#151 Frederick Smith FedEx



In "Overnight Success: Federal Express and Frederick Smith, Its Renegade Creator" by Vance Trimble, the tumultuous early days of FedEx and its founder, Frederick Wallace Smith, are laid bare. Smith, at 30, faced the potential collapse of his dream, grappling with the exhaustion of his inheritance, mounting debts, and legal accusations from the FBI. Yet, despite the risk of bankruptcy and prison, Smith's relentless drive and innovative spirit refused to let Federal Express perish. The company's inception was a gamble, including a legendary Vegas win that temporarily saved it from bankruptcy. Smith's perseverance through adversity, his ability to inspire early employees, and his voracious reading habits are highlighted as key factors in FedEx's eventual success. The narrative also parallels Smith's tenacity with that of his entrepreneurial father, illustrating a legacy of ambition and resilience.

Summary Notes

Frederick Wallace Smith's Early Struggles with Federal Express

  • Frederick Wallace Smith faced significant financial and legal challenges while establishing Federal Express.
  • He exhausted his inheritance and was in debt by millions, risking his cargo planes and marriage.
  • The board of directors fired him as CEO, and the FBI accused him of bank fraud.
  • Despite these hardships, Smith was determined not to let Federal Express fail.

"At age 30, Frederick Wallace Smith was in deep trouble. His dream of creating Federal express had become too expensive and was fast fizzling out."

This quote outlines the dire financial situation Frederick Wallace Smith was in during the early days of Federal Express, highlighting the extreme challenges he faced.

The Main Benefit of Reading "Overnight Success"

  • The book "Overnight Success" by Vance Trimble details the difficulties of starting Federal Express and the perseverance of Fred Smith.
  • It provides insight into the numerous occasions Federal Express nearly went bankrupt.
  • The book also covers the similarities between Fred Smith and his father's personalities.

"That excerpt actually gives us insight into what I feel is the main benefit of reading a book like this, which is it details how difficult it was to start FedEx and then all the pain and suffering that Fred actually had to persevere through before he finally got on solid financial footing and it actually became profitable and successful business."

The quote explains the value of reading "Overnight Success" as it provides a detailed account of the hardships Fred Smith endured while building Federal Express into a successful company.

James Frederick Smith's Influence and Entrepreneurial Spirit

  • James Frederick Smith, Fred's father, was known for his ambition, energy, quick mind, friendliness, and a bit of luck.
  • He encouraged entrepreneurial thinking and started two successful businesses.
  • Fred Smith's inheritance from his father was significant, yet he nearly lost it all on FedEx.

"At age 20, James Frederick Smith started his climb to fame and fortune."

This quote summarizes the entrepreneurial beginnings of Fred Smith's father and foreshadows the similar path Fred would later take with Federal Express.

Fred Smith's Early Life and Resilience

  • Fred Smith did not know his father well, as he died when Fred was four.
  • Fred's father's ambitious and hardworking nature was mirrored in Fred's own personality.
  • Fred faced physical challenges in his youth but showed remarkable resilience and determination.

"He didn't really know his father. His father dies when Fred's just four."

This quote provides context for Fred Smith's early life, indicating the absence of his father during most of his formative years.

The Origin of FedEx's Business Model

  • FedEx's business model was first conceptualized in a college term paper by Fred Smith.
  • The paper introduced the hub and spokes system for efficient package delivery.
  • Despite its significance, the paper received a mediocre grade and was initially overlooked.

"The idea for FedEx started out as a term paper."

This quote highlights the academic origin of the FedEx business model, which would later revolutionize the package delivery industry.

Fred Smith's Military Service and Leadership Skills

  • Fred Smith served in the Vietnam War, earning several medals for his courage and heroism.
  • His military experience honed his leadership skills, which he later applied to his business ventures.
  • Smith's time in the military was marked by both personal loss and the development of valuable skills.

"Fred Smith had stayed on the battlefield to within three weeks of his 25th birthday."

This quote reflects on Fred Smith's military service and the profound impact it had on his life and character development.

Early Days Leading to FedEx

  • Frederick Wallace Smith (Fred) started running Arkansas Aviation to recover his investment.
  • Arkansas Aviation's inefficiencies in part deliveries inspired Smith's idea for FedEx.
  • Tedder recognized Smith's large ambition and intelligence after returning from Vietnam.
  • Smith's goal was to do something constructive and unprecedented in the aviation industry.
  • The uncertainty and secrecy surrounded the initial operations of what would become FedEx.
  • Smith and his team experimented with various projects before arriving at the FedEx concept.

