Why FedEx Bet Their Entire Company In A Casino

[Music] FedEx employees well over half a million people worldwide has a market cap of over 40 billion dollars and delivers millions of packages every day in countries all over the world but in the early 1970s this future shipping Empire depended on one man five thousand dollars and a weekend in Las Vegas this is the absolutely crazy story of FedEx [Music] Frederick Wallace Smith founder of FedEx did not get off to a good start in life at the age of four his father passed away and for the first 10 years of his life Fred was afflicted with the type of childhood arthritis called perthy's disease that affected his hips temporarily causing a loss of blood flow and affecting his ability to walk thus Fred was forced to spend his early years in leg braces and use crutches to get around and Fred face bullying as a child because of his condition however by his 10th birthday Fred had overcome this and he was able to not only walk but within a few years began to acquire flying something that would play a pivotal role in his future success but during High School Fred started his first small business the Arden record company which he founded along with some friends it started as a small recording studio in a garage but eventually grew into a larger recording company which actually still operates to this day however Fred left the company in 1962 to go to Yale University and study economics in his junior year Fred wrote a term paper where he proposed a business idea that he said could revolutionize the way goods were transported now at the time packages were shipped throughout the US in the cargo holds of commercial airliners and thus the delivery schedules were at the mercy of the passenger Airlines this meant package delivery times were much slower and less predictable so for people who had something to send urgently for example medical supplies or legal documents surely there had to be a better and faster way so Fred's idea was to buy a fleet of jets fly in the middle of the night whilst airports weren't as busy with outgoing flights and then sought the packages at one Central Hub and deliver the packages from there by truck Fred believed this idea of carrying small high priority packages at night would mean that companies and individuals could have their packages delivered in just one or two days much faster than the current restrictive Airline schedule Fred was excited about his idea and handed in his college paper however he ended up only getting a c grade from his economics professor who told him that the idea wasn't feasible and wouldn't work Fred was obviously very deflated by this but he still convinced the idea had potential and wanted to pursue it and prove his Professor wrong however after graduating from Yale in 1966 he would not get a chance to act on it the Vietnam War was becoming more intense and Fred's flying experience led him to three years in the U.S Marine Corps including two tours in Vietnam as a navigator his life was undoubtedly endangered during this period and on one occasion he even survived a Viet Cong Ambush however during Fred's time in the military two crucial things happened firstly he paid close attention to how the military handled both sending and receiving goods and noticed many ways their shipping Logistics could be improved there were often times where supplies took too long to get from one place to another and secondly in his spare moments in the barracks Fred would always played blackjack and he very quickly got a reputation for being really good at it of course at the time Fred was just playing for fun a brief distraction from the horrors of War but little did Fred know that this card game would completely change his life and the entire future of shipping [Music] after leaving the Marines in 1970 and witnessing the destruction of War Fred said he was so sick of destroying and blowing things up and that he came back determined to do something more constructive so once again thrusting himself into the unknown at age 26 Fred began working at his father-in-law's business called Arkansas Aviation sales and soon bought a controlling interest in the company the business was originally an aviation servicing and repair company but Fred helped transform it into more of an aircraft dealership which significantly increased company profits but Fred was frustrated with how slowly things moved shipping parts from one point to another took too long and the company was regularly struggling to get the parts they needed on time Fred was once again reminded of his idea from his economics paper that would enable shipments to be delivered across the country within just 24 hours as they wouldn't be reliant on passenger planes that happened to be flying to the destination the package was going so Fred began planning out a system using both air and ground transportation that would be more efficient and involve non-passenger plan gains taking the packages to essential sorting facility where they then be sent off on their own separate routes and delivered by trucks it was a hub and spoke system that he felt could truly revolutionize shipping but he concluded he needed 14 Jets to begin his full operation now Fred's family were wealthy as his father had been a successful businessman who'd run several different Enterprises including a restaurant chain called toddle house and thus before Fred's dad had passed away he'd set up a trust fund for Fred however despite this Fred still had nowhere near enough money for the size of the operation he was planning so Fred began pitching it to investors and they were impressed with Fred's knowledge of the airline industry it was clear if Fred had put a lot of thought into the system and investors knew what a lucrative business this could be if he pulled it off so by 1972 Fred managed to get around 