How Fred Smith rescued FedEx from bankruptcy by playing blackjack in Las Vegas
Fred Smith founded the Federal Express in 1971 and it began operations in 1973. The company was based on an idea he wrote about in a term paper in 1965 while he was an undergraduate student at Yale. For an economics class Smith wrote a term paper that outlined his idea for a company that would guarantee overnight delivery of small, time-sensitive goods, such as replacement parts and medical supplies, to major U.S. cities. The professor was not impressed and gave Smith a grade of C for his work.
Smith wasn't deterred. After he graduated from Yale and served in the Marine Corps for two tours of duty in Vietnam, Smith bought controlling interest in Arkansas Aviation Services in 1971. With his new company, Smith realized how difficult it was to ship items within a few days, so he decided it was time to try to put his Yale term paper to use.
In 1971, Smith became the founding president of Federal Express, an express-delivery service that he envisioned as an integrated system of airplanes and trucks. It became operational two years later, with night flights from Memphis, its base, to 25 U.S. cities. Federal Express's first two years were grim. In fact, on its first night of business, the fledgling company shipped only 186 packages onto its 14 Falcon jets routed to 22 cities. Within the first three months of operation, the company had lost almost a third of its start-up cash. It was not uncommon for Federal Express drivers to dig into their own pockets to pay for gas. The company also lost money because of high advertising costs and because of increased aircraft fuel and gasoline prices resulting from the Arab Oil Embargo of 1973. These and other factors, such as outdated federal aviation restrictions and run-ins with the International Brotherhood of Teamsters, caused FedEx to lose USD 29 million in its first two years of operation. Rising fuel costs eventually caught up with the young company, putting FedEx millions of dollars in debt. Investors declined to give FedEx more money and bankruptcy was a distinct possibility.
When the company had only USD 5,000 left, Smith pitched General Dynamics for more funding, but the board refused. On his way home, Smith took a detour to Las Vegas and won USD 27,000 playing blackjack, which he wired back to FedEx. After his blackjack win, Smith was able to raise another USD 11 million. And by 1976, FedEx's revenue had reached USD 75 million. The company went public two years later.
Under Smith’s direction, Federal Express began offering intercontinental services in 1984, and by the early 21st century the company operated in some 220 countries. Its numerous innovations included the introduction of drop boxes (1975) and the online tracking of packages (1994). In addition, Smith oversaw the acquisition of Kinko’s (2004), which eventually became FedEx Office, and the rebranding of the company as FedEx (2000). His various strategies helped make FedEx and its parent company, FedEx Corporation, worth more than USD 60+ billion by 2021.
Though gambling FedEx’s last USD 5,000 was a risky choice, Smith doesn't appear to regret his decision. No business school graduate would recommend gambling as a financial strategy, but sometimes it pays to be a little crazy early in your career.
Smith, who is still the CEO and chairman of FedEx, is estimated to be worth USD 5.2 billion. One crazy decision helped Smith keep the FedEx afloat and make him a billionaire.
No business school graduate would recommend gambling as a financial strategy, but sometimes it pays to be a little crazy early in your career.
― Fred Smith
Sources:
https://www.forbes.com/profile/fred-smith-1/?sh=4602a86562a6
https://www.fedex.com/en-us/about/leadership/frederick-w-smith.html
https://www.britannica.com/biography/Frederick-W-Smith
https://www.referenceforbusiness.com/biography/S-Z/Smith-Fred-1944.html