"So Fred goes in there and starts running it to try to get his investment back. Right. And essentially what's happening here, this is the early days of what is eventually going to become FedEx."

The quote explains how Fred Smith's involvement with Arkansas Aviation was the precursor to the founding of FedEx.

"It was clear to Tedder that Smith had come back from Vietnam with a goal, a very large ambition."

Tedder's observation highlights Smith's ambitious nature and his determination to achieve something significant after his service in Vietnam.

"He wanted to do something constructive. He wanted to do something that nobody else had done, which also he's picking an extremely hard target."

This quote captures Smith's desire to innovate and create something unique in the aviation industry.

Conceptualization of FedEx

  • Smith's reading habits and discussions about the Federal Reserve's inefficiencies led to the FedEx concept.
  • The initial idea for FedEx was to speed up the check clearing process for the Federal Reserve.
  • Smith proposed using a hub and spoke air freight technique learned at Yale University.
  • The original plan involved jets picking up checks from Federal Reserve districts and processing them overnight.
  • Smith incorporated Federal Express Corporation with the hope of securing a contract with the Federal Reserve.

"For months it had been percolating in his head. The genesis was twofold. His habit of voracious reading, especially history, economics, and business affairs, plus several deep discussions with bankers about the inner machinery of the Federal Reserve system."

Smith's idea for FedEx was born out of his extensive reading and understanding of the Federal Reserve system's inefficiencies.

"He proposed to go into business with a small fleet of jets that would nightly pick up in each Federal Reserve district that day's checks and fly them to a central sorting hub."

This quote details Smith's initial business plan, which focused on improving the efficiency of check clearing through a centralized air transport system.

Challenges and Persistence

  • Smith faced numerous challenges, including regulatory hurdles and skepticism about his business concept.
  • The Civil Aeronautics Board's regulations were a significant obstacle due to weight restrictions on air taxis.
  • Smith's determination was evident as he sought to rewrite regulations and secure funding.
  • He recruited experts who became the first employees of FedEx, sharing his nonconformist and courageous spirit.
  • Smith's intense work ethic and hands-on management style were both a strength and a source of operational issues.

"Fred Smith was learning not to be disheartened or dismayed by negative reactions. He saw other high hurdles ahead."

Smith's resilience in the face of skepticism and challenges is highlighted in this quote.

"Starting up would take a lot of money. Another uncertainty was how to convince shippers to use his air Express line."

This quote summarizes the financial and market acceptance challenges that Smith anticipated while starting FedEx.

"Once in a while he would throw something against the wall. So we would try to get him drunk at some bar hoping it would relax him and perhaps keep him away from the office the next day."

The quote illustrates Smith's intense dedication to his work and the high-pressure environment of the early FedEx days.

Vision and Risk-Taking

  • Smith's vision for FedEx was ambitious and involved significant risk.
  • He invested heavily in jets before securing the Federal Reserve contract.
  • Smith's entrepreneurial spirit was characterized by his willingness to take risks and his belief in his business idea.
  • The team around Smith was described as mavericks and nonconformists, reflecting a culture of innovation and risk-taking.

"Fred Smith had his new jets flown to Little Rock and began awaiting the decision by the Federal Reserve system."

This quote demonstrates Smith's confidence in his business plan and his proactive steps to initiate operations before confirmation from the Federal Reserve.

"All were mavericks, true nonconformists, courageous and crazy. For four of the five years in the early 1970s, their lives, and Fred Smith's even more so, would always be hectic and too often harrowing."

The quote describes the pioneering and adventurous spirit of Smith and his early team, which was critical to the eventual success of FedEx.

Early Days of FedEx and Fred Smith's Determination

  • Fred Smith, like Henry Ford, did not initially know how to achieve his vision of mass production but grew into it over time.
  • Fred Smith's secretary, Charlote Curtis, described him as preoccupied and deep in thought, indicating his constant focus and determination.
  • Smith faced two critical challenges: recruiting staff, which was relatively easy, and finding investors, which was nearly impossible.

"Everything I just said about Henry Ford applies to Fred Smith. So obviously, if it's applying to Henry Ford, Fred Smith, it's applying to us or anybody else trying to do something they don't know how to do yet."

This quote emphasizes that the path to innovation and creating a successful business, like FedEx, is not clear from the start and requires growth and adaptation.

"There was no doubt in that man's mind where he and the company were going."

This quote illustrates Smith's unwavering vision for FedEx, despite the challenges he faced.

