#151 Frederick Smith (FedEx)

What I learned from reading Overnight Success: Federal Express and Frederick Smith, Its Renegade Creator by Vance Trimble. ---- [0:01] At age thirty Frederick Wallace Smith was in deep trouble. His dream of creating Federal Express had become too expensive and was fast fizzling out. He had exhausted his father’s millions. He was in hock for 15 or 20 million more. He appeared in danger of losing his cargo jets and also his wife. His own board of directors had fired him as CEO. Now the FBI accused him of forging papers to get a $2 million bank loan and was trying to send him to prison. He thought of suicide. [1:08] At any risk, at any cost, he refused to let his Federal Express dream die. [6:23] I believe that a man who expects to win out in business without self-denial and self-improvement stands about as much chance as a prizefighter would stand if he started a hard ring battle without having gone through intensive training. Natural ability, even when accompanied by the spirit to win, is never sufficient. [7:32] It was push and drive he inherited from his father. He had to be doing something all the time. [9:19] Fred is one of those people who never gives up if he wants something and you say no. He just goes on and on and on. [10:50] And one of the greatest qualities that he has, that anybody can have, is he’s a voracious reader. You could talk to Fred Smith about government or literature, a whole range of things kids his age didn’t know much about. [11:38] Like Nike, the idea for FEDEX started as a term paper: There is no great mystery to the “hub and spoke” concept. As Smith visualized the plan, the “hub” would be located in a middle America location with “spokes” radiating out to Boston, Los Angeles, Seattle, Miami, and other cities. Fred Smith thought of his system as similar to the telephone network, where all calls are connected through a “central switchboard” routing process. [18:40] He wanted to do something that nobody else had done. That was his main objective. [20:18] Smith wasn’t traveling in a straight line himself. He tried first one project and then another. All of them were built around his idea of acquiring and operating a fleet of jets. It [FEDEX] didn’t start out as a package outfit. [27:23] Fred Smith was learning not to be disheartened or dismayed by negative reactions. [35:43] Fred was in such deep thought all the time. Constantly thinking. Sheer determination. You could walk in and he’d be thinking about something and literally wouldn’t know you were in the room. That is one sign of a great mind—the ability to concentrate. When I read that section it made me think of this great quote by Edwin Land: “My whole life has been spent trying to teach people that intense concentration for hour after hour can bring out in people resources they didn't know they had.” [39:00] A great way to think about how hard FEDEX was to start: If you open a Wal-Mart store, and if that formula succeeds and you do well, you open a thousand of them. But you don’t open a thousand of them to take the first order. Which is what you had to do to start FEDEX. [47:10] We were first-grade novices. And I think that really played to our advantage because we were not fully aware of the obstacles we faced or the difficulty in overcoming them. I look back on it now and think, Oh, my God, why in the world would anybody try to do something like this! [53:18] Fred Smith himself said, “No man on earth will ever know what I went through in 1973-1974. When I read that I thought of this quote on Charlie Munger: “Life will have terrible blows in it, horrible blows, unfair blows. It doesn’t matter. And some people recover and others don’t. And there I think the attitude of Epictetus is the best. He thought that every missed chance in life was an opportunity to behave well. Every missed chance in life was an opportunity to learn something and that your duty was not to be submerged in self-pity. But instead to utilize the terrible blow in a constructive fashion. That is a very good idea.” [1:01:30] Fred Smith: You have to be absolutely brutal in the management of your time. ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Senra?

  At age 30, Frederick Wallace Smith was in deep trouble. His dream of creating Federal Express had become too expensive and was fast fizzling out. He had exhausted his father's millions. He was in hawk for 15 or 20 million more. He appeared in danger of losing his cargo planes and his wife. His own board of directors had fired him as CEO. And now the FBI accused him of forging papers to get a $2 million bank loan and was trying to send him to prison. He thought of suicide. But any talk of suicide was uncharacteristic of Fred Smith.

• 0:42David Senra?

  It is ridiculous to think of Fred even contemplating such a thing. Jump out of a window? He's more likely to throw somebody out of a window. Fred never talked about this difficult period, perhaps the lowest point of his life. His infant Federal Express became a ravenous, money-eating ogre. To keep his planes flying, Fred had to beg, borrow, and steal. At any risk, at any cost, he refused to let Federal Express die. The situation confronting him on this May morning in 1974 was dismal, at a dangerous ebb.

• 1:23David Senra?

  Not only was Federal Express teetering on bankruptcy, but its founder, with the FBI and the US District Attorney hard on his heels, could possibly go to prison for bank fraud. That was an excerpt from the book that I'm going to talk to you about today, which is Overnight Success: Federal Express and Frederick Smith, Its Renegade Creator. And it was written by Vance Trimble. Vance is the guy that wrote the last week's book, The Biography of Sam Walton. He actually wrote this book right after he wrote the book on Sam Walton. So that excerpt actually gives us insight into what I feel is the main benefit of reading a book like this, which is it details how difficult it was to start FedEx and then

• 2:05David Senra?

  all the pain and suffering that Fred actually had to persevere through before he finally got on solid financial footing and it actually became profitable and successful business. Almost went out of business multiple times. And so that's, as I'm sitting here reading over the parts that stuck out most to me, the highlights and notes I made, that is really what I focused on. I'm going to tell you a little bit about his early life because I think there's a lot of similarities between his personality and his father's. He didn't really know his father. His father dies when Fred's just four. But let me go ahead and give you some background here. So this is a little bit about, I'm going to read the section to you. It's really, it's talking about Fred's dad's personality. But I would

• 2:47David Senra?

  feel, now that I've finished reading the book, I really feel these same characteristics were also part of Fred's personality. So it says, "At age 20, James Frederick Smith started his climb to fame and fortune. His ambition was dead-on, aggressively supported by unlimited energy, a quick mind, and open and honest friendliness, plus a certain amount of gambler's luck." That part about a certain amount of gambler's luck refers to this famous story that I even knew before I read this book. It's also in this book. But Fred Smith, FedEx is almost out of money. On a Friday, they're pretty sure they're going to close

• 3:29David Senra?

  on Monday. He goes to Vegas over the weekend. I think there's two different versions of the story. One, that he needed $27,000 to meet payroll. The other is that he needed $27,000 for the fuel bill. He winds up taking a few hundred dollars and wins over almost $30,000 at the blackjack table, and that temporarily staves off bankruptcy. So that is the actual, true story. So now, back to Fred's dad. As a young man, he starts, he actually gets hired by somebody that encouraged, there's something really important that happens to him, is his boss encourages him to think entrepreneurially. And he's going to wind up starting two very successful businesses. He's actually working out in the Texas oil

• 4:12David Senra?

  fields in the early 1900s, and he's selling trucks. And he's learning a lot from his boss. His boss is constantly looking for new opportunities. And it says, "Nor did Fred Smith..." Now, this is a little confusing. His name is James. His middle name is Fred. This is Fred's dad, but he wanted to be called Fred. Okay, so I'm still talking about his dad. And so it says, "Nor did Fred Smith mind the fact that his eccentric boss kept encouraging him to think entrepreneurially and look for opportunities to branch out." So this is where Fred's dad gets the idea to start a bus company. Later on, this bus company is going to become successful and he's going to sell it to Greyhound Bus. He winds up building a very, like, a nice-sized fortune and he dies and leaves that to his kids.

