How a Strategy Change Led to Nike’s Formation

Nike, the world’s most famous athletic company, didn’t start out by making Air Jordans. In fact, it didn’t make shoes at all. It distributed them.

Nike actually began as company called Blue Ribbon. It was founded in 1964 by Phil Knight, a runner from Oregon, along with his former college track coach, Bill Bowerman. At the time, the running shoe market was dominated by the German firms Adidas and Puma. However, Knight and Bowerman had become intrigued by new lighter, lower-cost running shoes made in Japan. Bowerman had always tinkered with shoe designs to try to make his runners faster. Meanwhile, Knight had just earned an MBA from Stanford University and was looking for a way to combine what he loved—sports—with work. So, the two men each chipped in $500, and began importing and selling Tiger-brand shoes (now Asics) made by the Japanese company Onitsuka.

Blue Ribbon’s start wasn’t glamorous. Bowerman and Knight began by selling the shoes out of their cars at local track meets. But runners liked the new lighter shoes, and the company started earning a profit. Eventually the business did well enough it was able to hire some employees, most of whom were passionate runners like the owners.

For about a decade Blue Ribbon’s strategy worked well. Business grew, and the company even opened its own store in Santa Monica, California. But by 1971, the firm was facing a crisis. Bowerman wanted Onitsuka to make a lighter shoe he had designed. Onitsuka wasn’t interested. Moreover, Knight believed Onitsuka was looking for other distributors to cut Blue Ribbon out of the business.

What did Knight and Bowerman do? They designed their own shoe called “the Nike” and began selling it. Executives at Onitsuka were enraged by the move. They immediately stopped selling shoes to Blue Robbin and sued it to boot.

At that point, it looked like it might be the end of the road for Blue Ribbon. There wasn’t much of a market for the Nike shoes yet. The company was still young and in debt, and a lawsuit would be expensive to fight.

Knight gave Blue Ribbon’s employees the bad news. But instead of throwing in the towel, he laid out a new vision and mission for the firm: “This is the moment we’ve been waiting for,” Knight recounts telling them in his bestselling book, Shoe Dog. “No more selling someone else’s brand. No more working for someone else. Onitsuka has been holding us down for years. Their late deliveries, their mixed-up orders, their refusal to hear and implement our design ideas—who among us isn’t sick of dealing with all that? . . . If we’re going to succeed, or fail, we should do so on our own terms, with our own ideas—our own brand.”

After the initial shock wore off, relief swept across Blue Ribbon’s employees. Not only were they undaunted by the new mission, they were energized and excited about it. Their future lay in their own hands, and they would find a way to achieve it. Immediately they began formulating new strategies and plans.

Knight thinks the culture and agility of the company were major reasons why Nike became the success it is today. Most, if not all, of its employees were scrappy competitive types. “Each of us was willing to do whatever was necessary to win,” he says. “And if ‘whatever was necessary’ fell outside our area of expertise, no problem. Not that any of us thought we wouldn’t fail. In fact we had every expectation that we would. But when we did fail, we had faith we’d do it fast, learn from it, and be better for it . . . Taking a chance on people—you could argue that’s what it’s all been about.”

1. Who is ultimately responsible for formulating a firm’s strategy—its managers, employees, or both?
2. What strategy execution problems do you think Knight and Bowerman might have faced in their effort to make Nike successful?