FedEx: Founder Gambled His Last $5,000 at a Blackjack Table to Stave Off Bankruptcy

See the hidden arrow in the FedEx logo?

Fred Smith, then an undergraduate at Yale University, wrote a paper for an economics class that proposed overnight delivery service in which one carrier is responsible for a piece of cargo from pick-up through delivery. To accomplish that, the carrier needs to fly all of its own airplanes, operate its own depots, posting stations, as well as delivery vans.

At the time, cargo shipment was handled by a chain of companies - the journey of a box would include being picked up by a local agent, flown by an airline's cargo department, then handed over to a local van company for delivery, so Smith's idea was unorthodox, and he got a grade of "C" for that paper. The professor wrote: "The concept is interesting and well-formed, but in order to earn better than a 'C', the idea must be feasible."

Despite his professor's lack of encouragement, Smith held on to the idea and founded Federal Express in the early 1970s. In 1973, the company carried its first load of 186 packages ... and immediately ran into financial troubles. Beset by rapidly inflating fuel prices and other costs, FedEx was bleeding money.

Federal Express' first plane: Dassault Falcon 20, now at the Smithsonian Naitonal Air and Space Museum. Photo: RadioFan/Wikipedia

FedEx had only $5,000 in its checking account, and faced a $24,000 jet fuel bill. After he was turned down for a loan by General Dynamics, Smith took his last $5,000, flew to Las Vegas and played blackjack. He won $27,000 - enough to pay the fuel bill and operate for another week. Smith's partner Roger Frock recounted the experience:

I said, "You mean you took our last $5,000-- how could you do that?" He shrugged his shoulders and said, "What difference does it make? Without the funds for the fuel companies, we couldn't have flown anyway." Fred's luck held again. It was not much, but it came at a critical time and kept us in business for another week."

Shortly afterwards, Smith was able to secure more loans and FedEx rode out its bumpy early days. Today, FedEx carries up to 17 million packages on its busiest day and is worth about $28 billion. Fred Smith himself is worth about $2 billion.

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Did anyone ever go back to the professor who gave him the "C" grade and ask him what he thought about FedEx? Of course being 40 years ago now he may be gone, but if anyone ever interviewed him it would be interesting to read.
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