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Smith, Fred 1944–

Fred Smith
1944

Founder, chairman, chief executive officer, and president, FedEx Corporation

Nationality: American.

Born: August 11, 1944, in Marks, Mississippi.

Education: Yale University, BA, 1966.

Family: Son of Frederick C. (businessman) and Sally (Wallace) Smith; married Linda Black Grisham, 1969 (divorced 1977); married Dianne Avis; children: ten (two from first marriage).

Career: Ark Airlines, 19691971, owner; Federal Express Corporation, 1971, founder and president; 1975, chairman, president, and chief executive officer.

Awards: Peter F. Drucker Strategic Leadership Award, 1997; named "CEO of the Year" for 2004 by Chief Executive magazine.

Address: FedEx Corporation, 942 Shady Grove Road, Memphis, Tennessee 38120-4117; http://www.fedex.com.

In 1971 Frederick Wallace (Fred) Smith came up with a revolutionary idea: delivering packages reliably overnight. With the creation of Federal Express Corporation, Smith not only offered an alternative to the mail and more traditional and slower delivery services, but he also created an industry that almost single-handedly changed the way business was conducted. In the process, Smith's company became the first American business to earn $10 billion in profits. By 2004 FedEx was delivering to 210 countries using over six hundred aircraft, 46,000 vehicles, and 141,000 employees. But Federal Express and Smith were not just about providing fast and dependable deliveries to clients worldwide. At the root of the company's success was Smith's tried and true philosophy: people, service, profit (P-S-P). To that end, Smith worked hard at being accessible to his employees and clients with a management style that combined vision, risk-taking, a sense of community, and a tough-minded approach.

EARLY LIFE

Smith was born in Marks, Mississippi, on August 11, 1944. The younger of two sons, Smith was named after his father, an entrepreneur and businessman who established the Dixie Greyhound Bus Lines, later a part of Greyhound Bus Lines. To further supplement the family fortune, the senior Smith and his older son established the Toddle House Restaurant chain, which offered Southern-style cooking at locations throughout the United States. In 1948, when Smith was only four years old, his father died. Fortunately for the family, Smith senior had made enough money to ensure his familywhich now consisted of a wife, two sons, and two daugh tersa comfortable existence. However, it would be a long time before the children would see any of their father's money. Concerned that his children would squander their fortunes and waste their lives and talents, Smith senior had his money placed into a trust fund to be released to the children upon their 21st birthdays.

From early childhood, Smith was troubled by a birth defect known as Calve Perthes disease, a peculiar form of childhood arthritis of the hips caused by a temporary loss of blood supply to the hip. The ailment was such that Smith spent much of his early years on crutches and in braces to stabilize his hip joint sockets. However, by the time he was 10, Smith had out grown the disease. Smith attended Memphis University Prep, where he participated in athletics and was an excellent student. He also developed a keen interest in the American Civil War. But Smith's true passion was flying; by the age of 15 he was learning the ropes while operating a crop duster. In time he became known as a skilled amateur pilot. Smith's business acumen started early; while in high school, he and a group of friends founded the Ardent Record Company, a small recording studio that later went on to become a legitimate company. In 1962 Smith left Memphis to attend Yale University.

THE ROAD TO FEDEX

While at Yale, Smith intended to study economics and political science. Unfortunately he found himself more drawn to campus social activities, which affected his scholastic performance. However, one incident in his junior year stood out, providing the germ of an idea that later carried Smith to success. For an economics class Smith wrote a term paper that outlined his idea for a company that would guarantee overnight delivery of small, time-sensitive goods, such as replacement parts and medical supplies, to major U.S. cities. The professor was not impressed and gave Smith a grade of C for his work. But Smith's idea stayed with him, though it would be a few more years before he would have the opportunity to try it out. In 1966 Smith graduated with a degree in economics and shortly thereafter enlisted in the U.S. Marine Corps. As a second lieutenant, Smith was sent overseas to fight in Southeast Asia during the Vietnam War. Smith would do two tours in Vietnam, enrolling in flight school and eventually flying more than two hundred ground support missions. In July 1969 Smith was honorably discharged at the rank of captain with numerous honors, including a Silver Star, a Bronze Star, and two Purple Hearts. In August, Smith married Linda Black Grisham. However, the marriage would not last, and the couple divorced in 1977.

Upon returning to the United States in 1970, Smith decided to revisit the idea he had written about in his economics paper. The need to create something was also spurred in part by his time in Vietnam. As he later told an interviewer, "I got so sick of destruction and blowing things up that I came back determined to do something more constructive" (Current Biography Yearbook 2000 ). To get his fledgling business underway, Smith began by purchasing the controlling interest in Ark Aviation Sales, an aircraft maintenance company owned by his then father-in-law. By 1971 Smith had expanded the company's venue, turning the focus from airplane maintenance to a company that bought and sold used corporate jets. But even the success of posting over $9 million in revenue and the company's seeing profits for the first time were not enough to satisfy Smith.