• 4:53David Senra?

  I think Fred Smith, the son, the founder of FedEx, I think his inheritance is somewhere in the round, somewhere around $8 to $10 million. I think total was $17 million, but that's split between a bunch of kids. Okay? And he's going to use a large part of that money and almost lose it all on FedEx, which is kind of crazy, but we're not there yet. So he says, "I got a big idea," and explained that he wanted to start a daily bus service from Memphis to some of the nearby small towns. He had a problem: no bus. It's very interesting that they both built, their first business was in transportation, because essentially what he's doing here on a very small scale in the bus industry, there's a lot of parallels between what Fred does with FedEx. He says, "Fisher solved that. He gave Fred Smith a used truck and loaned him $1,000.

• 5:37David Senra?

  With his own tools in hands, Fred built a bus body on the old truck chassis that seated a dozen passengers." So essentially, he's taking a truck and converting it into a bus. Fred, the founder of FedEx, is actually going to take a bunch of planes and convert them from passenger planes into overnight delivery planes. Now, this is his dad. It says, "I must have been working 20 hours a day. I was a ticket agent, conductor, driver. I did it all, even changing the oil and spark plugs and making repairs overnight. But I loved it." Again, the reason I'm bringing this up is because that same sentence could come out of Fred Smith Jr.'s mouth. But in regard to FedEx, at the very beginning, he was working constantly and doing almost everything himself.

• 6:20David Senra?

  This is Fred's dad on the need for discipline and self-improvement. And I think all the highlights I'm reading to you right now, again, I think Fred Smith Jr. actually would agree with everything he's saying. He says, "I believe that a man who expects to win out in business without self-denial and self-improvement stands about as much as a chance as a prizefighter would stand if he started a hard-ring battle without having gone through intensive training. Natural ability, even when accompanied by the spirit to win, is never sufficient." And here we see another parallel, another habit that they share. It says, "Throughout his years, Fred Smith was a voracious reader. He educated himself by reading. He just read all the time. He was very interested in history and navigation.

• 7:05David Senra?

  He predicted our son would go much farther than he did because he would have the advantage of an education, and he was right about that." So he dies at a young age. I think he's in his 50s. He had a heart attack and then I think he dies of complications from something else in the hospital. So he winds up dying. Now, his mother, Fred Smith Jr.'s mother, is the one that keeps the spirit of his father alive. And we see that Fred was very driven and purposeful from a very young age. He actually has a disease when he's younger. It has, I don't know how to pronounce the name of the disease, but I'll tell you what it does. Essentially, you have insufficient blood flow to your hip, and it causes like an imbalance. You have to walk with crutches and you have like a limp.

• 7:50David Senra?

  It is fixable, and it was fixed, but we also see the drive and purposefulness because they're telling him, you know, you keep your weight off your right leg and you got to give your hip time to heal itself. And it says, "The doctor said it would probably take a week for him to get up and down, excuse me, for a week for him to get used to the crutches. Well, he was running up and down the stairs the first day on those things. It was push and drive he inherited from his father. He had to be doing something all the time." And so one benefit, something that his mom did, was that she let him know that the family had very high expectations of... For him, he says, "I kept his father alive in his mind all those years. I told him how much Big Fred loved him and how much he wanted him to have the best education

• 8:34David Senra?

  possible and how he was certain his son would surpass his achievements in business." And one of the reasons Fred started FedEx is because he knew, once he got back from Vietnam, he wanted to work in and around aviation. He had a deep love of airplanes and flight. And he actually talks to, this is how Fred talks his mom into letting him fly. And he's only 15 years old at the time. And you also give a, a lot of people in the book describe him as like a master salesman, full of charisma. They said, you know, 99% of the people, early employees in FedEx, if, I forgot what the scenario was, if you told them to jump off a bridge, they would have done it. That he was just extremely persuasive.

• 9:19David Senra?

  So it says, "Back home, the 15-year-old again badgered his mother. Fred is one of those people who never gives up if he wants something and you say no. He just goes on and on and on. So finally, he talked me into letting him take lessons. He said, 'Mom, you can always say if anything happens to me that I died doing what I wanted to do.'" So since his dad died when he was a young boy, he had a couple, he had uncles and some other people in the community that served, that kind of filled that father figure role. One of them is this attorney in Memphis. And I thought this section was very interesting because there's a great double entendre that I always think about. It's called "Avoid Boring People." Means, obviously, anybody you find boring, you should not spend time with them. And then the flip side of that is, you know, make sure that you're, when you're communicating

• 10:04David Senra?

  with other people, that you're not boring people. Like, you read a lot, you're curious about the world around you. And so, there's a lot of benefits to being good at interacting and other people just frankly finding you interesting. And so, this, we see that Fred was the opposite of a boring person. This is, he's not really a father figure, he's not old enough to be his father. I would say maybe like a much older brother, but let me read that to you. "The lawyer rejects the idea that he was a father figure to the young Fred." And then this is what he's talking about, his impression of, I think Fred's around 18 years old at this time. So it says, "Fred was just an interesting young man, and I was glad to have him around." He was good company and vigorous and interested in things. Not many young men can talk about things of that kind. He was very bright.

• 10:49David Senra?

  He is a person of fresh ideas. And one of the greatest qualities that he has, that anybody can have, is he's a voracious reader. You could talk to Fred Smith about government, our literature, a whole range of things that kids his age didn't know much about or care much about. So remember that part for later, that idea of the voracious reader. Later in the book, after FedEx is on solid footing, Fred talks about the way he comes up with ideas. And essentially, he spends like four hours a day, reading and assimilating information, and then combining ideas from different areas with his own like unique twist on them. He says that's a good way to spot opportunities that others don't, like that others can't actually see.

