Fred Smith



Born: August 11, 1944
Marks, Mississippi
Founder and CEO, FedEx Corporation

Fred Smith. Reproduced by permission of AP/Wide World Photos.
Fred Smith.
Reproduced by permission of AP/Wide World Photos.

Fred Smith has been both an entrepreneur and a gambler. As most entrepreneurs do, he risked his own money to try something new in the business world. Unlike many entrepreneurs, he wildly succeeded, making his company, FedEx, a world leader in the shipping field. Smith has also taken on the role of a real gambler—doing whatever it takes to save his dream. During FedEx's first year, when the company was struggling, Smith went to a casino in Las Vegas and won $27,000 to help keep it going.

"I think it's unfortunate that to some degree the word 'entrepreneur' has taken on the connotation of gambler.… Many times action is not the most risky path. The most risky path is inaction."

Wealth and Service

In some ways, Frederick Wallace Smith was shaped by transportation long before he started FedEx. His grandfather had captained a steamboat, and his father, James Frederick "Fred" Smith, built the Greyhound Bus Line in the southern United States, making a fortune. A successful restaurant chain added to the family's wealth. Smith was born on August 11, 1944, in Marks, Mississippi. He had two older half-sisters, Fredette and Laura, from one of his father's previous marriages (his mother Sally was the elder Fred Smith's fourth wife). Mrs. Smith had two sons, Gary and Tommy, from a previous marriage. When Smith was four, his father died. His mother raised him on her own in Memphis, Tennessee.

Although Smith was rich, his childhood activities were slowed by a physical ailment, a birth defect called Calve-Perthes disease. The defect affected his hip, and Smith had to use crutches for several years. The crutches, however, did not stop him from excelling in school or keeping busy. Although Smith could not play baseball, he managed the team. He also won a school award for his leadership skills.

By high school, Smith recovered from Calve-Perthes and became an excellent athlete. He also learned how to fly airplanes. His mother was not in favor of this, but Smith insisted. Mrs. Smith later told Vance Gimble, author of Overnight Success, "He said, 'Mother you can always say if anything happens to me, I died doing what I wanted to do.'" When Smith attended Yale University, he started a flying club at the school. In college, Smith also joined a U.S. Marines program, and when he left school in 1966, he served in the Vietnam War (1959-75) as a second lieutenant.

Smith served in the Marines for three years. He earned several medals in Vietnam and flew two hundred missions as a scouting pilot. Smith was wounded twice in battle and another time an enemy bullet grazed him. Just before completing his service in 1969, Smith went to Hawaii to marry Linda Grisham, a high-school girlfriend. (He later divorced her and married Diane Avis.) When he left the military that July, Smith was ready to go into business. Years later, he said his Marine experience helped him run FedEx.

At Yale, Fred Smith joined a secret society called Skull and Bones. Another member of the club while Smith was at Yale was U.S. President George H. W. Bush (1924-).

Building FedEx

Smith's first job was running Arkansas Aviation Sales, a company based in Little Rock. The company was partly owned by Smith's stepfather, Fred Hook. Under Hook, Arkansas Aviation struggled, but when Smith took control, sales soared. Smith, however, did not like sales and began to think about a business idea he had first explored while at Yale.

Smith believed that existing air-transport companies could not make money. Most of them bought space on passenger flights to ship goods and so relied on transportation they did not control. Over time, airlines stopped flying to many cities and cut back on their nighttime flights. For shippers, this spelled disaster since the night flights were best for picking up packages in one city and getting them to their destination the following day. The transport situation was even worse for small packages, goods weighing under fifty pounds, as the companies made less money on them.

For Smith, the answer to the delivery problem was to start a company that would concentrate on small items, use its own planes to carry them, and promise next-day delivery. With the "hub-and-spoke" system Smith devised, planes would carry goods to a central distribution center at night. Workers would then sort the packages and put them on planes returning to their starting points. One of Smith's early business partners, Irby Tedder, said in Overnight Success that Smith returned from Vietnam with high ambitions: "He wanted to do something constructive. He wanted to do something that nobody else had done." In 1971, Smith formed the Federal Express Corporation, his first step toward achieving that goal.

To get a loan for his new business, Smith went to the board of directors of Fred Smith Enterprise Company, the company his father had owned. The directors included his half-sisters. With their support, and using $250,000 of his own, Smith bought the first of his Dassault Falcon planes. By 1973, FedEx was flying packages across the United States.

