Before you can start creating the initrd, make sure your kernel supports ramdisks. You can verify that your kernel supports ramdisks when the kernel is being configured; if it does not support ramdisks, you change the settings so that the kernel does support ramdisks.
Start the kernel configuration:
cd /usr/src/linux make xconfig
On the Main Menu screen, under the section for Block Devices, check to see if "RAM disk support" and "Initial RAM disk (initrd) support" are supported (a "Y" should be in the field before each entry). If they are not supported, enter a "Y" for "RAM disk support" and "Initial RAM disk (initrd) support."
Main Menu -Block Devices <Y>RAM disk support <Y>Initial RAM disk (initrd) support
This support must be built statically into the kernel. Building RAM disk support as a module will not work. The "Default RAM disk size" option is not important at this time, because it can be modified with a command-line option to the kernel.
Save your kernel configuration and rebuild and reinstall your kernel.