The Founder of FedEx Once Saved the Company by Taking Its Last $5,000 and Turning It Into $32,000 by Gambling in Vegas
Today I found out the founder of FedEx once saved the company by taking its last $5,000 and turning it into $32,000 by gambling in Las Vegas.
The man is Frederick W. Smith who is the founder and current CEO of FedEx. In 1971, Smith took his personal fortune of around $4 million and raised around an additional $90 million to found a delivery company structured such that it could potentially deliver packages overnight to anywhere in the world. This is something that, at that time, had never been done. Smith had first outlined how such a company would operate in a 1962 paper he wrote while at Yale University. The paper was written for an economics class and was specifically on an “overnight delivery service in a computer information age”.
Unfortunately, three years after the company began, thanks largely to rapidly rising fuel costs, Federal Express was on the verge of bankruptcy, losing over $1 million a month, with no one willing to give them any additional loans nor any investors interested in contributing capital.
At its low point, all the company had was $5000 to its name, which wasn’t enough to continue operating as their planes needed fuel and that wouldn’t cover it. Smith made a final pitch to General Dynamics for more funding, but was refused, leaving FedEx more or less dead on the ground when they’d not be able to fuel their planes the following Monday.
Not to be dissuaded, instead of taking a flight home to Memphis, Smith took the $5000 and flew to Las Vegas and played Black Jack that weekened with the remaining company funds. By Monday, to the shock of other higher ups in the company, FedEx had $32,000 in its bank account, which was just enough to cover the fuel for their planes and to continue operating a few days more. When asked what he’d been thinking taking a chance like that with company funds, he stated: “What difference does it make? Without the funds for the fuel companies, we couldn’t have flown anyway.”
It turns out, a few days more was all he needed. Shortly thereafter, Smith successfully managed to raise $11 million to keep the company afloat and, by 1976, Federal Express made its first profit of $3.6 million. Four years after that, the company’s profits were up to nearly $40 million with gross revenue near half a billion dollars. Today, FedEx is estimated to be worth in the vicinity of $25-$35 billion, with Smith himself currently worth around $2 billion.
- On April 7, 1994 a FedEx flight was nearly hijacked by a former employee, Auburn Calloway, that had been recently fired. Calloway had planned to crash the plane into FedEx’s headquarters. However, the crew on board was able to stop Calloway, though, they sustained severe injuries in the process.
- Surprisingly, to date, FedEx has only lost a handful of planes and only once has one of their planes crashing resulted in the death of the pilots. That flight was on March 23, 2009 when one of their flights crashed while landing in extremely windy conditions with the plane bouncing a couple times on the runway before the wing clipped the ground with the result of the plane flipping over and catching on fire, killing the pilots.
- While in college, Frederick Smith was a member of the same fraternity as George W. Bush and was also a member of the Skull and Bones society. Bush and he became friends in college, which subsequently lead to Bush offering him the position of Defense Secretary in his administration, which Smith ultimately turned down twice, once due to his own health, and the second time, during Bush’s second administration, due to Smith’s terminally ill daughter.
- Smith was also good friends with John Kerry. The two shared a love of flying and would often fly together. One can only imagine the awkwardness when Smith endorsed Bush over Kerry in the 2004 presidential elections.
- Smith also served two tours of duty in Vietnam in the Marines, earning a Silver Star, a Bronze Star, and two Purple Hearts, eventually being discharged with the rank of Captain in 1969.
- Fred Smith’s father died when he was just 4 years old. His father made his fortune by founding the Smith Motor Coach Company in 1925, which was purchased by Greyhound in 1931. At this point, he founded the Toddle House chain of restaurants.
- The Toddle House restaurants were somewhat akin to Denny’s today in that Toddle House was a national diner style restaurant chain that specialized in breakfast. What made this chain unique, though, was that each restaurant contained no traditional tables, but just had one long row of stools at a bar table. Not surprisingly, most of the orders were take-out. Another unique aspect of this chain was that, in its early days, customers paid on the honor system, depositing the money for the meal in a box on their way out.
- You’ll often hear Smith received a C for the paper he wrote in 1962 outlining how an overnight delivery company could operate, but this isn’t necessarily accurate. In fact, nobody knows what grade he got on the paper, not even Smith. The rumor was started by Smith himself who couldn’t remember what he got on the paper so he told a reporter “I don’t know what grade, probably made my usual C”.
- The $95 million or so that was initially raised to found Federal Express is equivalent to around half a billion dollars today.
- Federal Express was later renamed FedEx in 1994. The company’s “express” services, which used their fleet of planes, by 2000 became “FedEx Express”.
- Interestingly, since 2001, FedEx Express has handled all Express Mail and Priority Mail for the U.S. Postal Service. Their current contract for that ends in 2013.
- FedEx Express is currently the world’s second largest airline in terms of number of planes, with 697 planes to date with an additional 49 planes ordered.
- Certain FedEx Express planes were the first commercial planes to be outfitted with anti-missile systems when they partnered with Homeland Security and Northrop Grumman to test such a system, with FedEx supplying two of their planes for the testing. In 2006, three years after the system was tested on two of their planes, FedEx began deploying the system on some of their in-use planes for continued testing (the system is currently on nine of their planes). It is expected that if the continued testing goes well, the system will begin being deployed on all commercial air craft within the United States.
- FedEx is currently the 21st largest political campaign contributor in the United States, officially donating $21 million since 1990 to various campaigns, with slightly more going to Republicans than Democrats (55% / 45%). On top of that, they spend millions annually lobbying the government towards various ends. In 2010, that number reached just shy of $5 million in the first quarter alone.
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