After posting eight thousand dollars in sales in my first year, I was projecting sixteen thousand dollars in my second year, and according to my banker this was a very troubling trend.
“A one hundred percent increase in sales is troubling?” I asked.
“Your rate of growth is too fast for your equity,” he said.
“How can such a small company grow too fast? If a small company grows fast, it builds up its equity.”
“It’s all the same principle, regardless of size,” he said. “Growth off your balance sheet is dangerous.”
“Life is growth,” I said. “Business is growth. You grow or you die.”
“That’s not how we see it.”
“You might as well tell a runner in a race that he’s running too fast.”
“Apples and oranges.”
Your head is full of apples and oranges, I wanted to say.
It was textbook to me. Growing sales, plus profitability, plus unlimited upside, equals quality company. In those days, however, commercial banks were different from investment banks. Their myopic focus was cash balances. They wanted you to never, ever outgrow your cash balance.
Again and again I’d gently try to explain the shoe business to my banker. If I don’t keep growing, I’d say, I won’t be able to persuade Onitsuka that I’m the best man to distribute their shoes in the West. If I can’t persuade Onitsuka that I’m the best, they’ll find some other Marlboro Man to take my place. And that doesn’t even take into account the battle with the biggest monster out there, Adidas.
My banker was unmoved. Unlike Athena, he did not admire my eyes of persuasion. “Mr.Knight,” he’d say, again and again, “you need to slow down. You don’t have enough equity for this kind of growth.”
Equity. How I was beginning to loathe this word. My banker used it over and over, until it became a tune I couldn’t get out of my head. Equity—I heard it while brushing my teeth in the morning. Equity—I heard it while punching my pillow at night. Equity—I reached the point where I refused to even say it aloud, because it wasn’t a real word, it was bureaucratic jargon, a euphemism for cold hard cash, of which I had none. Purposely. Any dollar that wasn’t nailed down I was plowing directly back into the business. Was that so rash?
To have cash balances sitting around doing nothing made no sense to me. Sure, it would have been the cautious, conservative, prudent thing. But the roadside was littered with cautious, conservative, prudent entrepreneurs. I wanted to keep my foot pressed hard on the gas pedal.
Somehow, in meeting after meeting, I held my tongue. Everything my banker said, I ultimately accepted. Then I’d do exactly as I pleased. I’d place another order with Onitsuka, double the size of the previous order, and show up at the bank all wide-eyed innocence, asking for a letter of credit to cover it. My banker would always be shocked. You want HOW much? And I’d always pretend to be shocked that he was shocked. I thought you’d see the wisdom... I’d wheedle, grovel, negotiate, and eventually he’d approve my loan.
After I’d sold out the shoes, and repaid the borrowing in full, I’d do it all over again. Place a mega order with Onitsuka, double the size of the previous order, then go to the bank in my best suit, an angelic look on my face.
