PALO ALTO -- Nike co-founder and board chairman Phil Knight on Saturday delivered the Address to the Graduating Class at the Diploma Award Ceremony for the Stanford Graduate School of Business in the Frost Amphitheater.
Knight, who graduated from the University of Oregon in 1959, earned his Stanford MBA in 1962. The graduate school has a tradition of inviting an alum to return to deliver the graduating class address. The Knight Management Center, where the graduate school is housed, is named for Knight who, along with wife Penny Knight, donated $105 million toward its construction. The campus also has another building named for Knight.
Here is the speech, in its entirety:
Phil Knight
I'm sorry (former Stanford Graduate School of Business Dean) Arjay Miller could not be here today. He would be the one person in this gathering who would refer to me as "that young man."
I graduated from this school in 1962, more than a half a century ago. It was a time when jet travel was just beginning, with the introduction of the Boeing 707. There was no Silicon Valley per se. There were no fax machines. There was no Internet. There were no cell phones, no iPads. The latest technological development was the color TV. There was no such thing as venture capital. The number one company in the world was General Motors. The biggest firm on Wall Street was Merrill Lynch, Pierce, Fenner and Smith. Commercial banks were not allowed to engage in investment banking activities. And there was no birth control pill.
There is absolutely nothing in my journey that has any specific application for what awaits you. In so many ways, today's talk could be called, "Return of the Dinosaur."
Why, therefore -- why, before this, the greatest class to ever graduate from the best business school on the planet, why did the Dean ask me to be here? And my answer is, "I don't really know." But I suppose there might be some hope that parts of my journey might be relevant in attitude and philosophy. I hope so.
But why I – a person who intensely dislikes public speaking – chose to accept? It's perfectly clear to me. The answer is: It is personal. For me, it is a rounding of the circle. There is part of me who was born here.
I had come here, at age 22, a bit lost. For me, an extrovert was a person who stared at other people's shoes. Shy, insecure, unsure of what I wanted to do with my life. Two years later I left, much better educated. I was still shy and insecure but I knew what I wanted to do, if only I could pull it off. And that was to bring to life the business plan I had written in Frank Shallenberger's entrepreneurship class.
So I returned just a few years after my own graduation to this place, this magical place that is an extended part of me. I returned to say thank you, here, where all the aspiration began.
The summer between my first and second year, I had a long, existential debate with myself, finally concluding that I would, before going to the work for 40 years, take one year to go around the world – looking for education, for enlightenment, looking for myself.
And then in the winter term of my second year, I took that entrepreneurship class, whose road led to Japan.
So after putting in my required two weeks in the U.S. Army summer training camp at Fort Ord, selling my car, and saying bon voyage to parents and my sisters, I set out with Gary Carter when we were both living in Crothers Hall.
In September we were ready to go. We drove down El Camino to a liquor store which was the ticketing agent for Standard Airways, a discount charter airline. For $80 we got on a Convair -- a prop, of course. Eight hours to Hawaii. We would surf in the mornings and sell encyclopedias door to door in the early evening. I am sure I am the only graduate in the history of this school whose first job, after graduation, was selling encyclopedias.
After months of this I was ready to go on but Gary had met a girl he liked a little too much to leave. So now I'm stuck with a decision. Go home or not go at all.
I loved Japan instantly. The people were friendly and many parts of the countryside scenic. And the yen was 360 to the dollar. So, so many things were affordable. Hotel rooms, meals, and athletic shoes. After a week I had wound my way to Kobe, which is the headquarters of Onitsuka Co. Ltd., manufacturer of Tiger athletic shoes, which I had identified as the best quality, the ones with the best chance of getting a piece of the U.S. market.
I called on the telephone and explained I was a U.S. businessman in town and I had an interest in distributing their shoes in the United States. I got an appointment. I donned my one business suit -- Brooks Brothers -- a blue oxford shirt, black necktie (and) slipped on my black loafers, (then) took a taxi – to the wrong location. I couldn't read the signs. I had gone to the showroom. They wanted me at the manufacturing facility, completely on the other side of town. So I show up a half hour late. I am already nervous. And even though it was a cool day, I was sweating heavily.
I was met at the door by a 30ish man, Ken Miyazaki. He greets me warmly and ushers me through to a conference room at the back of the building. On the way to the room we pass through the accounting department, which has about 20 employees. They all stand up and bow. The big businessman from the U.S., dontja know.
