can think of those as small little tweaks and frankly they explode. Like frankly, this is like clear product, market fit almost right away. I mean 1972, first year of true like Nike doing, you know, selling Nike shoes versus the the blue ribbon, the distribution stuff they're doing earlier, first year they do $3.2 million in revenue. Hard to get a clear example of product market fit. And the reason was, and again I I mentioned this in the beginning, is because of the way that the story happened, it was really flipped. Normally again, you go idea, you go product, then you go distribution. And when you do that, it, you know, typically takes a lot longer than a few months to get to incredible, you know, $3 million in clear product market fit. They had spent from like the early 1960s till 1971. It was almost 10 years, I think it was like seven, eight years doing the distribution stuff, right? Being in the shoe market and building out effectively an incredible distribution system so that by the time that this new 10 x better shoe was born, the first Nike with the waffle iron, with the, the blue soles , the orange box and all these sort of things, it was prime for distribution. They knew exactly where to go with it. They already had the relationships, they already had the credibility, and they just took off.