Fred Smith was often asked why FedEx carried only small items. Part of the reason, he explained, was to distinguish the company from its competitors. In Absolutely, Positively Overnight! he said, "We're not carrying mice and elephants on the same plane like a lot of cargo outfits.… We carry what a person can lift."

Lows and Highs

After FedEx's launch in 1973, Smith was sure the new express cargo airline would work. But for the first two years, he and the company struggled. In his quest to get money for the business, Smith had forged signatures on some bank documents. He also deceived his sister Fredette, taking all her shares in the Fred Smith Enterprise Company. She and Laura Smith later sued Fred to get back some of the money lost. In May 1974, with most of his money gone and his debt rising, Smith told his banker he was considering suicide. But Smith did not give in to his depression. As he faced the forgery charge and his sisters' lawsuit, he told the press in 1975, "I know my intentions were absolutely correct and am confident this complicated matter will be decided favorably."

Smith was right. He was found innocent of forgery, and in 1979, he settled the suit with his sisters out of court. By then, FedEx was making profits of more than $20 million, and Smith had invented a new industry: overnight express delivery. He kept looking for ways to expand the company, turning to overseas ventures and then entering ground shipping. At the same time, established shipping companies entered the air-express market, trying to copy FedEx's methods.

Adman Supreme

Although FedEx was always Fred Smith's company, he had help getting it off the ground. One important person was Vince Fagan, whom Smith hired in 1974. Fagan was in charge of marketing and advertising, and was one of the few senior executives willing to challenge Smith and fight for his own ideas. Fagan wanted to target ads at secretaries and executives, not just the people in companies who ran mailrooms and shipping departments. He also wanted to stop using the old-fashioned method of having salesmen call on companies to ask for their business. Instead, Fagan announced, FedEx should advertise, especially on television. That decision led to the famous FedEx TV ads. Some of the humorous ads showed clerks and secretaries who were afraid they would lose their jobs if a package did not arrive on time. The most well-known FedEx ads featured actor John Moschitta playing a fast-talking executive working in a fast-paced office. The company's slogan became, "Federal Express. When it absolutely, positively has to be there overnight."

As FedEx grew into a multibillion-dollar corporation, Smith made sure national political leaders understood his company's needs. His activity in Washington, D.C. began when FedEx fought for airline deregulation in 1977. It continued into the 2000s as Smith let members of Congress fly on FedEx jets on short notice. The company also hired several lobbyists, people who tried to convince representatives and senators to vote favorably on issues that affect FedEx. Smith also lobbied himself. One Washington lobbyist told the National Journal, Fred Smith comes up here often, and he is one of the most effective CEOs I've ever seen."

Along with running FedEx, Smith has an interest in the movie industry. His investment helped launch Alcon Entertainment in 1997. Producing Hollywood movies is notoriously risky, but Smith said the two young founders of Alcon convinced him to take part. Smith told Fast Company that the young men "came to me and pitched something they thought they could do in the movie business in a way nobody had ever done before—they reminded me of me."

For More Information

Books

AMA Management Briefing. Blueprints for Service Quality: The Federal Express Approach. New York: American Management Association, 1991.

Sigafoos, Robert A. Absolutely Positively Overnight!: Wall Street's Darling Inside and Up Close. Memphis: St. Luke's Press, 1983.

Trimble, Vance. Overnight Success: Federal Express & Frederick Smith, Its Renegade Creator. New York: Crown Publishers, Inc., 1993.

Periodicals

Biesada, Alexandra. "FedEx: Pride Goethe." Financial World (September 4, 1990): p. 38.

Fishman, Charles. "Fred Smith." Fast Company (June 2001): p. 64.

Hafner, Katie. "Fred Smith: The Entrepreneur Redux." Inc. (June 1984): p. 38.

Steel, Michael. "FedEx Flies High." National Journal (February 24, 2001): p. 554.

Tatge, Mark. "Start the Ground War." Forbes (November 26, 2001): p. 146.

Tausz, Andrew. "Revving Up Express." Distribution (October 1996): p. 16.

Web Sites

FedEx Corporation. [On-line] http://www.fedex.com (accessed on August 15, 2002).

FedEx Pilots Association. [On-line] http://www.fedexpilots.org (accessed on August 15, 2002).



User Contributions:

Comment about this article, ask questions, or add new information about this topic:

CAPTCHA