My entire assets are on my body -- that business suit and my around-the-world airline ticket. It occurred to me that I might not get out of there alive. There are half a dozen Japanese businessmen waiting in the conference room.
How does a shy and insecure person make a sales presentation to sell as if your life depended on it, which it sort of did? But I must confess that when I said I sold encyclopedias door-to-door in Honolulu, that was a little imprecise. I tried to sell encyclopedias. I never actually closed a sale.
After a very awkward beginning, we get into specifics about what is needed for the U.S. market. The talks warm up and eventually become enthusiastic. They had been thinking about getting into the U.S. market and had several track and field sample models built on patterns of the U.S. foot. They have an all-purpose model they call a "Limber Up," there was a high jump model they called a "Spring Up," and a shot / discus shoe they called the "Throw Up." I might be able to help them.
Starting a business
So we end with me placing an order of 15 pair of samples. And after I leave, I sit alone on a chair in the chaotic Osaka Airport and ask myself again, "Where am I going?"
I'm very excited about the meeting with Onitsuka. A voice says, "This is exactly what I want." I should race home and get this business going. The other said, "If you don't go around the world now, you'll not go for four or five decades." I flew to Hong Kong. Which is a good thing. The samples didn't arrive for 14 months.
When the samples finally came in I showed them to my old coach, Bill Bowerman, who was so impressed he asked me to let him in on the deal. We shook hands on a 50-50 partnership and each of us put up $500. We bought 300 pair of shoes. First year sales were $8,000. We made a $250 profit.
In 1964, my life got busy. By day I was a CPA for Price Waterhouse. My Army Reserve requirement takes up two Tuesdays a month and one all day Sunday, plus two weeks in the summer. Dating was a mixed success. And all along my real love was that little company that Bowerman and I had started. We get to $100,000 in sales. We get to $500,000, then a million. I multitask. I can drive a car, eat a McDonald's filet o' fish sticks and read a newspaper, all at the same time. I was pretty efficient for a couple of years until I rear-ended the car in front of me. Took a lot of time to get insurance companies lined up and my own car repaired and the cuts to my forehead fixed, so I don't do that anymore.
By 1972 we got to $2 million in sales with a 3 percent net profit. But it hadn't been easy. After all, $500 apiece doesn't provide much equity, even for $2 million. I tossed in most of my Price Waterhouse checks for four years, but I was spending four days a week at the bank trying to convince them to give us a little more credit. By now I've quit Price Waterhouse and I'm going fulltime.
Somewhere in this process, my search for credit put me in touch with Nissho Iwai, the sixth largest Japanese trading company with annual sales of $100 billion. We began developing a positive relationship. Meanwhile, Onitsuka had brought 30-year-old hotshot Shoji Kitami in with the charge to expand export sales. Export sales were primarily us. So young Mr. Kitami brings me the following offer: sell us 51 percent of your company at book value or we'll set up other distributors, regardless of what that piece of paper that we signed says. With Kitami's ultimatum I did an instant cost-benefit analysis, which led me to this dilemma: How do you say 'go to hell' in Japanese?
So there I am, 34 years old, married, a 3-year-old son, 80 percent mortgage on my house, 45 employees, a personal guarantee of a $750,000 company loan, inventory growing more obsolete by the day, and no new product to sell. We had a team that had been nothing eight years before and had built it up to be recognized in the sporting goods world. And that team had designed the three top-selling Tiger running shoes. We had a large pot of coffee and the support of the sixth largest Japanese trading company. And that trading company could and did introduce us to every training shoe company in Japan and provided the financing to import those products.
But then there was the little matter of the lawsuits. Plural. One in the U.S., one in Japan. I get my cousin, Doug Houser, Stanford Law, 1960, to take our case on a contingent fee. It took three years. We won both suits. Meanwhile, we paid $35 to a Portland State college student to create a rendition of the side logo on the shoe, the logo now called the swoosh. Years later she was interviewed by the Portland Oregonian and they asked her what her second biggest project was and she answered, "Wallpaper for a Walla Walla motel."
We asked each of the 45 employees to submit a suggestion for a brand name. Jeff Johnson, 1963 Stanford graduate, who I'd met on a workout at Angell Field, and who was our first employee, submitted the name, Nike.
"Well," I said, "I don't really like it that much, but it's better than any of the other 44. Hopefully, it will grow on us."
