When you think of Converse Chuck Taylors – you think about the classic shoe. Classy, cool and comfortable. Worn for taste rather than as a fashion statement. But, there used to be a time where owning a pair of Converse was like owning an iPhone. You had to have it. Period. It was a brand that had all the ingredients to be big, but it never became that. This is the story of how Converse could have been the greatest shoe of all time and blew it with one mistake in communication.
Until the mid 1980s Converse had it all. It was the official shoe for the National Basketball Association (NBA), it had all the top basketball players signed up under the brand, and had the best paid professionals in the industry to manage the business. A pair of Converse permeated athletic prestige.
During this time, a young rookie named Michael Jordan joined the Chicago Bulls. Although he was the 3rd overall draft pick for the team, he showcased exceptional character on the court. He was going to be big and everyone, including Converse, knew it.
Like most rookies, Jordan and his agent decided to sign a deal with a shoe brand. His college coach was already paid by Converse to assist the sales and promotion to his students, so Jordan was naturally persuaded by him to consider Converse first.
At the negotiation table Converse executives showcased their superiority. “We are basketball” they said. “ We have Magic Johnson, Larry Bird and all the big players in basketball signed with us, what more could one ask for?”. To imply that “Jordan, if you sign with us you’ll be at the same league as them”.
But this athlete was young, beaming with new ideas. So, Jordan retorts “Do you guys have anything innovative to offer me?”. Rather than a jump to answer, this question was met with silence. To the Converse executives, Jordan was just another great athlete, and great athletes were plenty for them. So, to maintain parity, they made sure all the athletes they signed in Basketball got uniform treatment. The same contract, the same amount of branding, the same type of shoes. How could they offer anything new just for Michael?
On the table was a contract offering $ 100,000 per year, renewed yearly. This was a deal identical to the ones they signed with all top athletes including Magic Johnson and Larry Bird. A lot of money for a rookie.
What should he do?
Jordan’s father was convinced. He wanted to sign immediately. But, before pen met paper – Jordan wanted to think about it. His heart was not with a shoe that was common to the others. Jordan’s favourite brand, in fact, was Adidas. A lower cut, slick and unique European design. Those shoes stood out in look, feel and performance.
“Call Adidas” Jordan requested his agent immediately after the Converse meeting. It was worth a try. The Agent did as he was told, only to find that Adidas was not interested in an American athlete. “Our market is Europe” they said, confirming that budgets will not be allocated to sponsor anything in the US. No offers from his favourite brand.
In the meantime – the agent kept receiving multiple calls from other brands wanting to sign Michael. The offers weren’t tempting the player, because he badly wanted Adidas – the shoe he used for ages. It was not just the money he wanted, he wanted what the brand represented; Quality, Innovation, and Style. These were traits that he himself embodied. Adidas had it all. But they weren’t making a deal.
In the meantime, Jordan’s agent received another call. “We would like to discuss a deal with Michael Jordan and Nike. We will fly Jordan and his Parents to our head-office to discuss this” says the exec at the other end.
This was unprecedented. Nike was not a basketball shoe. Worse – Jordan had never worn a Nike in his life. But the Nike executives were willing to fly in the entire family – like royalty. So, more than Michael Jordan it was his parents who were interested. The cajoling worked.
In a few days the Jordans were headed to the Nike headquarters.
Compared to how it was with Converse, at Nike things were much different.
Nike’s communication mastery
Rather than telling the athlete “Here’s what we will offer you”, the Nike executives made Jordan feel like they needed him. It was purposeful. Every innovative idea they produced complied with Jordan’s needs. It was as if they had figured out everything that could attract a great player for their brand. The preparation showed that this was not just another deal for them. This was a make or break for their business goals.
After listening to the multiple meticulously prepared presentations, Jordan finally spoke “See, I like Adidas more because they have a different cut on their sole”. A cut that was unusual for Nike unlike their current designs. Had it been another manufacturer, that could have been the end of the presentations. Athletes play the game – they don’t assist in design. But rather than taking a defensive stance, the Nike team asked more questions. They gave the opportunity for him to ideate with the designers to customise a shoe to his liking. Jordan was Impressed.
By the end of a full morning of presentations, the terms were laid on the table. Nike offered $ 2.5 million to sign Jordan for the next 5 years including other perks. Money no one had ever heard of in Basketball at the time.
But it was not simply the money that was important for Jordan. While the Jordans walked off with the contract draft, no signatures were placed. It was not an easy decision. Jordan’s heart was still with Adidas and it was worth one more try.
So, as soon as they got back Jordan himself called Adidas “I’ve got this offer from Nike for $500, 000 per year for the next 5 years. If you guys just come close to this with your offer and I will throw the Nike contract in the trash”.
The final decision
As fate would have it Adidas could not make an offer. They too were going through a management struggle that prevented them from being agile in any form. Budgets weren’t available for a US athlete.
That pivoted the decision. Jordan signed with Nike in 1984 and the Air Jordans were born.
The season that followed, Jordan scored an average of 28.2 points a game, became rookie of the year and was drafted to the all star game. The player blew the roof off. No one had ever seen such a spectacular performance from a rookie player. No one imagined that a dunk could have so much finesse. And whenever Jordan jumped for a dunk – as he was flying in the air – what did they notice? The Air Jordans he was wearing.