• 11:32David Senra?

  Okay, so I want to fast forward to when Fred is in college. This was very interesting. The idea for FedEx started out as a term paper. This is not very different from Nike. Phil Knight wrote a term paper. He's like, hey, the same way that Japanese have outcompeted Germans for, I think it was electronics, they could do the same thing, because at the time Adidas was a German brand. It was dominating the market in athletic shoes. And he says, well, there could be a low-cost, high-quality Japanese competitor, and that's essentially the idea that he built around Nike. And just like when, and Phil Knight talked about it in his book Shoe Dog, and Phil Knight's, he talks about, you know, I gave this presentation, it was a great idea, I put a lot of my, you

• 12:15David Senra?

  know, effort into it, and essentially, the response from his classmates and his teachers was like crickets, like no one gave a damn at all. And it's not very different than what we're seeing here, because this paper that Fred is writing, that essentially lays out the blueprint that's going to be FedEx one day, he gets a C on. So it was kind of humorous to me. So it says, "Professor Hall read the 12 or 15 pages Fred Smith had typed up for his 1965 term paper in the course called Economics 43A. For a few minutes, he thought about the hub and spokes concept, expounded, and he debated what kind of grade it deserved." And I'll explain what he means by hub and spokes in a minute. Then he picked up his red pen and wrote, "C."

• 13:00David Senra?

  At the time, it was not important, not even to Fred Smith. But later, that paper and its grade became a paradoxical Yale University legend. If not embarrassing, at least whimsical. "Fred is a man with a good mind, obviously very bright," said Dennis Tippo, one of his Yale roommates. "I remember reading it," meaning the paper, "when he got it back, and I think Fred joked about the grade. This idea always seemed to be in the back of his mind. You knew he was going to do something about aviation. He was going to devote his life to some aspect of it. Several times, he brought up the concept of Federal Express." Obviously, he wasn't calling it there. Wait till you hear why it's called Federal Express. It's hilarious.

• 13:45David Senra?

  "I think it was germinating. It was in his mind." Exactly why Professor Hall had such a poor opinion of Fred Smith's paper will never be known. But the incongruity of the sea did not become a public matter until the early 1970s, when newspapers, magazines, and television began probing the hows and whys of this phenomenal growth of the upstart Memphis Air Express Company. There is no great mystery to the hub-and-spoke concept. As Smith visualized the plan, the hub, which is going to be located in Memphis, would be located in a middle-America location. He was thinking of Little Rock or Memphis, with spokes radiating out to Boston, Los

• 14:26David Senra?

  Angeles, Seattle, Miami, and other cities, the far corners of the country. A package from Boston destined for the West Coast, for instance, might be flown in on the Boston spoke in a few hours to the Memphis hub, where it'd be sorted and routed out on the plane that had just bought in shipments from Los Angeles, and it would be aboard when that plane flew back home, arriving before dawn. In other words, Boston to Los Angeles overnight. So I'm going to pause right there because that's important. That is the main innovation of Federal Express. It was very hard. At the time, it was nearly impossible to overnight something. And so it's funny that the book is called Overnight Success because that's why FedEx was successful.

• 15:11David Senra?

  The fact that they were the first people to figure out how to overnight something and guarantee next day delivery. It's obviously not true that it happened overnight. He has to go through like a half a decade of struggle before that, before that actually FedEx could be considered a successful company. But that is the main innovation right there. Boston to Los Angeles overnight. Fred Smith thought of his system as similar to the telephone network where all calls are connected through a central switchboard routing process. Okay, so after college, but before he starts FedEx, he winds up fighting in the Vietnam War. He's actually very, he was served in the Marines. He's a very highly decorated war hero.

• 15:53David Senra?

  So I'm going to just give you a summary of his war efforts. He kind of, there's a lot of similarities between him and Sam Walton where they both were supreme overachievers in almost everything they did. Even when he was in school, he was a good student. He was voted like most versatile, you know, played sports, just seemed to just apply this relentless discipline and drive to everything that he did, including serving in the war. And it was, you know, the book goes into detail, like seeing, you know, obviously just the gruesome things that that he saw. People were, you know, getting killed right next to him. The guy, one of his friends is standing right next to him, gets shot in the neck and Fred

• 16:35David Senra?

  essentially sits there and watches, you know, the guy essentially drown in his own blood. It's very, very graphic. But here's the summary. Fred Smith had stayed on the battlefield to within three weeks of his 25th birthday. Gone were three years of his young life. What did he have to show for it? Being alive and grateful for that, of course. Medals, medals enough, and then the author's just gonna go here and list all the medals. He got the Silver Star, the Bronze Star, two Purple Hearts, the Presidential Regiment Citation, the Navy Commendation Medal, and the Vietnamese Cross of Gallantry to reflect his courage and heroicism. Newly honed, this talks about all the other stuff that he's learned during Vietnam that

• 17:19David Senra?

  he's also gonna apply to running FedEx. Newly honed leadership skills and inspirational tricks that would prove useful in the world of business, learned on the killing fields, where a soldier discovered that every fresh sunrise had been bought at a very steep price. Okay, so right after the war, his father-in-law has to borrow like $50,000 to, from Fred, because now he's got his father's inheritance, okay? And he buys like half-interest in this company that he thinks is good, winds up being a really, you know, just terrible business, it's called Arkansas Aviation. So Fred goes in there and starts running it to try to get his investment back, right? And essentially what's happening here, this is the early days of what is eventually going

• 18:04David Senra?

  to become FedEx. And there's two things that I left notes on for these two pages. One is they operated in secret, and two, they were just full of uncertainty. They had to arrive at the idea for Federal Express through trial and error, and we'll see that here. So it says, "He was a kid, but smart as a whip," and this is this guy named Tetter that is gonna work with him, "sharpest person that I've ever run into." It was clear to Tetter that Smith had come back from Vietnam with a goal, a very large ambition. This is really interesting what he says here. "He wanted to do something constructive. He wanted to do something that nobody else had done," which also, he's picking an extremely hard target.

• 18:48David Senra?

  He's identified a gap, he's like, "Listen, there's no way," and he winds up identifying this gap because Arkansas Aviation, they run out like hangars and they do like airplane repair business kind of thing. And Fred hates the business, he's very labor-intensive, not very profitable at all, but he can't get, when he orders parts, it's like, it's unreliable when they're actually going to arrive. And he's like, well, what's the chance that I'm the only business in the world that's experiencing this problem? Because let's say a plane's sitting there. I don't have the parts to, I don't have the parts to fix it. The customer has to wait longer. My people are just sitting around like this is a gigantic waste. It's an inefficiency. But it also goes to speak to. He wanted to do something no one else has done. So one that's going to tell you that's most likely to be hard.