91 million dollars in loans of venture capital funding to build his revolutionary shipping business now Fred's initial plan was actually to focus on checks to start with of course nowadays we take for granted money being instantly transferred all over the world but back in the days when people sent checks as payments it was often a very long process and so Fred contacted the Federal Reserve America's Central banking system hoping they could strike up a partnership at the time checks would often have a 10-day turnaround time whereas with Fred's new shipping system it could be a 24-hour process allowing them to quickly deliver checks between the Federal Reserve Banks the feds seem to like the idea as well and agree to the deal so Fred went ahead and bought and outfitted a small Fleet of lightweight aircraft to fulfill the contract Landing the FED as a client also inspired Fred's choice of business name as he originally called the company Federal Express thus Fred's shipping business was finally born and the Federal Express logo was proudly plastered on each plane letterhead business card and bulletin board Fred had his first client and a very big client at that and so the future looked exciting and then quite suddenly the Federal Reserve backed out of the deal meaning Fred was stuck with the planes bills and the name Federal Express despite no longer working with the fed this was a massive setback but Fred kept the name Federal Express anyway in fact it wouldn't be until 1994 that he changed company name to FedEx corporation instead because most people simply referred to the company by the shorter nickname FedEx anyway but anyway back in the early 70s since he was no longer going to be transporting checks for the Federal Reserve Fred turned his attention to shipping small urgent packages for businesses and consumers and on April 17 1973 FedEx officially began operating Fred chose to base the company in Memphis since it was fairly centrally located in the US which made it an ideal hub for Fred's Plan Plus Memphis Airport agreed to make certain adjustments they needed for the business to operate smoothly and had additional Hangar space readily available plus the airport was rarely closed because of bad weather so FedEx was in business and on the first night of operating 14 aircraft delivered 186 packages to 25 different U.S cities and word of this overnight delivery system quickly spread the vision Fred had had back when he wrote the economics paper all those years ago was finally now a reality but little did Fred know a crisis was about to begin that would completely destroy the business just as Fred's business was beginning so was the 1973 oil crisis you see because of political tensions in the Middle East the organization of the petroleum exporting countries known as OPEC placed an oil embargo on countries they believed were supporting Israel which included the United States where Fred was operating his business since the U.S heavily relied on oil from the Middle East they were one of the hardest hit countries and the oil prices quadrupled and these rapidly Rising fuel costs put FedEx in serious trouble Federal Express was just getting off the ground and the 14 Falcon airplanes took a lot of jet fuel and because of the oil embargo jet fuel was hitting historic high prices with no potential downturn in sights as a result FedEx's operating costs were spiraling out of control and the company was losing an estimated thirty thousand dollars per day Fred's Vision was literally running out of gas and federals express hopeful Beginnings were losing altitude it's estimated in the first 26 months of business Fred Smith saw a 29 million dollar loss and understandably investors were not so keen on putting more money in since it was unclear when oil prices were drop again Fred became so desperate that he had to ask his loyal employees to hold on to their paychecks and not cast them for as long as possible in order to try and keep the company afloat FedEx pilots and drivers even started using their own credit cards to fuel up and get reimbursed later as they knew how little money the company had left Fred himself completely stopped taking any pay from the company because there wasn't really any to take but it still wasn't enough the oil embargo and difficult economic situation was all too much the company got down to its last five thousand dollars in its bank account and at that moment Fred received a fuel bill for twenty four thousand dollars it was a Friday and with five thousand dollars in the business bank account and a bill of twenty four thousand dollars due by Monday it seemed Federal Express was heading for bankruptcy in a desperate last-ditch attempt to save the business Fred Smith tried to land a potential investment deal with General Dynamics which could secure an emergency cash influx he put his best suit on and went into the meeting believing this could be the turning point for his company but the deal fell through due to the volatility of the current situation and the need to be considered Innovative General Dynamics rejected his pitch after this denial for further business financing it seemed Fred could not afford to pay the fuel Bill and therefore this was the end of his business sitting in an airport lounge on his way home from that meeting Fred feeling utterly depressed began to think about the future of his then 389 employees and how they were all going to lose their jobs he thought about his dream how close they were but how ultimately his economics professor was going to be proved right all along as he sat in that airport lounge in Chicago he knew that once he landed back in Memphis he'd have to break the bad news to his team he'd have to admit defeat and perhaps pack up the things in his office after all unless he could pay the fuel Bill the planes wouldn't fly Monday