"In that period, two critical items dogged his mental agenda, recruiting staff and finding investors. The former was fairly easy. The latter was almost impossible."

This quote outlines the two main challenges Smith faced in the early days of FedEx, highlighting the difficulty in securing investors.

Importance of Concentration in Entrepreneurship

  • The ability to concentrate deeply on a subject is a sign of a great mind and is crucial for entrepreneurship.
  • Edwin Land, founder of Polaroid, emphasized the importance of intense concentration to tap into unknown resources.
  • Fred Smith and other entrepreneurs demonstrate the necessity of focus and deep thought to overcome business challenges.

"He was constantly thinking. Such late hours, sheer determination."

This quote suggests that Fred Smith's success can be partly attributed to his ability to concentrate and think deeply about the problems he faced.

"My whole life has been spent trying to teach people that intense concentration for hour after hour can bring out in people resources they didn't know they had."

This quote from Edwin Land highlights the transformative power of concentration, which is a common trait among successful entrepreneurs like Smith.

The Challenge of Starting FedEx

  • Starting FedEx was a monumental task due to the need for a nationwide system from the outset, implying high fixed costs with no variable costs.
  • Fred Smith had to persevere through numerous obstacles, including the difficulty of raising funds and modifying aircraft to fit the business model.

"Like, you open a Walmart store, and if that formula succeeds and you do well, you open a thousand of them, but you don't open a thousand of them to take the first order."

This analogy illustrates the unique challenge FedEx faced, having to establish a comprehensive network before handling even a single package.

"But he was just so focused on overcoming whatever obstacles sprang up in his path."

This quote captures Smith's relentless approach to problem-solving and his determination to address each challenge as it arose.

The Ingenuity of Fred Smith in Overcoming Financial Obstacles

  • Fred Smith demonstrated creative problem-solving by purchasing a company, Lra, to circumvent financial barriers and continue modifying aircraft for FedEx.
  • Smith's unorthodox decisions were driven by necessity and the urgent need to keep the business moving forward.

"So he says his bank was willing to loan the money to buy Lra, but not the money to buy the cargo doors. So what's Smith's solution? All right, I'll just buy the company."

This quote shows Smith's strategic thinking, using a bank loan intended for one purpose to solve a more pressing issue for FedEx.

The Humble Beginnings of FedEx

  • FedEx's launch was modest, with only six packages delivered on the first day, highlighting the disparity between the company's ambitious vision and its initial reality.
  • The company's early struggles were marked by naivete and a lack of awareness of the challenges ahead, which paradoxically may have contributed to its eventual success.

"The cities to be served were mainly all within 500 miles of Memphis hastily assembled, inexperienced blitz teams of four or five salesmen invaded the targeted cities, working two or three weeks in each to presell the company's service."

This quote describes the initial efforts to establish FedEx's presence and service network, which were modest and faced significant challenges.

Fred Smith's Leadership and Personality

  • Fred Smith's leadership style was influenced by his military experience, emphasizing personal courage and maintaining a positive outlook despite internal struggles.
  • Smith's ability to keep his composure and focus on solutions was infectious and motivated his team.

"He rarely let you see him get down. He kept them private. He would constantly look for the bright side of trouble and laugh."

This quote reflects Smith's leadership approach, where he maintained a positive demeanor and protected his team from the burdens he carried.

The Role of Colonel Henry Crown in FedEx's Financing

  • Colonel Henry Crown, a self-made billionaire, played a crucial role in securing financing for FedEx by guaranteeing a short-term bank loan.
  • Crown's background and approach to business resonated with Smith's entrepreneurial spirit and the challenges FedEx faced.

"General Dynamics agreed to guaranteed a short-term bank loan to FedEx for 23 million, but at a huge price."

This quote indicates the critical financial support Crown provided to FedEx, which came with significant pressure to repay the loan swiftly.

Perseverance and Ignorance as Assets

  • The story of FedEx underscores the importance of perseverance in the face of seemingly insurmountable obstacles.
  • Ignorance of the full scope of challenges can sometimes serve as an asset, allowing entrepreneurs to tackle problems without being overwhelmed by their scale.

"In terms of starting a company of this size, we were first grade novices, and I think that really played to our advantage because we were not fully aware of the obstacle we faced or the difficulty in overcoming them."

This quote suggests that not fully understanding the magnitude of the challenges ahead can prevent entrepreneurs from being deterred and may contribute to their perseverance.