• 19:33David Senra?

  And if you can survive, then it's going to be extremely lucrative. Like if he actually is able to solve this problem, which he was like he fast forward. Now he's in his seventies, he's like 75, 76, something like that. You know, worth multiple billions of dollars. He had a negative net worth, lost almost, lost all his inheritance, had a negative net worth for the first, what? Five, 10 years of the company. So again, if you can actually survive through that struggle and do something difficult on the other side, there's probably a lot of value there for other people. So he says, um, he wanted to do something that nobody else has done. That was his main objective. I guess he liked flying and wanted to do something connected with aviation. Smith swore tetter to secrecy. We were really hiding behind Arkansas Aviation. He didn't want anybody to know what we were doing.

• 20:19David Senra?

  Smith wasn't traveling in a straight line himself. He tried, he tried first one project, then another. All of them were built around this idea of acquiring and operating a fleet of jets. We tried several things. It didn't start out as a package outfit. So this goes back to the importance of reading, to being curious around the world, uh, about the world around you and synthesizing all that information to find new opportunities. This is where, this is the first draft of FedEx, the original idea for FedEx. I'm going to read to you now. He says, uh, for months it had been percolating in his head. The genesis was twofold. His habit of voracious reading, especially history, economics and business affairs,

• 21:00David Senra?

  plus several deep discussions with bankers about the inner machinery of the Federal Reserve system.

• 21:08David Senra?

  The length of time required for checks to clear, this is, I think we're in the early 70s now. The length of time required for checks to clear through the Federal Reserve system frustrated bankers and depositors alike. The mechanism was old fashioned and unwieldy, inefficient and slow. Checks received in each district Fed Bank had to be sorted there and then dispatched in bundles to other individual Federal Reserve districts where the accounts drawn on were located. It takes two or three days, sometimes a week or 10 days, to clear a check, one of his bankers complained. That's a heck of a time lapse between receipt of checks and crediting accounts.

• 21:46David Senra?

  The whole Fed system handles close to 8 billion, 300 million checks and cash letters a year. I figure that's a float of about $3 million a day, and that's just the way it works. But it didn't have to stay slow and cumbersome, Fred Smith reasoned. He could speed up the check clearing by applying to the process of his Yale University hub-and-spoke airfreight technique. See what he's doing there? He's trying, he starts off, he's not trying to figure out, okay, if I want to send you a book or something to the man I want overnight to, that's not what FedEx was created to do. Obviously, you can do that today. It starts off as saying, hey, how can we reduce this float? That seems ridiculous that it takes eight, 10 days, sometimes three or five days for

• 22:31David Senra?

  you to actually draw, for the check to actually arrive and then either be deposited or drawn from that account. And Federal Express, you know, that's a couple hundred million dollar a year problem that they're having. So that's his idea, he's going to go back to it. He says, "He proposed to go into business with a small fleet of jets that would nightly pick up in each Federal Reserve district that day's checks and fly them to a central sorting hub. There, they would be processed at once by Federal Reserve employees and sorted into bundles to transfer for the appropriate Fed Bank. His pilots would take off before dawn to return to each Fed district its package. That would eliminate the time lag. Checks would be cleared overnight all across the United States."

• 23:14David Senra?

  Now, you probably already get the hint there, but this is why FedEx was named FedEx. It says, "On June 18th, he incorporated a company he called Federal Express Corporation, feeling certain 'federal' would be apt when he got his contract from the Federal Reserve system." Now, this also sees that Fred Smith is a crazy person. What's the subtitle? Renegade Creator, right? He starts a company, starts buying jets before he has the contract. What could go wrong? Fred Smith had his new jets flown to Little Rock, he starts in Little Rock before he starts in Memphis, and began awaiting the decision by the Federal Reserve system. Let's see. He had everything figured out. As soon as the Fed said yes, which he was certain they would, he felt he could negotiate a profitable five-year contract.

• 23:57David Senra?

  So, they haven't even approved the idea, and even if they do approve the idea, he doesn't know what he'd get paid for it. Didn't stop him. "This in turn would serve as a guarantee to finance the acquisition of the needed additional jets, which Pan Am had optioned to him at bargain prices." They're called Falcon jets. "And once the Federal Reserve flights were running smoothly, he would merely build on top of that a larger air cargo express system that would serve the whole country for delivery of small packages." It's really smart. He found a wedge first, right? It would've been smart if it worked out. "The gap he had identified as a real profit-making opportunity if he could get there first." So, he's talking about the issue that he was, back when he was running Arkansas Aviation, about, you know, "I have no idea where my packages are, they can't deliver, they can't

• 24:41David Senra?

  guarantee delivery at a certain date, and then they don't know where they are even in transit." So, it's very difficult. "He liked the idea that the government, in effect, would be financing the creation of the Federal Express air cargo system." That's fantastic. What could go wrong? "The Federal Reserve said no." So, it says, "In the late summer of 1971, Fred watched his entrepreneurial plan collapse, reeling from the disappointment." He had invested, this is still about three years before the start of the book, where, you know, he's almost lost everything, about to go bankrupt, and thinking about jumping out the window. "He had invested a lot of late-night study, many trips to New York and Washington, hundreds of hours of explaining, negotiating, and haggling to lay the groundwork.

• 25:22David Senra?

  In his hangar were two jets, idle, on which he owed $3.6 million. That wasn't a big worry, though. He was sure he could sell them and make a profit on the transaction, but he had no intention of parting with his jets. They were still essential to his future plans." Okay, so now we get to where the struggle. The note I left myself is I renamed the book instead of Overnight Success, it should be called Overnight Struggle. And so this half decade period, I found very, very interesting because it's just unbelievable, the amount of chaos and one problem after another and just so many times when FedEx just could have died and Fred just refused to quit, which I found most admirable. In a few sentences Fred Smith sketched his air concept.

• 26:05David Senra?

  So he's trying to get this aviation marketing consultant to feedback on his idea. So he says, "I didn't think much of it." His name's Bass. Bass responded, "It sounded like a dumb idea." "My feeling at the time was just like a lot of other people's feelings," Bass recalled. And this is why, the reason I'm reading this part is because it's just, again, we live in the era of overnight deliveries. I mean, now they even got down to same-day delivery. But at the time, it was just like, how do you even start? It's like the chicken and egg problem. Like, you have to build out an entire national network before you even accept one package. Like, are you insane? Do you know how hard that's going to be, how much money it's going to require? And the answer was Fred did not know.

