Phil Knight vs. the Marlboro Man

There was no such thing as venture capital in 1965. US Bank had turned him down. First National Bank was hesitant. There wasn’t any equity. Blue Ribbon Sports was cash flow negative. Phil Knight’s fledgling shoe business was outgrowing its cash balance. His balance was zero. Still, he asked the bank for another letter of credit.

That wasn’t his only problem. Now he had competition.

Last week on Methods of Prosperity.

Phil Knight was born on February 24, 1938, in Portland, Oregon. His father is a former lawyer turned newspaper publisher. His mother is a homemaker. Phil excelled in middle-distance running in high school. He continued his passion at the University of Oregon. where he met his track coach and future business partner, Bill Bowerman.

During his time at Stanford Graduate School of Business, Phil wrote a term paper. It was on the potential of importing Japanese sports shoes. That became his business obsession. During a trip around the world, Phil secured a distribution deal. It was with Japanese shoe company, Onitsuka. He named his company Blue Ribbon Sports on the spot at that meeting. Onitsuka agreed to give him distribution rights for their Tiger running shoes.

Phil sold the first batch of Tiger shoes at track meets. He partnered with his track and field coach to grow the business. His name is Bill Bowerman. Phil’s belief in his product led to the growth of Blue Ribbon Sports. His company relied on loans to place orders, and lacked equity to cover the debt.

Phil quit his accounting job in 1969. He went all-in on Blue Ribbon Sports. That’s when a mysterious competitor threatened their contract with Onitsuka.

Part 64. Phil Knight (continued)

You can find this week’s TL;DR here.

Key Lessons:

• One supplier isn’t enough.

• Have hard conversations.

• Enemies are inevitable.

• Have accounting skills.

• Always fight back.

• Find a way to pay.

Now there’s a collectible version of this newsletter! Methods of Prosperity newsletter number 27 is available to collect as of August 29, 2024. If you’re so inclined you can permanently own it!

Phil didn’t know that a high school wrestling coach met with Onitsuka’s executives. His name was Mr. Manhasset, also known as the Marlboro man. He appeared in ads for Marlboro cigarettes. Now he claimed to be the exclusive American distributor of Tiger shoes. The Marlboro man sent notices to Blue Ribbon Sports to stop “poaching” from his business. Blue Ribbon Sports was two months old and facing legal disputes.

After all that effort. Phil did all the hard work bringing Onitsuka’s shoes to the USA. How could they cut him out? He almost gave up that summer. He went and got another day job as an accountant. As an accountant, he audited companies and learned from doing their books. Lack of equity was the leading cause of failure.

By Labor Day, Phil decided to go to Japan and settle the issue about the Marlboro man with Onitsuka. His contact, Miyazaki, no longer worked there. Miyazaki’s replacement was Mr. Morimoto. Morimoto didn’t let Phil meet with him at company headquarters. Instead, he met Phil at the hotel restaurant where he was staying in Japan. Phil studied his book, How To Do Business With the Japanese, which he brought with him.

The next morning after he arrived in Japan, Mr. Morimoto met Phil at the hotel restaurant. Phil explained the situation. He expressed his concern about the Marlboro man encroaching on his turf. Phil was under the impression that he had a deal with the previous executives whom he met last year. Mr. Miyaski sent Phil a letter. It stated that Blue Ribbon Sports had exclusive distribution in 13 western states. Why were they treating him this way? Where was their sense of honor and fairness?

Phil backed off when he noticed that Morimoto was uncomfortable. He pivoted the complaint to focus on their sales numbers. His business partner was a legendary coach. Japan knew who Bill Bowerman was. That gave Blue Ribbon Sports a degree of leverage. Morimoto sipped his tea and responded, “I’ll get back to you.” End of meeting.

The next morning Mr. Morimoto called Phil. “Mr. Onitsuka wants to see you at headquarters.”

Phil arrived at Onitsuka headquarters. The executives directed him to the conference table. He started to tell them why he was there. Before he could explain, a shift in the room’s energy interrupted him. Mr. Onitsuka entered. Onitsuka had black hair and wore an expensive Italian suit. He intimidated the other executives. He made his way around the conference table, making eye contact with everyone, one by one. He approached Phil. They bowed to each other and shook hands. Then Onitsuka took the seat at the head of the table.

Morimoto summarized the situation, giving Onitsuka the reason Phil was there. Onitsuka raised his hand to cut off Morimoto. Then he began speaking. Onitsuka had a vision. A wondrous glimpse of the future. Everyone in the world would wear athletic shoes all the time. He knew this day would come. Onitsuka looked each executive in the eye. Then he looked at Phil. He smiled. Phil smiled in return.

“You remind me of myself when I am young,” said Onitsuka. He stared at Phil. Then he turned to Morimoto. Onitsuka confirmed that Phil was to have the 13 western states. The Marlboro man could continue selling his wrestling shoes nationwide. But he would limit track shoes sales to the east coast. Mr Onitsuka would write to the Marlboro man, informing him of this decision.

Upon that decree, Onitsuka rose. Then Phil rose. Then all the executives rose. They bowed to each other. Onitsuka said, “Then it is decided. For one year. Then the subject would be revisited.” Phil agreed and was grateful. He bowed and shook Onitsuka’s hand. He gave Morimoto’s hand an extra vigorous shake. With the secretary, Phil placed a $3,500 order. He ran all the way back to his hotel, skipping and leaping like a dancer. The next day, Phil climbed Mount Fuji.

To be continued.

I like you,

– Sean Allen Fenn

Methods of Prosperity newsletter is intended to share ideas and build relationships. To become a billionaire, one must first be conditioned to think like a billionaire. To that agenda, this newsletter studies remarkable people in history who demonstrated what to do (and what not to do). Your feedback is welcome. For more information about the author, please visit seanallenfenn.com/faq.