“We were always 90 days away from going out of business.” — Phil Knight
Here is the peculiar agony of a fast-growing business with no capital: the more successful you are, the more money you need, and the harder it becomes to get it. Every pair of shoes Blue Ribbon Sports sells generates demand for more shoes. More shoes require more capital to order from Japan. The capital doesn’t exist.
By 1965, Blue Ribbon is selling shoes faster than it can source them. Demand is not the problem. The problem is money — specifically, the lack of it. Phil Knight is caught in a trap familiar to entrepreneurs everywhere: his company is growing, his customers love the product, and he is perpetually, terrifyingly broke.
Knight’s relationship with banks during the early years of Nike is a study in frustration. He approaches bankers with his books: revenues growing, customers loyal, product superior. The banks look at his balance sheet instead — minimal equity, maximum inventory — and decline.
The fundamental problem is structural. Blue Ribbon operates as a distributor. It buys shoes from Japan, pays for them in advance, holds them as inventory, and then sells them. The gap between paying for inventory and collecting revenue from sales is the cash flow gap — and every time revenue grows, that gap grows wider. Banks, trained to see inventory as risk rather than opportunity, want no part of it.
Knight would later say that the most important business lesson he learned was not about marketing or product or even management — it was about cash flow. A business can be profitable on paper and still die because it runs out of cash.
Knight eventually establishes a relationship with the Bank of California and a banker named Bob Wallace. Wallace understands retail — he sees the inventory as real assets, not just risk. He extends credit lines that allow Blue Ribbon to survive its growth spurts.
But this relationship is always fragile. The bank can call the loan at any time. And eventually, it will.
While the financial drama unfolds, the actual business is being conducted in conditions of cheerful chaos. Johnson is driving across California in a van, showing up at track meets and schools and gyms. Knight is selling in the Pacific Northwest. Both men are carrying shoes in their cars. Neither has a proper warehouse. The inventory lives in Knight’s basement, his parents’ basement, and Johnson’s apartment.
This is not glamorous. It is not what Stanford Business School taught. But it is real — intensely, viscerally real — in a way that a corporate job never is. Every sale matters. Every shipment of shoes from Japan is a small miracle of logistics and faith.
The breakthrough comes through an unexpected partner: Nissho Iwai, a major Japanese trading company, agrees to provide financing and handle the financial relationship with Onitsuka Tiger. This arrangement takes the cash flow pressure off Knight’s banking relationships — temporarily.
Nissho Iwai is also a window into the complex world of Japanese business relationships that will shape Nike’s entire early history. Knight must navigate these relationships with cultural sensitivity and patience, building trust through multiple visits to Japan and long dinners with executives who measure commitment in time, not just contracts.
Every business that grows fast runs into a version of this problem: the faster you succeed, the more capital you need. What’s your cash flow gap, and who would fund it if your bank called your loan tomorrow?