for a moment Fred felt completely defeated it was over but then he started to give himself a pep talk this was Fred Smith who'd beat a childhood of physical pain and overcome his disease this was Fred Smith who'd got his pilot's license at age 15 and helped start a record company in a garage whilst in high school this was Fred Smith who graduated from Yale and survived two tours in Vietnam in that moment Fred vowed that if the banks and investors wouldn't give him the money he needed to save the business he'd get it himself Fred was due to start boarding his flight in a few minutes but at the last moment he decided he wasn't going back to Memphis instead Fred withdrew the final five thousand dollars in his company's bank account and impulsively booked a new flight to a different destination Fred Smith was heading to Las Vegas [Music] Frederick decided if we're gonna go down we're gonna go down with a fight that's why he'd taken the company's last five thousand dollars and decided he was gonna gamble it and try to win enough money to pay FedEx's bills so the survival of FedEx came down to a weekend of gambling in Las Vegas once Fred landed in Vegas he headed straight to the blackjack tables now Blackjack is a pretty simple game your cards need to add up to a higher number than the dealer but not go over 21. however in the 70s there were some blackjack tables which just used one deck of cards which meant it was easier to count cards and gain an edge a skill thread had developed in the Marines from all the time he spent playing the game of course whilst this gave him a slight Advantage it was still a game Reliant on luck and Fred's luck definitely went both up and down he'd win a couple of hands but then lose a couple and so his winnings went up and down as well it was nerve-wracking enough playing when there was just money on the line but this was his entire company on the line his dream and the jobs of all his employees but Fred remained focused playing hand after hand and at one point managed to get up to 35 000 he felt Unstoppable Bowl but then he had a bad hand and another his confidence started to shake his earnings were quickly falling but luckily he stopped with Just Enough by the end of the weekend Fred had successfully turned Federal Express's remaining balance of five thousand dollars into twenty seven thousand dollars and that was enough to pay the looming fuel Bill and keep the company in the air for another week so Fred quit while he was ahead deposited the cash in the business bank account and headed home now obviously twenty thousand dollars wasn't going to be enough to save the company Long Term but it brought himself and the company a little more time to come up with a plan before we get to the next chapter I want to tell you about today's video sponsor Masterworks it's fair to say this year has been tough for most investors it's reported retail investors were down an average of 44 this year which is probably where institutions like big Banks and firms are now allocating 30 to 50 of their assets to Alternative Investments like Goldman Sachs name's fine art as a way to help protect purchasing power and that's where Masterworks comes in they let you invest in the same Blue Chip art that's worth millions this isn't nfts or crypto this is Art like Picasso and Banksy Masterworks buys iconic artworks breaks the painting into shares with the SEC and lets you invest this process is called securitization and Masterworks are actually the first people ever to do it with Fine Arts then when Masterwork sells a painting you're invested in you're going to share the payout for example they sold one in November for a 17.8 net return and one in December for a 13.9 net return as a result of their standout performance Masterworks is constantly releasing more art on their platform to meet demand and there's a wait list to join their 600 000 other members but you can skip it just by clicking the link in the description masterworks.artmagnates media when Fred returned his team at FedEx was shocked to learn that Fred had taken the company's final five thousand dollars and literally gambled it but to be fair to Fred there had been logic to his decision without paying their fuel Bill the company was doomed to fail so he essentially felt he had nothing to lose and as it happened the gamble quite literally paid off it not only showed Fred was willing to risk it all for the business but it had brought Fred more time to speak with investors and sure enough within a couple of weeks Fred had managed to get new investors to come on board and put in 11 million dollars this resulted in their first profitable year in 1976. now during the turbulent 70s most Airlines and Couriers were playing it very conservative and cut their costs as much as possible but Fred ever The Gambler decided that whilst that competition were being risk-averse it was the perfect time for FedEx to double down on their marketing and go all in so FedEx far out spent the competition with big advertising campaigns this significantly increased FedEx's market share in the industry and improved the brand identity and recognition however they weren't even attempting to take business from the big guys they were we're going after new territories and new markets Federal Express initially kept its focus on smaller cities rather than the large ones where Airline cargo holds were still delivering packages this meant FedEx had much less competition and reached a lot of new customers by 1976 19 000 Parcels per day were being moved and due to their ability to handle big shipments so quickly they soon attracted big customers like IBM and even the US Air Force Federal Express was expanding quickly but very soon there was another roadblock that Fred Smith and his team would have to deal with the government hey guys before we get to the next