A RADICAL IDEA

By now Smith had devised a well-thought-out strategy to implement his idea while making the most of his resources. Originally Smith wanted to do contract work for the Federal Reserve System, transporting, sorting, and rerouting checks. His business plan called for a fleet of planes that would pick up packages for delivery. The planes and cargo would be flown at night, when air traffic was minimal; packages would then be dropped at a central location or hub, where they would be sorted. From there the parcels, using both ground and air, would be routed to their destinations within a 24-hour period. Smith chose Memphis as the hub city because of its central location, moderate climate, and labor resources. Smith also wanted the company to own its own planes in order to bypass federal shipping regulations.

Despite Smith's proposals, which he calculated would have saved the nation's banking system an estimated $3 million a day, many financial institutions, while interested, were not convinced that Smith's ideas could realistically be carried out. On paper Smith's delivery system was simple and practical. However, there were many problems to overcome to make it work. Financially, the business required a tremendous amount of money for planes, pilots, and insurance. Smith also needed to design a transportation system that could not only link any two parts of the country but also ensure that packages going back and forth could be delivered within the promised 24-hour windowsomething that had never been tried before in cargo delivery.

Although Smith was unable to convince the Federal Reserve that his plan would work, he decided to spend money on an intensive advertising campaign to persuade anyone else who might be interested in such a venture. Smith also realized that by using both air and ground transport, package deliveries did not have to take the most direct route, as long as they made it to their destinations within 24 hours. Over time a web of interconnecting cities was established that would provide Federal Express service. Finally, on June 18, 1971, Smith, then 27 years old, created the Federal Express Corporation. His startup funds consisted of $91 million from venture capitalists in addition to his own $4 million inheritance. By 1973 Smith was ready to go; Federal Express, with a fleet of 14 jets and several vans, began offering service to 25 cities. Still, as Smith later recalled, few people were encouraged by his new venture. In a 1979 interview, Smith said, "People thought we were bananas. We were too ignorant to know that we weren't supposed to be able to do certain things" (New York Times, January 7, 1979).

Federal Express's first two years were grim. In fact, on its first night of business, the fledgling company shipped only 186 packages onto its 14 Falcon jets routed to 22 cities. Within the first three months of operation, the company had lost almost a third of its start-up cash. It was not uncommon for Federal Express drivers to dig into their own pockets to pay for gas. The company also lost money because of high advertising costs (Smith believed advertising to be essential for his company's survival) and because of increased aircraft fuel and gasoline prices resulting from the Arab Oil Embargo of 1973. Smith's sisters also brought suit against their brother for misappropriating their trust fund monies. These and other factors, such as outdated federal aviation restrictions and run-ins with the International Brotherhood of Teamsters, caused FedEx to lose $29 million in its first two years of operation. However, by 1976 the company had begun to show a profit as it delivered everything from documents and computer parts to sensitive parcels, such as blood and organs. Despite competition from UPS and other delivery companies, the Federal Express customer base was growing as well; besides counting several businesses among its clientele, Federal Express was also handling deliveries for the federal government. By 1978 the company had proven itself financially stable enough to begin selling shares on the New York Stock Exchange. In 1984 Federal Express reached a milestone not only for itself but also for American business when it surpassed $1 billion in revenues.

GOING GLOBAL

Not content just to oversee his growing delivery network, Smith cast about for other ideas that would maintain Federal Express's position as the fastest-growing and speediest delivery service. To that end, the decades of the 1980s and 1990s were characterized by adaptation and experimentation. In 1984, to aid clients in sending documents anywhere in the United States within a short period of time, Smith created ZapMail, a satellite-based system of linked stations that guaranteed delivery of documents by fax machines and courier within two hours. Unfortunately ZapMail never really caught on with customers, and by the end of the decade, fax machines were becoming more commonplace in businesses. Finally, in 1989 Smith discontinued ZapMail, but not before it had ended up costing the company over $300 million. Federal Express also continued to suffer severe financial losses, in part because of increased competition from UPS. To combat the problem, Smith became more aggressive in dealing with the competition. In 1988 Federal Express bought the Los Angelesbased international heavy freight carrier Flying Tigers for $880 million, thereby becoming the largest all-cargo airline in the world. Now Smith had his own network of overseas delivery routes and no longer had to rely on outside contractors to make his foreign deliveries. He also negotiated the purchase of several trucking companies in an attempt to make Federal Express a more diversified freight and parcel powerhouse. Still, Smith's entry into the foreign markets suffered. Even though the company's international traffic had grown to include over 560 planes flying out of three hubs, Europe as a whole was slow to develop as an express market.

In 1994 the company changed its name to FedEx. That same year Smith, sensing the importance of the Internet and trying to recuperate from losses in his international division, introduced InterNetShip, a service that allowed customers to coordinate their domestic deliveries via Internet-linked computer software. Smith also developed BusinessLink, a marketing service that provided businesses with an online catalogue of their goods directly linked to FedEx. Despite financial setbacks, the company continued to grow. By 1997 FedEx employed 120,000 employees worldwide; delivered an average of 2.5 million packages a day in 211 countries and territories through one of its 37,000 trucks; and had made Smith one of the four hundred wealthiest people in the world. In 1998 FedEx formed the FDX Company, which served as a holding company that oversaw both domestic and international operations of the organization.