• 26:50David Senra?

  And there's a lot of paragraphs in the book, some of which I highlighted, which really illustrates the value of ignorance. I always think about that Marc Andreessen quote where he says something to the effect, "I believe that people that do really difficult things are doing them for the first time." And I think part of that is because they don't realize how difficult it is when they start. "We're not there, let me get back to this. The cost of running a jet would be prohibitive for that kind of business venture." That's number one. So he's listing all the reasons this idea will not work, essentially. And number two is the length of time it would take to create a network and then get market acceptance. And I just love this next sentence. It says, "Fred Smith was learning not to be disheartened or dismayed by negative reactions. He saw other high hurdles ahead."

• 27:33David Senra?

  So that's not only is the actual fundamental idea, the main part of the idea, almost impossible to achieve, but then he's operating one of the most heavily regulated industries there was on the face of the planet at the time. So it says, "Starting up would take a lot of money. Another uncertainty was how to convince shippers to use his air express line." I'm going to get to the regulations in a minute. I want to pause there, I just jumped over this part. "Starting up would take a lot of money." I can't tell you. 25% of the book is Fred struggling to get other people to invest. Bank loans, venture capitalists, private investors, everybody. That's a huge part of the Federal Express story. In reality, at this point, Smith was just an untested entrepreneur with a clear-cut idea,

• 28:15David Senra?

  but not enough personal business training and financial expertise to make everything go. In fact, he was stymied before he even started. Now, we're going to get into the problem with the regulation, right? His plan was to fly under the Civil Aeronautics Board, that's the CAB, air taxi regulations. That would permit Federal Express to fly anywhere, anytime, not restricted to certified routes. However, he ran afoul of the registration known, excuse me, regulation known as Part 298, which limited air taxis to a maximum takeoff weight of 12,500 pounds. Why is that a problem? The Falcon jets could not possibly operate under that limit. Even equipped and empty, the aircraft weighed 15,000 pounds.

• 29:00David Senra?

  Others might have given up. How many times is that sentence in the book? Jesus. But Fred Smith just slogged ahead, hoping luck would be with him. He believed he could get the CAB to rewrite and modernize Part 298, excuse me, to permit greater takeoff weight. Otherwise, the cost of flying the plane would absorb any profit. Now, this next paragraph was interesting because this is how Fred connects to last week's podcast, how he winds up using same, I don't know if you call them banker, I guess they're investment bankers, are the people he's trying to hire to get him to help raise money, as Sam Walton. So it says, "Smith was introduced to him by a banker in Little Rock, Arkansas.

• 29:43David Senra?

  Getting a southerner like Remmel, that's his name, on his side would be a good move, Smith thought. Sam Walton, the Arkansas small-town discounter, who then was trying to launch his Walmart chain, was working with Remmel as well." Now, this next paragraph gives us an insight into like the master salesman, the charisma that Fred Smith has. And he winds up hiring two, the bankers are like, hey, like you're just like some idiot kid, that no one's gonna loan you any money, like they don't know anything about a market. Like can you have a, I know the market doesn't exist yet, but can you get like nationally recognized consultant firms essentially to do a market study so we can take their research because they're respected to investors, right? And so he winds up hiring two separate firms, they do this, and they wind up loving the

• 30:28David Senra?

  idea so much, and Fred Smith so much, that he recruits them, and they become some of the very first employees of FedEx. But there's also something interesting, I'll tell you, I'll tell you what I thought of this when I read it after I read it to you. So it says, "The three AABG partners," don't worry about that name, "as well as Roger Frock, were destined to join Fred Smith's circle of partners in the ever-quicken-ing FedEx adventure. All," this is the most important sentence of the section, "all were mavericks, true non-conformists, courageous and crazy. For four of the five years in the early 1970s, their lives, and Fred Smith's even more so, would always be hectic and too often harrowing." And again, when you read a paragraph like that, the thought that jumps into my mind is like, we only get one life.

• 31:13David Senra?

  Who the hell wants to waste it being normal? This is a gigantic, like, first of all, look at how they're described. Mavericks, non-conformists, courageous, and crazy, right? It winds up paying off, because at the time, they're just, they have, I think they're in the early 30s. Roger Frock, I think, is 35. You know, they're, they have relatively successful careers, they could have stayed in that job forever, at way less risk than jumping into this crazy FedEx experiment, but because, again, you only have one life, why not maximize it? Make it an interesting life that you can look back and tell your kids and grandkids, yeah, I had, I had a hell of a time here. I just love that idea, that, you know what, I'm just gonna, you know what, I'm not going to take the safe path.

• 31:56David Senra?

  I'm going to take the path that's going to give me the most interesting life experiences, because that, at the end of the day, is what it is. Life is one giant experience. Why waste it? Why waste it being normal? Now, this is Fred's personality during this time. And this is that Tedder guy again, just talking about, you know, the early days of FedEx. It says Fred Smith was serious and intense. Fred never played. He was always serious-minded. We'd go somewhere to do business, and then we'd hit the hotel and have a martini. He'd have maybe one, and that would be it. He hardly ever relaxed, rarely went off for a weekend to have fun. And once in a while, when he was really under-stressed and he didn't have anything

• 32:38David Senra?

  big to do, we'd slip more martini into his glass and get him drunk. Okay, so this is more about the early days of FedEx. I'm going to tell you how this relates, at least to me, how it relates to Henry Ford. So it says, "To an experienced manager like Tedder, the people around Smith and the boss himself didn't know how to manage anything. They all came in with a lot of wild ideas to how to put Federal Express together, and only a few of them made any sense. They were an impetuous bunch. Fred Smith was single-handedly trying to run the operation. He was described as a nitpicker. He had his hand in everything. He worried about little, little itty-bitty problems other people could handle, and that created confusion and delay. The accounting department was a mess, with no internal controls. Reports were rarely on time.

• 33:21David Senra?

  Smith's tinkering, for example, fouled up the cash flow because of a lag in billings. With Fred, it was always business. I'll tell you the truth, we worked for three or four years, and the only time I had off for over six hours was Christmas Eve and Christmas Day. We worked around the clock trying to get everything done. That was back when computers were just coming out. Much of our work was on calculators. You know, the old style. Tedder recalled many late-night meetings to set policy or solve problems that turned into knock-down, drag-out affairs. Tempers flared, especially Smith's. Fred would get really tense, Tedder stated. Once in a while, he would throw something against the wall. So we would try to get him drunk at some bar, hoping it would relax him and perhaps keep him away from the office the next day.