part of the story I just want to say that if you find these videos interesting please consider turning on notifications for magnates media I'm working on some even bigger projects right now so if you want to make sure you see them when they're ready just hit the notification Bell now also I just want to say a massive thank you for watching this channel these videos do take a long while to make so honestly I really appreciate all your comments and supports So yeah thank you for everything and now let's get back to the story during the later half of the 1970s logistic companies of all shapes and sizes were beginning to pop up Trucking was changing shipyards were growing and the transportation of packages by air was on the rise but something was stifling progress Airline transport regulation because of previous regulations secured by the major airlines they developed a monopoly on moving larger weightier Goods in their cargo holds they got paid to move people and they got paid to move packages and they could move a lot because the regulation laws gave them precedence and unlike companies such as FedEx the airlines didn't have the same weight restrictions on their planes for example FedEx couldn't legally carry more than 7 500 pounds per plane which restricted them to only small aircraft which obviously hindered how much they could expand their business but if that restriction were to be lifted the sky was the limit and Fred could use the largest planes possible to grow his business faster and expand its customer reach so Fred decided to make another bold move and joined forces with his competitors FedEx and other small carriers banded together and vigorously lobbied the US government and the then President Jimmy Carter FedEx spent several years lobbying Congress for deregulation of Air Cargo and this shared desire for true and Fair competition paid off in 1978 President Carter created and signed the airline deregulation act which removed the restrictive limits in place for couriers such as the Restriction about how much weight could be on board a plane this gave FedEx and many other similar carriers the ability to fly as large of planes as they could afford and thus provide genuine competition for the big commercial airlines Fred Smith was now free to expand and grow enormous Limitless level with this newfound Freedom given by the federal government Fred decided to take the company public on the stock market and in 1978 FedEx had its IPO on the New York Stock Exchange helping Fred raise even more money for the company this influx of more money allowed Fred to expand the company's destination list which meant building new hubs all over the United States along with buying more and bigger planes Fred finally had the freedom the funding and the drive to take his company to a whole new level full with more freedom and more planes the 1980s saw even more rapid expansion for FedEx in 1981 FedEx opened its first world Hub in Memphis and built the company up to being the largest effort company in the US at that time Fred also expanded the company's technology as well and it's reported FedEx were the first U.S company to use computers to internally manage and track packages and by 1983 the Financial Security of FedEx was no longer in question sales top to 1 billion dollars for the first time and by 1984 they started InterContinental operations with shipping services to Europe and Asia year after year during the 80s FedEx stacked up new record-breaking stats and by the end of the decade they were operating in 90 countries across all continents they also bought International careers such as Geico Express International and flying tiger to help give them a stronger foothold in other countries too another big development FedEx pioneered in the 90s was allowing passengers to track their Parcels themselves online via the Internet and by the end of the 90s FedEx was the number one overnight shipping service in the world however since FedEx's business model was clear really successful more and more competition had also popped out so FedEx began buying other companies to expand their offerings further for example in 2004 FedEx purchased the printing business King goes for 2.4 billion dollars they also acquired logistics companies customs and duties companies and many more businesses this allowed FedEx to vertically integrate and be a part of the full package sending experience and if you look at FedEx's services today you'll see it so much more than just the simple service of shipping packages from point A to point B like when the company first began as of today FedEx's number of planes hubs and destinations have grown to staggering numbers whilst Fred himself has become a multi-billionaire as he's still the largest individual shareholder of FedEx and since its reported FedEx has over 700 planes in its Fleet it's actually one of the world's largest airlines not bad for a business idea that only got given a c grade however if you want to see an even crazier Underdog business success story you're definitely going to want to watch the story of Nike I think you're really gonna enjoy this one just click the thumbnail here and I'll see you there in a second [Music]

Channel: MagnatesMedia

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Keywords: Fedex story, fedex history, fedex business, story of fedex, business story, business documentary, business movie, company story, entrepreneur, entrepreneurship, business success story, entrepreneur success story, successful business, successful entrepreneur, crazy business story, FEDEX, FedEx, Federal Express, businesses, companies, entrepreneurs, magnatesmedia, magnates media, magnetsmedia, magnetmedia, maganatemedia, MagnatesMedia, Magnates Media, Magnate media, magnets media

Id: weHYzzDXca0

Length: 19min 46sec (1186 seconds)

Published: Fri Dec 30 2022