Down to His Last $5,000, He Risked It All Playing Blackjack

His company is worth $73 billion today

After putting up $4 million of his own dollars and raising $91 million more, he was down to his last $5,000 and about to lose his company. Desperate, he went to Vegas and put it all on the blackjack table. Talk about risk!

But he saw risk differently than you or I might. You see, by then he’d already served two tours of duty in Vietnam and was honorably discharged having received the Silver Star, the Bronze Star, and two Purple Hearts.

Unhesitatingly rushing through the intense hostile fire to the position of heaviest contact, Lieutenant Smith fearlessly removed several casualties from the hazardous area and, shouting words of encouragement to his men, directed their fire upon the advancing enemy soldiers, successfully repulsing the hostile attack. Moving boldly across the fire-swept terrain to an elevated area, he calmly disregarded repeated North Vietnamese attempts to direct upon him as he skillfully adjusted artillery fire and air strikes upon the hostile positions to within fifty meters of his own location and continued to direct the movement of his unit. Accurately assessing the confusion that supporting arms was causing among the enemy soldiers, he raced across the fire-swept terrain to the right flank of his company and led an enveloping attack on the hostile unit’s weakest point, routing the North Vietnamese unit and inflicting numerous casualties. His aggressive tactics and calm presence of mind under fire inspired all who observed him. — Frederick Smith — Recipient — Military Times Hall Of

After living through Vietnam, risking everything in Vegas didn’t feel as scary.

Even better? It paid off. By betting his last $5,000 he won back $27,000 and was able to keep his company running for another week. Just enough time to secure a much-needed bank loan.

FedEx founder, chairman, and CEO, Frederick W. Smith came within a hairs width of losing everything he’d worked so hard to build. Instead, he found a solution. Sure he might have lost it all that night in Vegas, but he didn’t. He believed in the business he’d built and he knew there were worse things than losing money. Plus, he believed in never giving up.

“I think probably my experience in the service, where — the currency of exchange in FedEx was just money, it wasn’t people’s arms and legs, or lives. I was willing to take a chance, because losing wasn’t the worst thing in the world that could happen to you. I had seen that very clearly. So luck, naïveté, willingness to roll the dice to do something productive, were all individual parts of the puzzle.

The motivation I had in those days was that I didn’t want to let down the people who had signed on with me. It goes straight back to that Marine Corps experience. I wasn’t afraid to lose my money. I knew I was right, I knew I had put this thing together properly and that it was going to be all right. That was what stood me in good stead.” — Frederick W. Smith, Acadamy of Achievement Interview

Seed of an idea

The idea for FedEx came to him while he was at Yale. He wrote an outline for the business in a term paper. He wrote about a computerized society on the horizon. This was in 1965 — impressive foresight. He figured this new society would need to change the way things were distributed. At the time packages had to rely on passenger route systems already in place.

He proposed a system designed for time-sensitive shipments such as medicine, computer parts, and electronics. He received only an average grade on that paper. His professor missed how revolutionary his idea had been.

After he graduated from Yale he joined the Marines and then went off to Vietnam, where the idea percolated in his mind some more. He witnessed a lot of waste in the military. Supplies were pushed around and invariably ended up in the wrong place. He thought a lot about distribution and how to improve it.

Wheels up

Back at home, he dove into his business idea. He had $4 million of his own money from an inheritance and went about finding investors which brought in another $91 million.

Unlike most start-ups, FedEx couldn’t start small and grow slowly. To get the customers it needed, it had to have its infrastructure in place on day one. He needed a lot of money upfront — there were planes to buy, government regulations to change.

Why was he able to get investors to back his idea?

  1. Investors saw that he was risking his own money.
  2. The business was demonstratable. He had done a lot of independent marketing studies and could show the demand.
  3. The business was easy to understand. It didn’t need a technological breakthrough or the development of a new market.

While he was looking for the fastest way to connect the dots for distribution, Smith decided a single clearing hub and spokes system was 100 times more efficient than any other. He chose Memphis as the hub because it was centrally located and there were hardly any days the airport was closed for bad weather. This was how Federal Express was born.

After 2 weeks of flying empty boxes across the country, the test phase was over and on April 17, 1973, when Smith was just 28 years old, they went live. That night, 14 small aircraft took off from Memphis and delivered 186 packages to 25 U.S. cities. Xerox was one of its first customers.

“It was just like Pogo the Possum said, “If you want to be a great leader, find a big parade and run in front of it.” And that’s what we’ve been doing.” — Frederick W. Smith, Acadamy of Achievement Interview

After 26 months and $29 million in losses, he took his last $5,000 to Vegas and the rest is history.