• 34:06David Senra?

  But the boss, not yet 30 and healthy, had an iron constitution. Early the next morning, Tedder said he'd come bouncing back, ready to take on the world again." Essentially, there's talking, this entire section of that book. He's talking about the very, like, the first year FedEx. Could also describe later years, but this is, I think, the first year. And essentially, they didn't know what they were doing. They had in their, an idea in their mind, what did they want to achieve? They had zero idea how to actually get there. So there is a quote that I read in that book by Charles Sorensen called "My Forty Years of Ford." And ever since I read it, I can't stop thinking about it. And I'm just gonna read this paragraph to you. So it says, "Henry Ford had no ideas on mass production. He wanted to build a lot of autos.

• 34:49David Senra?

  He was determined, but like everyone else at the time, he didn't know how." Everything I just said about Henry Ford applies to Fred Smith. So obviously, if it's applying to Henry Ford, Fred Smith, it's applying to us, or anybody else trying to do something they don't know how to do yet. You have an idea of what you want to do, but you're not really sure how you're actually gonna get it done. "In later years, he was glorified as the originator of the mass-production idea." Far, this is the most important part, this sentence right here. "Far from it. He just grew into it, like the rest of us." And this story, if you read this book, and it goes with almost every other book that I've read, they're growing into it. No one, no one's born knowing how to create and manage and run a gigantic business like FedEx. So you have no other choice, you have to grow into it.

• 35:32David Senra?

  Okay, so more about the early days of FedEx and Fred Smith at this time. He says, this is his first secretary. "Charlotte Curtis, recalling her days with him between 1972 and 1976, said, 'He was so preoccupied. He was in such deep thought all the time. He was constantly thinking.'" This is also a way other people later also described Fred Smith. "He was constantly thinking, at such late hours, sheer determination. There was no doubt in that man's mind where he and the company were going. You could walk into his office, and he'd be thinking about something, and literally wouldn't know you were in the room." That is, that is one sign of a great mind.

• 36:15David Senra?

  "The ability to concentrate. In that period, two critical items dogged his mental agenda: recruiting staff and finding investors. The former was fairly easy, the latter was almost impossible." Now, when I read that section, people don't talk about concentration enough, in my opinion. And I always make the case that... Edwin Land, founder of Polaroid, the blueprint for Steve Jobs. He's gotta be one of the most important entrepreneurs that have ever existed. It's funny, if you could bring him back from the dead and ask him if he was an entrepreneur, even though he's a founder of Polaroid, he would describe himself as an engineer. But he has some great quotes, tons of great quotes. And he talks about concentration. When you read, I think there's four different books I did on Edwin Land for this podcast.

• 36:57David Senra?

  Five, because I think in one of the books, one of the podcasts I did, two. Two books in one. But he talks about concentration over and over again, which again, like the guy's an absolute genius. Like, we should probably, like, why is he bringing this up so much? But he has this great quote, where he says, "My whole life has been spent trying to teach people that intense concentration for hour after hour can bring out in people resources they didn't know they had." And so when I hear something like that, I was like, why is one of the smartest people that have ever walked the face of the earth talking about concentration so much? Why is he saying that if you don't, if you avoid interruption and you think deeply about something that you're passionate about, that you're interested in, and you do that hour after hour with no interruption, that you're going to tap into things and ideas

• 37:42David Senra?

  and have resources you didn't even know exist? That's probably really important. Okay, so I want to go back to this idea. I was like, why? FedEx is nearly impossible to, I cannot believe he succeeded in doing that. This is essentially the part I'm going to read to you. This is a great way to think about how hard FedEx was to start. And this is getting John Jacoby, you have to forgive me, there is, I've told you about this before, I can't, there's way too many characters in a lot of these books. I can't keep track of who everybody is. So I try to focus on one person, which is the founder. But he's, I think this might be an investor, maybe a market analyst, not really important other than what he says is really important. He talks about, you know, why is it so hard to raise money for FedEx?

• 38:26David Senra?

  He says, "In John Jacoby's view, to open an Air Express company would imply that packages could be delivered anywhere, at least in the United States. There would be few customers if half the time Federal Express didn't serve the city the customer wanted to reach." And so he says, so they had to put in place a system covering the whole United States just to carry one package, which meant you started off with all fixed costs and no variable costs. And the ideal business is you can get that first order and make money from day one and expand on that. And this is where he talks about, you know, founding Walmart is very hard, but FedEx has to be a lot harder. Think about this. He says, like, and I love this analogy, it really, for me, illustrated how difficult this was.

• 39:08David Senra?

  Like, you open a Walmart store, and if that formula succeeds, and you do well, you open a thousand of them. But you don't open a thousand of them to take the first order, and that is what FedEx had to do. It, I mean, it's just really, really, again, I know I repeat myself over and over again, this book is about perseverance. That's the main, he, he, he set us, Fred set his sight on something so difficult, there's a reason it didn't exist before him, and you're not going to get to do something for the first time in human history, and it be easy. So again, I just think exposing ourselves to these constant stories, because they're human, just like you and I, and what is, what we can achieve if we just stop quitting

• 39:51David Senra?

  and look around you, over, the vast majority, 90-plus percent of people around you just quit at everything, at everything. The first little bit of pain, the first bit of discomfort, the first setback, and they just give up. They fold, and they just go meekly into the night. Not Fred Smith. So this Jacoby guy is still talking about this. So he says, Jacoby now sees, because he's saying, you know, this is crazy, it is, it's stupid, it's not going to work. Jacoby now sees Smith as a truly remarkable person. He did so much to look crazy to me. He overpaid for LRA. I gotta tell you, that, this story is wild. I'm going to get to it in one second, about that overpaying for LRA. But he was just so focused on overcoming, this is the most important sentence, let me back up, and let me read it again.

• 40:33David Senra?

  But he was just so focused on overcoming whatever obstacles sprang up in his path. Essentially, Smith, this entire story is Smith focusing on just eliminating the obstacles in front of him. He knows there's other ones that are coming behind it, I gotta take care of this one first, and I'll go tackle that one later. So the crazy thing is, they have to, he's buying these jets, but then you have to do all this, like, bodywork to them, right? Because you, think about the size of like, a person walking through the cabin door, as opposed to, like, a pallet, like, forklifting, you know, a bunch of cargo in there. And so they have to do these, they're cutting open the side, and they're putting on doors. So he hires, LRA is the company that he hires to do this work. And FedEx has no money. The whole story is they're scrambling for money. That's why he commits fraud.

