How Fred Smith Saved Fedex at the Blackjack Table | Startup War Story

04/24/2013“The concept is interesting and well-formed, but in order to earn better than a ‘C’, the idea must be feasible.”

This was the response from a Yale University professor after reading about Fred Smith’s initial idea of forming a reliable overnight delivery service in a computer information age. Little did he know that his student later took this “unfeasible” concept to build a multi-billions company and single-handedly change the logistics industry forever.

With annual revenues of $35 billion and more than 140,000 employees worldwide right now, it may appear that Fedex is an overnight success, but that is only true for outsiders looking in.

In 1973, promising guaranteed overnight delivery of small packages between any two points, Fedex only got seven packages for the first test run after raising $80 million from venture capitalists. They decided to expand their services from 11 to 25 cities in their official launch and the package volume went up to 186, better but still discouraging and even a little worrisome.

In the first few years of operation, it looked like FedEx would never get off the ground. According to Roger Frock, former Senior Vice President of Fedex:

With expenses mounting, we were getting into deeper trouble financially. Things got so serious that one of our pilots used a personal credit card to pay for delinquent landing fees that would have prevented his departure from an outlying airport. Then, one of our couriers hocked his watch to buy fuel for his delivery van. Many of the couriers came in on weekends to wash and wax their vehicles.

Mainly due to rapidly rising fuel costs and sparse package volume, the company continued to run in desperate financial trouble. Fedex was down to about $5,000 in the checking account at one point, while they needed $24,000 for a jet fuel payment to their most demanding oil suppliers.

Fred was so desperate that he took the remaining money, flew to Las Vegas and won $27,000 at the blackjack table.

Roger later found out this shocking move and Fred responded the following:

“What difference does it make? Without the funds for the fuel companies, we couldn’t have flown anyway.”

The money wasn’t much but it kept them alive for another week. And eventually, Fred’s persistence paid off. He managed to raise $11 million more to keep the company afloat at a critical time.

Although FedEx had lost most of his fortune in the early days, Fred Smith never considered giving up.

“I was very committed to the people that had signed on with me, and if we were going to go down, we were going to go down with a fight. It wasn’t going to be because I checked out and didn’t finish.”

It was not until 1976 that Federal Express made its first profit of $3.6 million. From then on, it was smooth sailing for FedEx.

Finally, in 1978, with its prospects looking solid, FedEx went public, selling its first shares on the New York Stock Exchange.

Had Fred listen to his professor’s advice in the early days, we probably can’t hear this extraordinary story and enjoy such a revolutionary service until these days.

Source: Changing How the World Does Business: Fedex’s Incredible Journey to Success – The Inside Story