Financial Struggles and Innovative Solutions at FedEx

  • Elon Musk's cousins were financially vested in FedEx during its early days.
  • FedEx faced significant financial challenges, with expenses far exceeding initial estimates.
  • The company incurred heavy debt and was constantly behind on payments, risking asset seizure.
  • Innovative tactics were used to avoid asset confiscation, such as preventing planes from landing when bank officers were present.
  • Employees experienced delayed paychecks, and one incident involved a courier taking a manager hostage over unpaid expenses.

"It was like the fucking matrix, Musk said, describing his financial maneuvers at this point." This quote by Musk metaphorically describes the complex and challenging financial situation that FedEx was navigating, likened to the intricate and deceptive reality of the film "The Matrix."

"They thought it was going to be like 25 million to get to break even. It was like $60 million or something like that." This quote highlights the underestimation of the financial requirements needed for FedEx to reach a break-even point.

"Tetter was fearful that the bank would try to seize the mortgage planes." Tetter's fear reflects the precarious financial situation of FedEx, where the bank could potentially seize their mortgaged planes, a critical asset for their operations.

"Employees got a memo asking them not to cash their paychecks." This quote illustrates the extreme cash flow issues FedEx faced, leading to requests for employees to delay cashing their paychecks.

Leadership and Crisis Management

  • Fred Smith faced immense pressure as the leader of FedEx during its financial crisis.
  • Smith's leadership was questioned, and he was temporarily replaced by a retired Air Force general for appearances to investors.
  • The new leader focused on perks rather than addressing the company's urgent needs.
  • Smith's equity was significantly diluted through financing rounds, but he managed to regain a portion before the IPO.
  • Smith considered resigning due to the stress and potential legal issues but was convinced by colleagues to stay.

"Fred Smith himself said that no man on earth will ever know what I went through in 1973 to 1974." This quote from Smith expresses the intense personal challenges he faced while leading FedEx through its financial crisis.

"Fred Smith gets fired by the board." Smith's dismissal by the board reflects the board's lack of confidence in his leadership during the crisis.

"The general insisted on his perks, his limo, and his expensive hotel rooms." The focus of the new leader on personal benefits contrasts sharply with the company's dire financial situation.

"Fred Smith would take a battering... He had put his entire personal net worth in this thing." This quote emphasizes Smith's personal investment and the risks he took to support FedEx.

"Fred, I just wanted you to know I'm going to resign tomorrow at the board meeting." This quote reveals Smith's intention to resign from FedEx due to the overwhelming pressure, which he later reconsidered after discussions with colleagues.

Resilience and Recovery

  • Smith and his team believed in the company's potential despite the hardships.
  • Smith's resilience was tested multiple times, including considering resignation and seeking employment elsewhere.
  • The initial public offering (IPO) of FedEx was a turning point that provided financial stability.
  • Smith's commitment to innovation and problem-solving played a crucial role in overcoming challenges.

"So he gets his money back. It was excruciating hard." This quote refers to the difficult process Smith underwent to regain his financial stake in FedEx.

"General Dynamics turned him down on the loan." Smith faced rejection when seeking additional financial support, highlighting the challenges of securing funding.

"You have to be absolutely brutal in the management of your time." Smith's quote on time management reflects the discipline required to navigate a crisis.

"Smith believes that the key to successful innovation is constantly to subject problems to every angle of scrutiny." This quote underscores Smith's approach to innovation and problem-solving, which contributed to FedEx's eventual success.

The Importance of Timing and Vision

  • Smith's reading habits and ability to synthesize information from various disciplines were critical to his success.
  • He drew inspiration from other industries, like grocery store barcodes, to innovate within FedEx.
  • Smith recognized the role of luck and timing in success, comparing his situation to Dwight Eisenhower's rise during World War II.
  • The concept of being the right person at the right time with the right skills is emphasized as key to seizing opportunities.

"Smith estimated that throughout the 80s he spent at least 4 hours a day reading." This quote illustrates Smith's dedication to continuous learning and information gathering, which informed his leadership and innovation.

"It became more and more obvious that Federal Express must have the ability to track at every moment, every item their system was transporting." Smith's realization of the need for package tracking led to a significant innovation in the logistics industry.

"Well, my guess is that there are probably a thousand Dwight Eisenhowers at any point in time, and Fred Smith's too." Smith's quote reflects his belief in the potential for many individuals to achieve great success, given the right circumstances and timing.

"The idea that is Federal express absolutely, positively would not have worked five years before we did it." This quote highlights the critical importance of timing in the success of FedEx and startups in general.

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