FedEx Turnaround


As a student at Yale University Fred Smith drafted the white paper of FedEx which earned him “C” in his term paper. His professor did not seem impressed with his the-next-big-thing concept.

Yet this very paper became the backbone of FedEx.

The blueprint talked about launching air cargo to reduce turn around time (TAT), what is today better known as the express delivery service. At the time, shippers transported only large packages with high margins by truck or passenger airplanes, but Smith thought it would be more efficient to carry small, essential items by aeroplanes too. His idea was to offset lower margins on small packages with higher volumes. Smith wrote this paper at the last minute, just before it was due, not knowing he would disappoint his professor completely.

In 1971, with a total investment of $84 million, $4 million of his inheritance and $80 million in loans and equity investments, Smith founded the company called as Federal Express, now popularly known as FedEx.


The company started operations in 1973 with eight planes (as shown above) covering 35 cities and an aggressive plan to expand coverage each month.

26 months into the business the firm racked up $29 million in losses, primarily due to rising fuel costs. Situation was such that pilots were asked to use their personal credit cards to fuel planes along with uncashed paychecks.

FedEx’s funds dwindled to just $5,000.

So what was a founder desperate to save his dream supposed to? What would turn things around?

Smith took an impulsive decision to fly to Las Vegas and play blackjack with that last $5000.

And as they say Fortune favours the brave.

He turned that final five grand into $27,000 – enough to pay a vital $24,000 fuel bill and save the company from bankruptcy.

When asked he aptly replied, “What difference does it make? Without the funds to clear debt, we wouldn’t have been able to fly anyway.”


Even though that $27,000 wasn’t enough, but Smith viewed it as a ray of hope, he raised another $11 million to support operations. It was only later in 1976, that Fedex was able to produce its first profit.

Any company that puts its future on a few cards, rolls of the dice, or spin of the roulette table to turn into a multibillion-dollar industry leader undoubtedly holds one of the greatest corporate comeback stories ever.

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