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A Bold Notion
Picture this, it’s 1962, and a recent Stanford Business School graduate can’t shake an unconventional idea. He dreams of importing top-notch running shoes from a Japanese company, Onitsuka Tiger, into the United States. This novel concept raised eyebrows, drawing skepticism from everyone around him, including professors, colleagues, and even his father. Regardless, he charges forward, propelled by an unshakeable conviction, and makes his way to Japan to present this daring proposition to a room full of experienced Japanese businessmen.
Shockingly, to both him and his doubters, it’s a hit. Onitsuka agrees to ship him an initial batch of 300 pairs of shoes to kickstart his venture.
Thus, the inaugural chapter of this determined entrepreneur’s journey unfolds, leading to the selling of Japanese shoes straight from the boot of his car. This is the saga of Phil Knight, the beginning of what would eventually be one of the world’s most prominent brands, Nike.
Nike is a remarkable brand with an equally fascinating backstory, but the focus here is not the origin tale. In this Summary, we’re zeroing in on the pivotal moment Nike transitioned into a publicly-owned entity.
We’ll shine a light on the risks, the rewards, and the distinctive strategy Phil Knight utilized to conquer his fear of relinquishing control over his company. If you’ve ever grappled with the idea of going public via an IPO, pondered its impact on your core business values, or simply sought to understand what an IPO entails, keep reading.
Stepping Into the Public Sphere
Before we dive deeper into IPOs, let’s first examine what precipitated Nike’s decision to go public.
Like every triumphant entrepreneurial voyage, this one was no stranger to obstacles.
Throughout its growth trajectory, Nike confronted severe lawsuits that posed existential threats. The first was a 1973 case from Onitsuka, the very Japanese running shoe company that sparked Nike’s genesis, alleging a contract breach. However, Nike didn’t back down and ultimately triumphed in court. The second significant legal hurdle surfaced in 1997 from the American government, invoking a somewhat forgotten customs law, the American Selling Price Law. Nike’s rivals had sicced the US government on them, accusing them of customs violations worth $25 million.
In the end, Nike agreed to a $9 million settlement, concluding that battling the government was not in its best interests. At least this path ensured the preservation of some goodwill.
Confronted with a governmental lawsuit and Phil Knight’s inability to secure more bank loans, the only route to survival was taking Nike public via an initial public offering.
Unpacking the IPO
IPO, or Initial Public Offering, refers to the process by which a private company offers its shares to the public for the first time through a new stock issuance. This move enables the company to gather equity capital from public investors, marking its transition from a private to a public entity.
Pre-IPO, a company is usually classified as private, with a small group of shareholders that might include early investors such as founders, family, and friends, as well as professional investors like venture capitalists or angel investors. While this can generate sufficient capital, the funds remain relatively limited. An IPO, on the other hand, opens the door to a significant influx of capital, paving the way for growth and expansion. It also enhances transparency and listing credibility, potentially securing better terms for borrowed funds.
Post-IPO, the company’s shares are freely traded on the open market, and the private share ownership transforms into public ownership. This change enables millions of public investors to buy shares and contribute to the company’s equity. The capital raised from the IPO directly benefits the company, and any early private investors who choose to sell their shares.
However, going public also comes with substantial costs and responsibilities. Public companies are obliged to disclose crucial, and at times sensitive, information. There are also ongoing expenses associated with legal and banking services. Additionally, the company becomes accountable to a larger group of public shareholders.
In essence, an IPO is a double-edged sword. It can provide a company with capital for future growth and an opportunity for early investors to cash out, but they can also be risky endeavors.
The Genius Strategy
Let’s revisit the Nike story for a moment. Back in the day, Nike was a closely held company with limited ownership. Precisely, two main owners.
Enter Phil Knight and Bill Bowerman. Bowerman, a household name in the American track coaching arena, joined hands with Nike in its nascent days when Knight was still marketing shoes from his car’s trunk. Bowerman, however, wanted Knight to retain the company’s reins, leading to a 51% to 49% split in Knight and Bowerman’s favor, respectively.
Phil Knight held a deep-seated concern regarding their imminent initial public offering (IPO). His worry? Losing grip on the company’s soul. Nike wasn’t just a business to him.
He feared it morphing into another profit-chasing, faceless entity ruled by a board of directors with a short-term vision. Thus, they conceived a unique share structure. Two share classes were created: Class A and Class B. Class A shareholders would elect 9 out of 12 board members, and Class B shareholders would choose the remaining 3.
