I watched the movie AIR last weekend. It is the story of Nike signing Michael Jordan and launching Air Jordan. Here is an extended summary of messages about dealmaking and entrepreneurship from the movie (Spoiler alert!).
Back in the 1980s, Nike was primarily known for its running shoes. It had only a 17 per cent share of the basketball shoe market, and the market was primarily dominated by Germany-origin Adidas and Converse. Nike was very close to shutting down its basketball shoe division due to disappointing sales. No top players would wear a pair of Nike.
As part of an annual exercise, Nike’s basketball talent scout Sonny was tasked to come up with a new spokesperson for Nike basketball shoes in the NBA draft. The team has a budget of US$250K to spend.
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While other team members suggested splitting up the budget and signing multiple second-tier players, Sonny had a contrarian view and proposed to place the entire budget on Michael Jordan. He believed so strongly that Michael Jordan would become one of the greatest players that would redefine the game for both NBA and Nike.
After multiple rounds of negotiation, Sonny managed to convince his boss, Phil Knight, Co-Founder of Nike who created the famous 10 Principles of Nike.
What Nike then did to land the deal primarily broke all the rules.
- Firstly, Sonny broke the industry norms of interacting only with the agent who represented the player and went directly to Jordan’s home to convince Jordan’s mother to take a meeting with Nike.
- Secondly, Nike made a prototype with only red and black colours which would breach the ridiculous rule the NBA imposed on shoes (that 50+ per cent of the shoe has to be white in colour) and could cost the company US$5K per game.
- Thirdly, Nike agreed to give a cut to Jordan for every pair of Air Jordan sold by Nike, which was not a standard commercial term back then.
Results? Nike went on to sell US$162 million in the first year, beating Phil Knight’s expectations by over 50x. Air Jordan has since become a legendary brand and an indispensable part of Nike. Today, combined with Jordan, Nike has effectively over 70 per cent share in the basketball shoe market.
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So what could be the takeaways for founders and VCs from the movie? I summarised three points below:
If you believe in your startup, you should have already “put all your eggs in the same basket”
This was what Nike did by allocating its entire budget to sign Jordan. In a fundraising exercise, the first reason VCs pass a deal is when they find out the founders are not already working full-time on their venture. VCs want to see founders devoting 100 per cent of their time to the venture that they will be backing and relying on to make money. Skin in the game matters.
When you are landing a BD/fundraising deal, identify the key decision-maker
If you watch the movie, you will realise an early-stage startup founder is just like Sonny (the Nike talent scout) in AIR. In Sonny’s case, Jordan’s mother was the one who would make the final call.
He, therefore, focused on influencing her by going one-to-one and leveraging other people who could possibly change her mind. For founders raising a round from VCs: Be like Sonny. Have an attack plan for persuading the partner, and make sure the rest of the deal team does not hate you.
Lead with guiding principles, not rules
When I was working in consulting, I did not appreciate the value of presenting guiding principles before outlining the rest of the deck. Thought those were complete BS. With more work experience, I now see the value (or at least the intention) to talk through that slide.
You have to start with the ground assumption that people/your team are good at exploiting rules and overcoming constraints. If you lead by telling people the “Don’ts”, you will likely get a team who will only do work that they think will please you instead of actual outputs.
Instead, if a set of guiding principles is in place with a proper reward system that aligns interests as much as possible, you have removed blockers for your team and built a virtuous circle where team members act according to the best interest of the company.
Of course, building such a work culture is easier said than done, but this is easy to spot for VCs in a pitch meeting with other working-level members in the same room. Founders, it might not be a bad idea for you to sit down and actually write up your own set of guiding principles about how to operate your startup.
Keen to know your thoughts about the movie/points above.
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