FedEx, the world’s first overnight delivery company, delivers more than 1.2 billion packages every year in over 220 countries.Yet in its early days, founder Frederick Smith was so desperate, he had to rely on gambling in Vegas to fund his company.
While majoring in economics at Yale University in 1962, Smith wrote a paper about the automation of society and the transportation of goods. At the time, shippers transported large packages by truck or passenger aeroplanes, but Smith thought it would be more efficient to carry
small, essential items by plane.
Smith wrote the paper at the last minute, just before it was due. When asked about the results, he admits, “I don’t know what grade, probably made my usual C.” Yet this paper became the backbone of FedEx.
In 1971, Smith founded the company with $4 million of inheritance and $US80 million in loans and equity investments. FedEx started out with eight planes, covering 35 cities, and it had plans to add more each month.
But in the first two years, primarily due to rising fuel costs, the company found itself millions of dollars in debt and on the brink of bankruptcy. Even worse, Smith’s vital pitch for funding to the General Dynamics board was rejected.
When FedEx’s funds dwindled to just $US5,000, Smith realised he didn’t have enough to fuel the planes. The company had already gone to many extremes, from pilots using their personal credit cards to fuel planes to uncashed paychecks.
So what’s a desperate founder to do? Smith impulsively flew to Las Vegas and played blackjack with the last of the company money
Amazingly, when he came back the next week, he had turned the remaining $US5,000 into $US27,000 — just enough for the company to stay in operation for another week.
In the book “Changing How the World Does Business: FedEx’s Incredible Journey to Success – The Inside Story,” Roger Frock, a former senior vice president of operations at FedEx,
describes the scene when he found out what Smith did. “I said, ‘You mean you took our last $US5,000 — how could you do that? [Smith] shrugged his shoulders and said, ‘What difference does it make? Without the funds for the fuel companies, we couldn’t have flown anyway.'”
The $US27,000 wasn’t the solution to all of their problems, but Smith viewed it as a hopeful sign that things would go up from there. He used the money as motivation to obtain more funding, and eventually raised another $US11 million. After stabilizing financially, Smith helped launch a direct mail advertising campaign to boost the company’s visibility. By 1976, Fedex produced its first profit of $US3.6 million. A few years later, it went public and has been thriving ever since.
Interestingly, FedEx isn’t the only company partially funded by blackjack winnings. Bill Gross, founder of PIMCO, also used gambling to fund his investments.
NOW WATCH: Ideas videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.