A VISION OF THE FUTURE

Despite intense competition and financial setbacks, Smith continued to persevere. His success came in part because of his ability to understand the changing needs of business and the importance of such things as the Internet, deregulated trade, and changing business practices. But Smith found that he had to wait for American and European business owners to understand his vision of a delivery system that promised savings, increased productivity, and improved efficiency. Smith also saw the possibilities with the Internet and the growing potential of e-commerce for the shipping industry. Toward the end of the 1990s Smith leveraged the company to take advantage of ecommerce opportunities by fostering partnerships with Webbased companies such as Sun Data, a $200 million computer company, which through its Internet sales increased the customer base for FedEx. In speeches and interviews Smith also acknowledged that the business of doing business was rapidly changing as the 20th century came to a close. With the increased availability of express shipping, Smith foresaw a trend in which companies would reduce their inventory as they became more dependent on express shipments. This development would in turn make the intermediary warehousing and distribution facilities less necessary. Smith pushed for the United States in cooperation with other countries, such as Japan, to work on fashioning a model of such a network that other countries could follow. Smith continued to increase his hold on the express delivery market. In 2003 FedEx purchased Kinko's, a large office and print store chain, for $2.4 billion. With the purchase of the company, all 1,200 Kinko's locations worldwide offered FedEx shipping services and increased FedEx's share of the express document and delivery business, helping FedEx to build an even larger customer base.

By 1999 FedEx was shipping three million packages every day with annual sales totaling $16.7 billion. In 2000 the company changed names once more to the FedEx Corporation. Once again, though, the company stumbled. In streamlining company operations, Smith decided to let various divisions of FedEx operate more independently. In April 2000 it was discovered that a number of FedEx drivers and couriers had been using company vehicles to deliver more than 120 tons of marijuana in a delivery system that went back and forth between the East Coast and the West Coast.

A COMPANY CULTURE

Certainly one of Smith's most resounding successes was in the creation of a corporate culture that inspired an intense loyalty to the company and its founder. Smith operated his company on a basic premise that he called P-S-P: people, service, profit. The idea was that the three concepts work in a circle, each supported by the others.

From the company's earliest beginnings, Smith strove to provide for his workers, even when times were tough. Even when money was tight, Smith made sure that his employees were given medical coverage. A position with FedEx remained one of the most sought-after jobs in the Memphis area, partly because of the generous wages, overtime, and benefits the company offered its employees. Smith acknowledged the importance of his workers. For instance, during the 1990s, when UPS workers went on strike, thousands of FedEx employees worked numerous hours to process the additional 800,000 packages that flooded into FedEx centers. Smith rewarded his employees with special bonuses while taking out full-page newspaper ads to thank them for their hard work.

By all accounts, Smith was a boss who worked hard at being accessible to his employees. He was known to visit the Memphis site late at night, greeting many of the employees by name. He also offered a standing invitation to any employee with 10 years of service to come to Memphis for breakfast with the boss. Although gregarious by nature, Smith tended to stay out of the limelight; when necessary, however, he showed that he was capable of impassioned and thoughtful analysis on the state of business in America and the world. A true believer in the advent of the global economy, Smith saw the future with the creation of Federal Express; his risk-taking set the standard by which other companies were often forced to measure themselves. Unafraid of new technology, Smith instead saw it as a challenge to be mastered, implemented, and used as means of furthering the global community. By following this philosophy, FedEx continued to shape the very face of global communications.

See also entry on FedEx Corporation in International Directory of Company Histories.

sources for further information

Buttner, Brenda, "FedExCEO Interview," America's Intelligence Wire, December 30, 2003.

"Chief Executive Magazine Names FedEx's Fred Smith CEO of the Year," Internet Wire, May 25, 2004.

Geci, John, "Presenting the Winner of the 1997 Peter F. Drucker Strategic Leadership Award: FedEx's Frederick W. Smith," Strategy and Leadership, September-October 1997, pp. 3031.

Hafner, Katie, "Fred Smith: The Entrepreneur Redux," Inc., June 1984, pp. 3840.

Hirschman, Dave, "FedEx Founder Has Been a Vocal Critic of Postal Service," Knight RidderTribune Business News, September 11, 2000.

Linden, Eugene, "Frederick W. Smith of Federal Express: He Didn't Get There Overnight," Inc., April 1984, pp. 8889.

"Smith, Frederick," Current Biography Yearbook 2000, pp. 517520.

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

Tucker, Robert B., "Federal Express's Fred Smith," Inc., October 1986, pp. 34+.

Williams, Winston, "Interview," New York Times, January 7, 1979.

Meg Greene

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"Smith, Fred 1944–." International Directory of Business Biographies. . Encyclopedia.com. 19 Aug. 2017 <http://www.encyclopedia.com>.

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Smith, Fred

Fred Smith

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

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 gamblerdoing 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 beforethey 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).

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