Air Jordans revolutionised the Basketball sneaker market and Nike made 70 Million USD worth of sales in the first year itself. In 1986 Nike’s revenue surpassed 1 billion for the first time, due to the excessive publicity brought by Jordan and the sneakers – AirJordans bringing almost 10% of its total revenue.
Year on year Nike grew. Jordan was the poster boy for the brand. Infact Jordan famously said “If there was a human Nike swoosh, it would be me”.
Converse, on the other hand, had bad year after bad year and eventually in 2003 the company was put up for sale and bought over by Nike for a measly $ 309 million. Total Nike Revenue in 2003 surpassed $ 10 billion.
Even today Nike makes Billions because of Michael Jordan, and Jordan alone is rumoured to have made more than 2 Billion dollars off his deal. Jordan still makes 5% in royalties for every pair of Air Jordans thats sold.
At the crux of this catastrophic business decision comes down to a simple business philosophy.
1. Businesses must be agile and take risks
One comment by the Converse executives was “If we had offered Jordan a higher deal, what would we have done with Magic Johnson, Larry Bird and the other stars?”.
This is an absurd claim because in business, risks must be taken. You cant make everyone happy and having to take risks is inevitable. If everyone at Converse understood how much potential Jordan had the decision of taking a calculated risk should have been much easier. Successful risk taking is key to growth and Converse failed to do that. They played safe. Whenever you play safe, you don’t grow.
2. Change and adapt to times
Rather than thinking traditionally, Nike offered to make changes to its design in order to meet the liking of its star Athlete. This should be the approach of any successful business. Adapt.
Nike does this even today – with its excessive investment into R&D. You can observe it with what they did for Eliud Kepchoge’s sub 2 hour marathon run – the Nike Vapour Fly. This is the key to becoming a growing business and building a unique value proposition. Constantly developing as a business is key. Being the trend setter in your industry is the key. Being the first to the market is the key.
3. Go all in.
When Michael Jordan wore the first Air Jordans to a game he was fined by the NBA for not meeting the uniform standards at the time. The NBA wanted predominantly white shoes to be worn by athletes. The Air Jordans were red and black primarily. $ 5000 per game – that was the fine on Jordan for every single match he wore them to. And Jordan played 80+ NBA games per year – that’s more than $400, 000 just on fines. Almost the same amount they signed the athlete up for. But Nike happily paid off the fine on behalf of Jordan and used the negative publicity to work for them.
The advertisement script said this: “On September 15th (1984), Nike created a revolutionary shoe. On October 18th the NBA threw them out of the game. Fortunately, the NBA cant stop YOU from wearing them”
Jordan still earns north of $ 100 Million in royalties through his Nike deal every year. On the other hand, Nike earns billions. The investment didn’t go in vain.
4. The Fundamental mistake in communication – Don’t make it one sided.
Converse’s fundamental mistake in communication was they started off in a footing of arrogance. They thought they were too superior for the talented Athlete. On the other hand Nike understood that no matter how cool they are – the deal was about Jordan and not them. Rather than approaching it one sided – Nike made sure the conversation included both sides. They listened, adapted, and even Included Jordan’s family in the conversation.
Ultimately it was Jordan’s parents who convinced him to sign the Nike deal. Unlike converse, Nike didn’t exclude the most important people in Jordan’s life at the time. This was crucial for the success of the deal.
One could argue that whichever brand it was that Jordan signed – the athlete would have made it a success. But Nike nailed the deal with its communication.
What to make of it
You might also be wondering what it was for Adidas? Of course – they forewent a deal of a lifetime. It may not be a mistake in communication, but it was definitely an inability to be agile.
For Nike, It is obvious that the sheer progress of R&D and clever communication changed the game for their brand against any other. Where a quality product meets sincere communication – you are bound to find success at the end of the tunnel.
Most businesses fail because of a consistent mistake in communication. Big sales happen when you communicate accurately.
In the end – what risks you are able to take, how much sincere interest you show to your customer, putting your best foot forward and actively adapting takes any endeavour a long way. Be it a business, or be it your personal goals.
If you liked this blog – take a look at my previous post on how your environment affects your performance
Mistake in communication that cost billions
- “We’re sitting in the conference room and they’re saying things like, ‘We are basketball,’” Jordan’s agent David Falk recalled. “They’re telling us that they have Magic, Bird, Dr. J and Mark Aguirre.”
- Michael Jordan would have ditched the Nike deal if Adidas even got close to the Nike offer.
- Nike capitalised handsomely on the opportunity signing with Jordan. The company sold $100 million in Air Jordan shoes and apparel in 1986, and profits soared to $59 million from only $10 million the previous year. Total sales went from $946 million in 1985 to almost $1.1 billion in 1986.
- Michael Jordan makes 5% in royalties for every Air Jordan pair sold.
- Nike Vapour fly helped Eliud Kipchoge’s sub 2 hour marathon record
- Michael Jordan originally wanted to sign with Adidas. Nike wasn’t a preference.
Mistake in communication that cost billions
Thuan Pham for the Image of the Converse Shoes
Satria Aditya for the image of the Air Jordans