We were no longer limited to track and field shoes. So we brought in wrestling shoes, tennis shoes, basketball shoes as well. Sales grew to $3.2 million, but we had our first-ever loss, plus one other little problem. We got kicked out of our bank. Too much leverage, not enough cash. The state of Oregon only had two big banks and we'd been thrown out of the other one just two years before. Nissho Iwai stood in for the bank until we found one: The First State Bank of Milwaukie, Oregon. It was a small bank, but we made it work.
So there I was, sitting at my desk, more relaxed than at any other time in a decade. In the period of time of getting cut off by Tiger and establishing a relationship with the First State Bank of Milwaukie, Oregon, sales – thanks to the introduction of a running shoe with a waffle sole – had risen to $25 million with solid profitability. Oh yes.
But I found in the morning mail a letterhead that says, "United States Customs." The announcement that this is an important letter. It turned out to be so. Attached was an invoice for past due customs duties of $25 million – the exact same number as our total sales for the year. I had no idea what they were talking about.
So what we find out is that there is a little-used part of the customs code, dated back to the 1930s. Duty in three categories: benzedine chemicals, cherry stone clams, and athletic footwear with synthetic uppers could be assessed not the factory cost of the goods but the American wholesale selling price of those goods. "Goods that were like or similar," if you like that language, "to American manufactured goods."
So here comes this invoice. And despite the fact we'd been charged and paid the amount at invoice that had been enforced previously, our prices based on that had long ago been sold. The $25 million was on top of that.
While things were fuzzy and unclear one thing was absolutely certain: No way were we going to be able to pay that amount of money.
So we go to Washington, D.C., reaching as high up in the political ladder as I can. When first contemplating nylon upper running shoes, we had asked customs for a ruling on what the duty would be. We showed the letter that had been signed by the assistant director of customs saying our duty would be 20 percent of factory costs, now to double that, the response of John B. Simpson, deputy secretary of the Treasury was, "Well, that letter is not binding on U.S. Customs."
In other words, we lied to you. You screwed up. You trusted us.
Gradually, we began to figure it out. This obscure rule had been on the books for nearly half a century, and now U.S. shoe manufacturers – Converse and others – banded together to lobby the government and apply the additional duty on exports in general and us in particular.
They had to make something that met the test of a customs officer who'd never worked in a shoe factory, like or similar, and they then had to sell only a few of those shoes to hugely increase the cost of our shoes going forward if, in fact, the retroactive part didn't put us out of business, which it nearly did.
Thus began the great ASP (American Selling Price) fight. The fight for our very lives. It lasted three years. This is the sneaker business and I've got to have a Washington, D.C., lobbyist. Most lobbying firms on K Street were more than willing to take our case – for a fee of $1,000 an hour. We hired Jay Edwards, Stanford '68. He had just opened an office representing Portland General Electric, the Oregon public utility, the Nez Perce Indians, and now, for a retainer of $300 a month, us.
Any over, around and through, we fought like bastards.
Our cause was just, the government was aligned with the forces of evil and if we lost we were kaput.
But I believe that fight made a huge imprint on our culture that lasts to this day.
We joined the American Footwear Manufacturers and we sued them.
We made an inflammatory TV commercial which ended with the tagline, "If this little shoe company goes out of business, a little bit of Yankee freedom dies with us."
No reputable TV channel or network would show it.
We got on the air on a New England religious channel between 12 and 1 in the morning.
It rated three letters, all of them positive.
That having failed, we took a portable TV set showing the ad during the presidential campaign of 1976 and showed it in cafeterias and diners and pizza parlors all over New Hampshire. And that managed to get the attention of the political establishment, at least a little bit.
There was lots of shoe leather in D.C. including plenty of my own. We had support from the Oregon delegation plus Al Gore and Jim Sasser of Tennessee, where we had our central warehouse.
At one of our meetings at Treasury, the official said, "You can tell your Senator Hatfield to quit calling us. It's not doing you any good."
I left his office and called Mark Hatfield's office and said, "Keep up the good work."
Our one in-house lawyer, Rich Werschkul, Stanford '68, lived for two years in Washington, D.C. He and Jay Edwards simply out-worked, out-thought, out-emotioned the opposition and did a better job in this case than any of those K Street lawyers could've.
And in perhaps our best maneuver we came up with this one.