Per Investopedia, the Knight family commands a whopping 97% of Class A shares, ensuring the family retains effective control despite Nike becoming a publicly traded company.
It’s crucial to remember that Nike was grappling with a $25 million government lawsuit when it decided to go public. The IPO, with an initial trading range of $18-22, brought in millions, undoubtedly playing a key role in the company’s survival.
Holding onto the Roots while Soaring High
Nike’s journey was marked by challenges but anchored in a steadfast commitment to its founding ethos. They championed the idea that work should be both fun and purposeful, that a complacent, fleeting life was to be avoided at all costs. Their business strategy was fired by the mantra “Grow or Die”, and profits were cycled back into the business to propel its expansion.
Even post-IPO, Nike clung on to its distinct ethos and ethics, through inventive strategies and an unshakeable dedication to its integrity. Today, the brand attributes its global stature to its unwavering adherence to these principles. Its journey elucidates that a brand’s might lies in remaining authentic, staying loyal to its ideals, and persistently striving to fulfill its commitments.
Preserving a company’s essence and culture while rapidly growing is a formidable task. Early awareness of growth and shared ownership risks enabled the nascent Nike team to divide the shares while maintaining a strong influence on the company’s culture – its lifeblood.
However, Nike isn’t unique in facing this challenge. In the summary Masters of Scale, author Reid Hoffman portrays a similar challenge faced by another global juggernaut, Netflix, and its successful navigation.
Let’s dive into an excerpt:
“Harnessed the capital, ready to scale up? Hold on.
First, make the most of the initial phase where you have a small, devoted, perhaps even fanatical user base. Engage with your early superfans and most vocal critics. Learn from their fervent feedback. Determine your limits, identify what you can tolerate, and who you need to charm – including industry heavyweights and regulatory bodies. Once you scale, deep digging or course correction gets tough.
Candid, granular feedback can lead you to your business’s true essence. Being in touch with that core will equip you for the next task: building your company culture.
The key takeaway? Cultivating the right company culture is a critical stepping stone to scaling your startup.
Netflix employees enjoy an enviable job. No fixed work hours or vacation policy; Netflix trusts that its workforce doesn’t need a 9-to-5 leash. Holidays are promoted with the belief that creative minds return even more invigorated. Netflix emphasizes that they’re a team – a fiercely competitive and driven one at that.
Netflix’s thriving culture isn’t accidental. It’s the product of a conscious, meticulous process – documented over 100 slides. Netflix’s Culture Deck is public, do give it a look!
It’s vital to clarify your culture from the get-go. Once a culture takes root, it’s hard to undo or change. Identify your core values, how you’ll treat your employees and customers. Even pen a manifesto if you need to. Hire people who resonate with your envisioned culture. Remember, hiring one person is akin to acquiring their network too.
That said, resist the temptation to hire a homogenous group. Commit to meaningful diversity. Just as a diverse group can appreciate a shared set of core values, so can your early investors. Pick investors like you would cofounders. They’ll have a similar impact.
Done right, culture can energize a growing startup’s atmosphere. It can boost morale and feed into a loop where employees work even harder, leading to business success and attracting more customers.”
Netflix’s unconventional approach to culture formation – nurturing creativity and innovation without enforcing strict rules – is another testament to the fact that scaling a company while preserving its core values is indeed achievable, provided you master the necessary skills.
We’ve journeyed together through Nike’s tale of triumph, demonstrating that it was more than just a narrative, but an instructive parable.
Leadership, in any venture, is an expedition filled with obstacles demanding external assistance. A discerning leader, however, remains unswerving in vision while harnessing external inputs effectively.
It all hinges on a leader’s deep understanding of their core values and the capacity to breathe life into these values within the organization’s culture.
If you’re navigating such a journey or merely gearing up for it, the AstraEd library has some insightful resources lined up for you.
My first recommendation is a guide titled “Discover Your Core Values”. Robert Glazer, an acclaimed CEO and author with a plethora of industry and culture awards to his name, crafted this guide. He invites you on a reflective journey to discern your genuine values and understand their significance.
Next up, we have a Summary of “Culture Code” by Daniel Coyle, a fan-favorite book on nurturing a prosperous culture. Daniel unravels how successful work cultures are built on the pillars of vulnerability, belongingness, and purpose in this Summary.