“First and foremost, the idea was a profound idea, as has been shown. The requirement for this type of a system was so great and was increasing at the time. I just had the good luck to have an idea that was on the tide of history.” — Frederick W. Smith, Acadamy of Achievement Interview

Determination

Fred Smith was a determined man. The seeds of which may have been born in him at a very early age. His father died when he was only 4 and he spoke of having to learn a lot of things on his own.

When he was very young he was crippled with a bone disease but regained his health by 10. He went on to love playing sports, and he became an amateur pilot at 15. The years he was held back by his bone disease appear to have sparked great energy and determination in him.

Notable influencers and lessons learned

During his time with the Marines, Smith learned how to treat people and how to be a leader. He found himself surrounded by men from all walks of life and learned to see different perspectives.

“There were several people who profoundly affected me. One was my platoon sergeant, Staff Sergeant Jack Jackson, who was a very wise man, about 10 or 15 years older than I was.

When I first met Sergeant Jackson I had grown a mustache and had taken up the affectation of smoking cigars, because I thought this made me look, you know, quite dashing and much older than my 22 years.

And the first thing that Sergeant Jackson did after I asked him to, in essence, take the insignia off, you know, just tell me straight up what I could do to improve my performance. And he told me, he said, “Well, the first thing, shave off that ridiculous mustache, and quit smoking the cigars — because you look absurd — and be yourself.” And I don’t think I ever forgot that. I don’t think I ever tried an affectation after that point in my life.

He told me I looked like a smooth-faced kid trying to be something that I wasn’t. That stuck with me a long time, to this day.” — Frederick W. Smith, Acadamy of Achievement Interview

He may not have had his father to learn from but there were others who offered good lessons along the way.

Coach

He admired a football coach who he described as a little guy who persisted tirelessly. “He just would never, ever say die. He absolutely proved to me that persistence was a very big part of making it in life. I never forgot that lesson.”

George Marshall

Fred Smith fashioned his business philosophy on his military experience. One of his biggest influences was George Marshall of the Marshall Plan fame.

Smith loves the story of George Marshall’s superior being chewed out in front of everyone. Marshall stepped forward in the man's defense and said “General, with all due respect, you’re wrong and this is why you’re wrong.” The same General called him later and made him his Chief of Staff.

The lesson Smith took away — you have to surround yourself with people who will tell you the truth. If you don’t, as your organization gets bigger, you’ll fall out of touch with what’s going on.

These are invaluable lessons for a business leader.

FedEx Corporate Philosophy

People — Service — Prophit

Fred Smith believed in producing a culture where people are treated fairly. That’s why he put people ahead of service and profit in the FedEx philosophy. He introduced profit sharing, promotions, and complaint procedures for his employees.

His management system is built on continuous quality improvement. “We spend a huge amount of money, particularly on the technology, to allow us incremental improvements in every part of the operation year after year, month after month.”

Most important is his focus on change. As the business has grown it gets better because it isn’t afraid to change.

“As time changed and markets changed and peoples’ expectations changed, we changed with them. For example, when it became obvious that people wanted to interface with FedEx electronically, many years before people were doing this, we built an electronic interface system that allowed them to do business with us. When the Internet came on the horizon, we built versions of that that allowed people to interface with FedEx over the Internet. And now there are millions of people doing business with FedEx every day electronically.”

Advice

When asked what his advice to young people would be, Fred Smith suggests they take advantage of the tremendous reservoir of knowledge that’s out there today. “Spend some time learning how the world has evolved. There are a lot of good lessons in history, and other peoples’ experiences in the past, that could be exactly the solution to the problem you’re looking for.” And read. Read, read, read.

Important traits

Fred Smith claims there were 3 main traits that led to his success. They were:

  1. Conviction — it’s what propels you through the ups and downs.
  2. The ability to treat people fairly — it was important to him to make everyone at FedEx feel successful.
  3. An element of humor — enjoy what you’re doing and have some fun. Laugh at yourself a little. (This has been obvious over the years when you look back at all those funny FedEx commercials.)

In summary

By researching Fred Smith and the type of man he is, I learned the following points are important to be successful in business and to be a good leader:

  • Find a problem that needs solving
  • Have the courage to take risks
  • Do your research
  • Be willing to stake out new ground
  • Have conviction
  • Show a total commitment
  • Never quit
  • Surround yourself with people who will tell you the truth
  • Just be yourself
  • Treat everyone fairly
  • Engage in constant change
  • Take advantage of all available education
  • Read, read, read

Today Fred Smith’s FedEx delivers packages to over 220 countries with 490,000 team members and has the world’s largest all-cargo air fleet.

As of Dec 2020, the company’s value is over $73 billion.

In hindsight, I’m sure you’ll agree, laying down his last $5,000 on the blackjack table was a very worthwhile risk.

I read, I write, I learn. I’m forever dedicated to my curiosity. Blog: https://www.renovatorlife.com Twitter: @BonnieJohnson

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