We had a factory in Exeter, NH, making 15,000 pair a month. What if we created a second line? Knocked off ourselves, selling to discount retailers at a very low but marginally profitable price. No one could copy us closer than we could copy ourselves. When this first came up in a brainstorming session, everybody laughed at its absurdity. Then we looked at each other. The whole law was absurd. And it evolved into, eventually, "Let's try it."
Thus was born the One Line, which for a couple years sold a couple thousand pairs and reduced the increase in our duties by two-thirds.
And after three years of fighting, we settled the great ASP customs battle for $9 million or approximately one-third of the former demand. In those three years our sales had grown to $440 million and we could actually pay the bill.
One year after the settlement, we got ASP eliminated from the entire U.S. Customs coding for benzedene chemicals, cherrystone clams as well as athletic footwear with synthetic uppers.
When we'd reached the critical mass to go public, throughout the ASP years we could not go public because we could not report earnings -- which were very materially affected by the ultimate ASP resolution. With the resolution of ASP, a public offering was opened to us.
And in December 1980, we did just that. From that point, the only thing standing in the way of real success, with having our dreams come true, was ourselves.
Words of advice
I don't really like "lessons-learned" type lectures. But there have been a few along the way. And on this special occasion, I can't help myself. Indulge me. I'll not be doing this again.
Now that you have graduated, the goal should not be to seek a job or even a career, but to seek a calling. That search has just begun.
In your time here, you've probably gone through 50 or 100 case studies. And in the years ahead you'll probably go through thousands more. Most case studies are not about decision-making, not even about judgment. They are about a search, for wisdom.
I have in my travels occasionally met promising young people who insist they are not going to ask for help along the way. They want to figure it out themselves. Mine was the opposite approach. It is hard enough out there. Get all the help you can. Getting help really is just a part of that lifelong search for wisdom.
Here are just a few of the people who stooped to help us along the way. And all but one of the following began their help before we were a public company: Chuck Robinson, Deputy Secretary of State to Henry Kissinger; Jill Conway, president of Smith College; Dick Donahue, at 28 years old a Congressional liaison for John Kennedy; Ralph DeNunzio, president of the New York Stock Exchange; Tom Paine, the executive director of NASA; Masaru Hayami, the president of Nissho Iwai.
As we increased our volume, we became Nissho's most profitable customer in the world, which got me into meetings with their CEO. We developed a friendship and for five years in a row we spent a weekend with him (Hayami) and his wife at their beach cabin near Atami, which wasn't just a pleasant weekend. It was also a tutorial on business and leadership.
Two years after he stepped down from leadership of Nissho, he was named Governor of the Bank of Japan, which is the federal reserve of Japan. He was their Ben Bernanke.
When he passed away, at the memorial service in Tokyo, per his instructions, draped over his coffin was a Nike banner.
And don't be afraid to come back to the school that spawned ya. Frank Shallenberger always raised my spirits when I was feeling low and when I'd get ahold of him. Bob David and Mike Spence each spent 10 years on the Nike board of directors.
And there are a couple of other lessons.
Two "nines" working together will beat two "tens" working for their own careers, every time. Ability and desire almost always trump money and power.
If you can't get financing, don't be afraid to go 7,000 miles from home.
Government is part of business, any business.
There is such a thing as managing creativity.
And dare to take chances, lest you leave your talent buried in the ground.
And where there is no struggle, there can be no art.
And finally, there is this thought.
Ten years from now, the first of you will be asked to give the commencement speech to what will then be the finest class in the school's history.
You'll be a bit torn. You will multi-task to the max. Two kids. One has an ear infection and needs to get to the doctor right away. Your husband is more needy than usual. And he has a flight in the morning to Europe for 10 days. Your company is at a critical point in its strategic planning and everybody looks to you for what the answers will be. Plus, the company has a PR crisis. And you have TV appearances scheduled for five days straight. And that golden lab that you've had for all of two years has all of a sudden decided he's not housebroken.
There is no time.
There is ... no ... time.
And then you'll accept -- because of the honor, because it's a chance to have some influence on the most-able, best-prepared young people on the planet. And you'll accept, though it's hard to see now, because there is a part of you that longs to go back to a place and a time and a self, forever gone. And in looking for things to say, include in your consideration moments from the school's history. You might even look back to that time in the deep past, that moment over six decades before, when Frank Shallenberger, the professor of entrepreneurship, said the words that meant so much to me, the words that became the mantra for his class, the words that said, "The only time you must not fail, is the last time you try."