• 41:18David Senra?

  He winds up getting acquitted, though. But he's, you know, struggling. Gets a loan, pays off creditors temporarily. And so what he realizes is, let's see, what's the sentence? He's asking the guy that owns the company because they stopped doing work on him because he doesn't have any money. So he says, "Well, what if I want to buy your company?" He says, "If we get the money to buy LRA, what would you sell it for?" And so they tell him, "Yeah, I'll sell it." And he says, "This is the crazy thing." So he couldn't get a loan anymore for FedEx. But he realizes, "Hey, I need money because I need those doors put on the planes." Right? "The bank will loan me money to buy the company. They will not loan me money for the doors. They'll loan me money to buy the company that's installing the doors." How crazy is that? So he says, "His bank was willing to loan the money to buy LRA,

• 42:03David Senra?

  but not the money to buy the cargo doors." So what's Smith's solution? "All right, I'll just buy the company. He has to overpay, and I have to make up the money later on, but I have to get this done now." So he buys the entire company. Then he doesn't have to worry about paying the bills because he now is the company that he was going to be paying. It's hilarious. Okay, so obstacle after obstacle, I need to tell you about the pathetic launch of FedEx. And this, again, is one of the most inspiring. I don't mean that as, I'm not making fun of them. It was pathetic by their own, I think that's even the word they use. But again, it just shows, you know, today, who knows the revenue they do? Juggernaut, successful company, has made, you know, billions and billions and billions of profit. This is how it started, though. And I think this is very inspiring to see.

• 42:46David Senra?

  You know, I just went and watched some videos because he's still alive and he, you know, gives talks and stuff. And I was like, you know, I'm going to stop myself doing this because this book ends. You know, this book is from the early 90s that I have in my hand. And it ends, you know, he's still a young man. The IPO, relatively young. I think he's maybe 40, maybe early 50s, late 40s kind of thing. But I realized, I was like, I'm sitting here watching 70-something-year-old Frederick Smith talk. I was like, that's not the person that built FedEx. It was the 25-year-old, the 35-year-old that did that. That's a completely different person. And because of the benefits of delayed gratification and the benefits of compounding,

• 43:29David Senra?

  that 70-something-year-old is reaping the benefits. But it was really built by the younger version of him. And so that 70-year-old talking about, I don't even know, billions of packages every day. I forgot what the number was. Well, that's not what the young Fred Smith had to deal with. Because the first time, the first opening day of FedEx, they did six packages. Smith hoped to inaugurate Air Express by the middle of March. The Memphis staff devised a network of a few startup cities and opened offices in each, hired couriers, provided delivery vans. Oh, so you know how they do it. It's another great thing. You see FedEx and UPS and Amazon trucks and everything. FedEx didn't have trucks. They rented them from Hertz at the very beginning. That was hilarious.

• 44:13David Senra?

  So it says, "They were trying to get out the world that FedEx could deliver packages overnight. The effort was all pathetically puny." Looking back a few years later, Smith confessed to a Harvard Business School interviewer, "The business asset we had going for us was our naivete. God takes care of fools, you know." "The cities to be served were mainly all within 500 miles of Memphis. Hastily assembled, inexperienced blitz teams of four or five salesmen invaded the targeted cities, working two or three weeks in each to pre-sell the company's service. Advertising was confined to an opening announcement in local newspapers and direct mail." And this sentence was funny. "They expected the planes to be pretty well loaded up."

• 44:54David Senra?

  So there's a bunch of crowd that's gathered, some early investors and employees of FedEx, and they're sitting at the airport in Memphis as the first plane comes in. It says, "I saw the anguish in their faces as they waited. Most of them were worried about their future. It was a critical moment in time for all of them. Right after midnight, the jets swooped in. Their cargo doors were flung open. Empty. In all, the jets bought six packages. One was a birthday present from Fred to Tetter," that guy kept quoting, "and one was a bundle of dirty laundry sent home by the FedEx salesman in Kansas City." So they have four customer packages.

• 45:39David Senra?

  That is the beginning. That is the launch of Federal Express. Okay, so there's a ton of paragraphs, just like the one I'm about to read to you, spread throughout the book over year after year. Really, nothing changes. FedEx is almost dead is the summary here. And then they also talk about the value in ignorance again. "Federal Express remained in desperate trouble. Expenses were soaring. Income was too thin to pay all the bills. The deficit at the end of April was $4.4 million. Every dollar Smith and the family trust had pumped into the enterprise was gone." So that's his inheritance. If he lost this, he's done. "Smith was hurt and frustrated and furious, and we considered a betrayal." So he hires this investment banker that I mentioned earlier, Remmel, and whatever. He's from like a company called White and Weld.

• 46:24David Senra?

  And he had a misunderstanding. So it says, "Fred said that he was given to understand that White and Weld said they would do this deal as if it was a fait accompli," meaning, "Hey, we're going to try to raise 20 million for you," was really what they said, but Fred's interpretation was, "We are going to raise 20 million dollars for you, and they're failing." So he's like, "I've made commitments here because I thought I had a promise from you." "He did not understand," I don't believe he truly understood, "that it was strictly a best efforts deal, and the money wasn't in the bank, and that he had a long road to hoe. Because of being misled, he had made commitments and taking risks that he never would have taken."

• 47:03David Senra?

  In terms of, and this is another group, this is one of their early attorneys for FedEx. It says, "In terms of starting a company of this size, we were first-grade novices, and I think that really played to our advantage because we were not fully aware of the obstacle we faced or the difficulty in overcoming them. I look back on it now and think, oh, my God, why in the world would anybody try to do something like this?" So I want to tell you a little bit more about his personality and something essentially that Fred Smith would tell you, don't burden others with your troubles. When Smith, what Smith learned in Vietnam about leading troops with personal courage and confidence helped him now. Nothing seemed to faze him. Of course, internally, he's distraught, but externally, you don't see that.

• 47:47David Senra?

