Would you decide your company’s future by gambling? Sounds crazy right? However, this is exactly what Founder of FedEx Fred Smith did in the early years of the company. The company generated 69.7 billion U.S dollars in 2019, and had a total aircraft fleet size of 681 aircraft. Yet, in its earlier years, FedEx was saved by a little trip to Las Vegas and Blackjack. Yes, you read that right.
Lets’s take a look at the origins of the company, and how it got saved from shutting down.
Fred Smith came up with the idea, that it would be more efficient to ship small essential items through planes. This was while he was still in University. He wrote a paper on this which became the foundation of his company. In 1971, he founded FedEx, funded through $4 million acquired through inheritance and $80 million in loans and equity investments. The company initially started out with only 8 planes, and was covering 35 cities.
The idea was very costly, and an entire system had to be built from the very first day of business. On top of that, in order to get the word out, expensive advertising costs and direct mail campaigns were required. The company lost $29 million a little more than 2 years. In 1975 alone it gained $43.5 million in sales against an $11.5 million loss. The President of the company supported Fred Smith when the investors suggested to remove him. President and Smith worked together to implement improved delivery schedules. As a result, FedEx’s volume increased and the company soon became profitable.
FedEx Corporation continued to grow its portfolio. Total assets rose to a value of around 54.4 billion U.S. dollars in 2019. The company restructured for the 21st century. There are five major operating companies now. These include, FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, and FedEx Trade Networks.
If you go back to the history of FedEx, the company was millions of dollars in debt a little more than 2 years. This was largely due to the fuel costs and expensive nature of the business. So what did founder Fred Smith do to save his company FedEx from going bankrupt in the 1970’s? Now this is where the story of FedEx gets interesting.
While the company was losing over a $1 million per month, there was no one ready to grant them additional funds or invest in the business. Things got so bad that the point came where FedEx’s fund had depleted to just $5000. At this stage, the company did not even have enough money to cover the fuel costs for next day’s shipment. Smith made one last pitch to an investor, and when that did not work, he flew to Vegas to play Blackjack with the $5000 left of the company! Yes, the Founder and CEO, left the the fate of the company to his gambling skills. And it worked! He had converted the $5000 into $27,000 which was enough to cover the operations of the company for a week.
The higher management of the company inquired this action of Fred Smith. He simply replied that there wouldn’t have been a company to begin with, had he not acted in this manner. Although, the $27000 weren’t enough to keep the company going for a long time, Smith was able to use this as motivation and soon secured $11 million in funding. By 1976, FedEx stabilized financially and generated a profit of $3.6 million. Now that is crazy!
Today FedEx is worth more than $30 billion, and Fred Smith has a net worth of $3 billion. FedEx gambling did pay off, no matter how absurd that sounds. Would you leave the fate of the company in the hands of your gambling expertise? Share your thoughts in the comments section below.