Nike (Blue Ribbons) looked on its way up. The shoe manufacturing was going smoothly, they won 400,000$ from Onitsuka Tiger which gave them more cash flow. However, as we will cover in this post, there were problems on the horizon that Phil Knight (Buck) had to navigate.

The Price Of The Yen

The price of the Japanese yen was going up in comparison to the U.S. dollar which meant a higher cost of production for Nike.

This prompted Buck to search for a new factory outside of Japan to manufacture his shoes. He quickly found one in New England in the United States. Also, he found two in Puerto Rico and Taiwan. Still, he manufactures some in Japan.

Blue Ribbons was expanding, however, the inflation of its inventory and size affected negatively Buck's everlasting problem, cash flow.

Payment Time

Blue Ribbons owed Nissho Iwai a million dollars per their deal, and it was time to collect a payment worth 75,000$. They also owed the bank money, but Nissho had priority, so Nissho was paid first. Buck was able to pay back Nissho but not the bank. The bank terminated the contract and informed the F.B.I.

Buck was about to go to prison before he was bailed out by Nissho after he showed them the projected cash flow and profits ahead as Nike was taking off as a brand.

Here we take a detour into how successful Nike was.

Commercial Success

Nike was in contract with a lot of athletes which meant more exposure for their brand. They had quite a great marketing plan. For example, in the 1976 summer Olympics in Montreal, Nike was the sponsor of most top athletes, including three gold medal winners. That is why their sales doubled again, making their sales go up to 14,000,000$

Problems Remained

This series might as well be labeled cash flow as that is the most consistent theme throughout. Nike was suggested to enter the stock market many times, but Buck always rejected the notion. However, the situation was getting clinical.

Air Bags

In 1977, Buck met an aeronautical engineer by the name of M. Frank Rudy. Rudy suggested to Buck that the bottom of the shoes should consist of pressurized air. Buck didn't like the idea at first. At this point, Buck's not liking the idea seems to mean guaranteed success.

The reason Buck decided to go with the idea was that Rudy had previously suggested it to Adidas.

Buck sent Rudy and his partner to the factory where they'd work further on the idea.

I don't think we need to even go through history to realize how successful that idea was and what it did for Nike. It was a true jump ahead when it comes to footwear.

However, before Nike or Blue Ribbons could go anywhere, they received a letter from the U.S. Customs demanding he pays what he owes them considering that he has been importing his footwear from outside the country.

Buck owed the U.S. Custom a staggering total of 25 million dollars in total. That put a complete hold on Nike's operation, something I will cover in the upcoming part: Nike Vs The U.S. Government.