FedEx is today a household name.
And it is no wonder, because with a fleet of 697 airplanes, with around 210 thousand trucks and vans and around 600 thousand employees, the firm delivers 16.5 million packages daily in 220 countries and territories, according to its own data.
In 2021, the American company reached a market value of US$84 billionwhich has made it one of the main players in the delivery and logistics sector globally.
However, today’s giant had rocky beginnings and there was even a moment, just five decades ago, when it was close to disappearing, but thanks to chance he was saved.
A revolutionary idea, but full of doubts
The idea of a company that would deliver mail and small packages, using airplanes and motor vehicles, and doing so much faster than regular mail may sound outdated today. However, in the late 1960s it involved a revolution.
The concept was put on the table by the then Yale University Economics student, Frederick W. Smith, today known in the United States as Fred Smith and who was born in 1944 in the southern city of Memphis (Tennessee), within a family that made a fortune with the transportation of people on roads.
However, the proposal barely received an approval when he presented it in a class.
“The concept is interesting and well formulated, but to get more than a ‘C’, the idea must be feasible“, his teacher warned him.
Despite the cold reception from the academics, the young man insisted. Thus, after completing two missions in Vietnam, in 1971 invested the US$4 million he received from a family inheritance and another US$80 million that he obtained from investors and in loans in a company he called Federal Express Corp (today FedEx).
He used the funds to purchase 14 small airplanes and several trucks.
Although On its first day of operation it only received 186 packagesdemand began to grow gradually, operating in 25 US cities in a matter of months, Smith recalled in an interview a few years ago.
However, the increase in oil prices due to the Yom Kippur War of 1973 raised the company’s operating costs and By mid-1974 he was losing almost a million dollars a monththe magazine reported Entrepreneur.
The bet of life
Burdened by debt, Smith asked his investors for more money to keep the firm afloat, but they refused.
And faced with the imminent threat of bankruptcy, he made a risky decision of dubious legality: he withdrew the last US$5,000 that FedEx had in his bank accounts, boarded a flight to the city of Las Vegas and spent a weekend gambling in its famous casinos.
Good fortune smiled on him and he returned to Memphis, where the company’s headquarters are located, with enough money to keep the planes flying for another week.
The funds caught the attention of other managers, including Roger Frock.
Frock, who was the first vice president of operations at FedEx (1971-1982), not only investigated the origin of the money, but also recorded the unusual explanation he received in his book Changing How the World Does Business: FedEx’s Incredible Journey to Success – The Inside Story (“Changing How the World Does Business: FedEx’s Incredible Journey to Success, The Inside Story”).
“I asked Fred where the funds had come from and he replied, ‘The meeting with the General Dynamics board was a failure and I knew we needed money by Monday, so I took a plane to Las Vegas and won US$27,000′“, confessed the founder of the firm.
“You mean you took our last US$5,000. “How could you do that?” Frock reproached him, but Smith replied dryly: “What difference did it make? Without the funds to pay the fuel companies we wouldn’t have been able to fly anyway.“.
In the following years, Smith himself referred to his risky move on several occasions.
“The myth says that I got the money to pay the payroll, but that is not true. “What I earned, compared to what we owed, was a drop in the bucket,” she declared in 2008 in a televised interview.
However, he noted that the resources were “very symbolic” at the time and they gave him a break.
Later, at the request of Arthur – one of his sons – he participated in a podcast, in which he referred to the matter again and made it clear that he did not believe that he had put at risk what little he had left with his decision.
“In Vietnam we played a lot of poker and blackjack, so at that time I was a good blackjack player“, he asserted.
A few days later, FedEx got its investors to inject another US$11 million that allowed it to continue operating and by 1976 it began to make profits.
Far from being an example
But as if resorting to gambling wasn’t enough, Frock in his book also recounts that in FedEx’s turbulent early years, management resorted to other controversial practices.
Issuing bad checks to your employees and to suppliers or asking airplane pilots to pay fuel bills with their personal credit cards, with the promise that the money would be reimbursed, were other actions that the managers of the courier company resorted to.
Despite the above, over the years FedEx flourished, becoming one of the largest American firms and Smith earned the respect of the business world.
However, there are those who believe that Smith’s actions are not the model to follow.
“This is a great story, but it is not a great example of good business practices”said Katie Best, a researcher at the London School of Economics and an expert on leadership in the business world.
“The story of FedEx’s origins is brilliantbecause it is full of ridiculous and risky movements to carry out a project,” the specialist explained to BBC Mundo.
“However, I would not recommend anyone make these decisions, some of which are of dubious legality, such as using company funds to bet on blackjack tables.”
The Venezuelan economist and founder of the consulting company OIKOS, Daniel Cadenas, was harsher, who did not hesitate to describe “irresponsible” and “irrational” Smith’s actions.
“This is not what is expected from a businessman, much less from the president of the company, whose main mission is to protect the company’s assets,” he said.
The economist is surprised that this fact has spread. The reason? “The risk of reputational damage is very high (…) With what face did that man go to ask banks and investors for money after what he did,” he said.
The professor at the Institute of Higher Studies of Administration of Venezuela (IESA) Milko González-López spoke in similar terms, recalling: “Las Vegas casinos were built with losers’ money. To win in casinos you have to play a lot of money and you don’t always win a large amount.”
Beyond the anecdote
But beyond the ethical questions that Smith’s actions raise, other experts believe that the FedEx case leaves important lessons.
“The real problem is not the act of betting itselfbut the concept of risk taking,” warned Xinyu Hou, who is an economist at the universities of Wuhan (China) and St. Louis (USA).
“If we look at Smith’s decision, we can see that without it the company would have closed and had to sell valuable assets at low prices. Suppliers and lenders would probably have recovered very little of what they were owed, because bankruptcies are long and expensive,” he told BBC Mundo.
And then he concluded: “By taking a risk, Smith saved the company and benefited everyone involved.. And, therefore, in the strictly economic sense, his action was good, since he was not making very large bets and only obtained enough for the company to continue.
To defend his position, Hou recalled that currently many companies are dedicated to speculating in the stock markets with derivatives (financial instruments whose value depends on other assets).
“And this is not much different than gambling in a casino.“added the economist.
Smith, who stepped down as FedEx in mid-2022, has admitted that some of his initial actions were controversial.
However, he has not shown the slightest sign of regret.
“No business school would point out that gambling is a financial strategy, but sometimes it pays to do crazy things at the beginning of your career,” the now-retired businessman wrote in an article published in the magazine Forbes.
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