You are watching The Story! Every Monday we bring you a deep dive into the fascinating lives of incredible people. Welcome to ALUX.com! The place where future billionaires come to get inspired. If you’re not subscribed yet, you’re missing out. Hello Aluxers and welcome back! Does the name Frederick Smith sound familiar to you? Maybe, maybe not, but you’ve definitely heard of his multi-billion dollar company FedEx. Founded as Federal Express in 1973, FedEx fundamentally changed the way people and businesses ship and receive packages. In 2018, FedEx had over $65 billion worth of revenue, but the business has not always been booming. Today we’re going to look at the incredible story of how Frederick Smith saved FedEx from bankruptcy with his blackjack winnings. Frederick Smith is most notably the founder, chairman, and CEO of the American multinational delivery services company FedEx. He had his share of struggles as a child with his father dying when he was only 4 and then contracting a crippling bone disease. Later, he went to Yale, graduated with an economics degree, and then joined the Marines. After serving two tours of duty in Vietnam, he received the Silver Star, the Bronze Star, and two Purple Hearts. At the age of 26, he bought the controlling interest in Ark Aviation Sales, which was an aircraft maintenance company. He shifted the focus of the company to trading used jets. That same year, Smith founded Federal Express and achieved his long-time dream of owning a package delivery company. Today, Frederick Smith’s net worth is about $3.7 billion. In addition to his stake in FedEx, he is the co-owner of the Washington Redskins NFL team and several entertainment and production companies. But today we’re focusing on FedEx, so let’s go back to the start. While a student at Yale, Smith wrote a paper describing his idea for a shipping company that specializes in time-sensitive shipments. His idea was revolutionary for the shipping industry at the time, but he only got a C grade on the paper. Still, the idea never left him. Even when he was serving in Vietnam, he paid close attention to how supply deliveries were handled. In 1971, when he was 27 years old, he received a $4 million inheritance, which is worth about 25 million at today’s valuation. He used the money to found his dream company, Federal Express. He was quickly able to raise $91 million in venture capital, which is close to 573 million at today’s standards. Smith’s vision was very basic but radical at the same time. He wanted to provide an easy way for companies and individuals to have packages delivered in one to two days. At this time, package delivery was handled by airfreight shippers who did not provide urgent shipments. Smith’s idea did more than changing an industry—it created a new industry altogether. Smith had a clear vision for this, but there were plenty of struggles along the way. On April 17, 1973, Federal Express officially launched operations in Memphis, Tennessee. That night, a total of 14 small aircraft delivered 186 packages to 25 cities throughout the United States. It was an exciting time, but all the investments dwindled rapidly with expenses increasing as fuel prices continued to rise. At one point the company was losing one million dollars per month. Some pilots were asked to use their personal credit cards to pay for fuel with a promise of reimbursement. Other times paychecks were distributed but the employees were asked not to cash them. Everything was seemingly crashing down around Frederick Smith. He had invested his last penny in his dream company, and he had numerous other investors counting on his concept working well. The company was on the brink of bankruptcy with only $5,000 in the bank. It seemed Smith had one last chance to save the company. He was scheduled to give a pitch to the board of General Dynamics, a global aerospace and defense company, in order to secure a company-saving loan. When they turned down his loan request, it seemed the company was doomed. But one desperate act changed everything. Smith was waiting at the airport in Chicago for his flight back to Memphis. His pitch to General Dynamics had failed, and he knew there wasn’t even enough money left in the bank to pay to fuel the planes the next week. Smith then made an impulsive decision that would change the trajectory of his company and his life. He canceled his flight to Memphis and jumped on a flight to Las Vegas. Smith spent the weekend at the high stakes blackjack table, gambling with the company’s last $5,000. Many hands later, he had turned that $5,000 into $27,000. When the money mysteriously appeared in the company account, allowing them to pay their fuel bill, Roger Frock—the senior vice president of operations—asked Smith where it came from. He was shocked to find out Frederick had gambled with the company’s last dime. Smith told him, “What difference does it make? Without the funds for the fuel companies, we couldn’t have flown anyway.” The amount Smith won was just enough to keep the company afloat. But the win also gave Smith the motivation to secure more funding. He went on to raise between 50 and $70 million from a total of 20 risk venture speculators. Federal Express became the most highly financed new company in the history of the U.S. up to that point. The company finally began turning a profit in 1976 with an average delivery of 19,000 parcels per day. Federal Express grew rapidly and was servicing over 100 American cities by 1980. During the 80’s, Federal Express experienced 40% compounded growth annually. In 1983, sales topped one billion for the first time. It was the first company in U.S. history to achieve this milestone within the first ten years of launching without mergers and acquisitions involved. Federal Express had single-handedly established the express shipping industry and continually set the standard for their competitors. They became the first shipping company to utilize a computer to manage packages in 1979. In 1984 they launched international service. They introduced package tracking technology in 1986. In 1994, the company designated the name FedEx as its official brand. Today, FedEx has a market cap of $41.5 billion. It serves 220 countries worldwide with an average of 14 million packages shipped daily. Now in his mid-70’s, Frederick Smith continues in his role as CEO to drive the company to remain competitive and relevant. There are a few different lessons that can be learned from this fascinating story. For one, incredible risk can result in incredible rewards. But this story could have had another ending altogether. If Smith had lost at the blackjack table that night, we almost certainly would not be talking about FedEx right now. But Smith knew the risks and decided to take bold action with everything on the line. Sometimes this is necessary. Success is not guaranteed through such actions, but without them, failure is almost inevitable. One book that could help you avoid some of the common pitfalls when growing a new business is Startup CEO: A Field Guide to Scaling Up Your Business. In this book, Michael Blumberg gives keen insights and practical advice about the challenges a startup CEO might face in the critical developmental years. You can listen to this helpful book on Audible while also saving $25. Just go to alux.com/freebook and sign up so that you can get the audiobook version for free thanks to our partnership with Audible! While researching his story, we’ve come across this simple but inspiring quote from Frederick that goes like this: Frederick has also said that he’s not afraid to take a swing and a miss. Fear of failure is what holds so many people back from fulfilling their dreams.
Don’t allow yourself to become one of those people. Now that we’re wrapping up this incredible story, we’d like to know: Let us know in the comments. And, of course, for sticking with us until the end, here’s your… FedEx Express maintains the world’s largest cargo air fleet with a total of more than 650 planes. On any given night, FedEx flies five or more empty planes across the US so that they can respond quickly to any change in cargo demand or take over for any plane that is grounded due to mechanical problems. Thank you for spending some time with us Aluxers. Make sure to like and subscribe so you never miss another video. We also handpicked these videos which we recommend you watch next. You can talk to us on all social medias or as a question on our website ALUX.com! Thank you for being an Aluxer and we’ll see you back tomorrow.