  He rarely lets you see him get down. He kept them private. He would constantly look for the bright side of trouble and laugh. That was pretty infectious, so we all kind of followed suit. Okay, so they're still trying to raise money. They come across this guy I want to tell you about. I'm going to look for a biography on him because he found it very interesting. His name's Colonel Henry Crown. I don't think he was an actual Colonel, but he says they're starting to meet with him and he's, you know, started off as poor, I think, what was he, like a, not Russian, Lithuanian immigrant, and he winds up becoming a billionaire. I'll tell you more about him in a minute. So they're meeting with him. He says, will you loan the money or guarantee the note for us to exercise this option, which is an integral part of fitting Federal Express together? The worst thing that can happen to us right now is if you decide you don't like this program,

• 48:29David Senra?

  you can sell the aircraft at a profit, saying, hey, we need you to, we need this loan. I think it's trying to buy more jets from Pan Am. If you guarantee it, because he has control of general dynamics at this point, and if you guarantee it, worst case, if you decide not to continue investing in Federal Express, we can sell the planes for a profit. Crown was sympathetic. Real satisfaction, he said, comes from creating, building, or taking a business that hasn't been doing too well and making it better. But he couldn't rush to the rescue. For one thing, his financial vice president was hospitalized. He wanted to delay any decision until the man was back on the job. So what did they do here? Fred and the guy that he's with, Mir, decided to go to this guy's hospital room. To Mir's credit, he wasn't to be stalled.

• 49:12David Senra?

  He took the unorthodox course of invading the finance man's hospital room and spending the afternoon laying out their proposition. With Smith doing most of the talking, they convinced the sick man. Their brash move seemed to impress Crown, who knew firsthand about enterprise and aggressive struggle. In sharp contrast with Fred Smith's background of wealth, Crown had been born to poor Lithuanian immigrants. He dropped out of school at 16 for a $4 a week office boy job. He quickly learned to hustle. Even when young, even when young, he had a remarkable imagination for creative financing, and now he rode around Chicago in his Rolls Royce and donated $100 million to charities. So they come up with a deal, and it was really, I mean, they could have essentially bought

• 49:57David Senra?

  80% of FedEx for almost no money, I think for 16 million. They went up not exercising this option. But it says the upside was the general dynamics agreed to guaranteed a short-term bank loan to FedEx for 23 million, but at a huge price. The agreement provided that Federal Express would have to repay the loan in just four months. They went up extending this time period. Now, there's all kinds of other details I'm going to leave out because it gets, like, the book is full of them. Really, there's a quote in, I think it's the only biography that I know of, of Elon Musk. It's called Elon Musk, Tesla, SpaceX, and the Quest for the Fantastic Future. It's the first episode of Founders ever. But in this, there's a, there's a paragraph that reminds me, I think, I think Elon says

• 50:38David Senra?

  in six words, describes what he was going through, the difficulty of jumping through these hoops to raise money for both Tesla and SpaceX during 2008. It's essentially what Fred is dealing with here. Let me just read that to you. Musk went to the secondary markets to try to sell some of his shares in Salt City. He also seized about $15 million that came through when Dell acquired a data center software startup called Evergreen that was founded by Musk's cousins, in which he had invested. And then this is where it says, this is what I mean about Elon having the gift of succinctly describing what he was going through. "It was like the fucking Matrix," Musk said, describing his financial maneuvers at this point. This is December 3, 2008.

• 51:24David Senra?

  So even with this bank loan and others, they're still, they're always behind until they IPO, essentially until they finally are able to IPO, they're very, they're very close. They just have so many creditors and so, so much, it was so expensive. They thought it was gonna be like 25 million to get to break even. It was like $60 million or something like that. It was a lot of money, especially in 1970s. But this is how they, one of their strategies, because again FedEx is in debt up to their eyeballs, which means, you know, they could, they're not making payments, they could lose all their assets and the company doesn't have any assets, they don't have the planes, then they have no business, right? So it says, this was a bank, says, "Tetter was fearful that the bank would try to seize

• 52:06David Senra?

  the mortgage planes. The bank had a young officer keeping track of the situation. Every time he showed up at the airport, Tetter recalled, "We would radio the jets not to land. Can't confiscate if we never land. It was all very touchy. In Detroit, the air, oh my god, this gets wild here. In Detroit, the airport parked a fire truck in front of the Federal Express jets, so it couldn't take off without paying an overdue bill for fuel and landing fees. We went on by the skin of our teeth for a long time. Employees got a memo, this, I mean, there's a story after story after story of this. It's really, really insane. Employees got a memo asking them not to cash their paychecks. Some officers recall that they just dropped their paychecks in a desk drawer and left them there for

• 52:47David Senra?

  weeks. One frustrated courier was owed $300 for expenses. He pulled a gun and took the situation, excuse me, and took the station manager hostage. Then he telephoned Fitzgerald, which is the manager of this, this part of FedEx, and said, "If I don't get my money right now, I'm gonna blow this sucker's head off and shit in the hole." Fitzgerald got the money there fast. And so, as you can imagine, the stress, because, you know, Fred's ultimately responsible for everything that's going on, and this is what he said. Fred Smith himself said that, "No man on earth will ever know what I went through in 1973 to 1974, when I read that." Again, because I've read so many books on him, because I

• 53:31David Senra?

  would argue, he might be the smartest person that I know of. I have a little Charlie Munger that I put on my shoulder, and I try to, try to ask him questions on decisions I need to make. And he says a quote that I love. He says, "Life will have terrible blows in it. Horrible blows. Unfair blows." Remember Charlie lost, I think at some was nine years old, died of leukemia. So it's just devastating. I remember reading... I think it was in Poor Charlie's Almanac where, you know, he just walked on the streets outside the hospital, just, you know, crying his eyes out, as you could imagine. So he's saying, "Life will have terrible blows in it, horrible blows, unfair blows, it doesn't matter, and some people recover and others don't." And I think the attitude of Epictetus, I never know how to pronounce these Greek guys, the attitude of Epictetus is the best. He thought

• 54:14David Senra?

  that every missed chance in life was an opportunity to behave well. Every missed chance in life was an opportunity to learn something, and that your duty was not to be submerged in self pity, but instead to utilize the terrible blow in a constructive fashion. That is a very good idea. And that's the end of Charlie Munger's quote. So during this time, this is where he actually gets, he gets fired by the board. Fred Smith gets fired by the board. By the time they had this meeting, Smith had lost his position as chairman and CEO of the company, but he was left in office as a president under a two-year contract. With the help of corporate headhunters, they came up with a new FedEx boss, a retired Air Force general named Howell Estes. He was 59 years old. Not going to

• 54:59David Senra?

  spend too much time on the new boss. Essentially, he was window dressing. They needed somebody older and that looked respectable, so they could raise more money. I mean, you're talking about third, fourth, fifth round of funding at this point. The new boss is a dummy. He wastes time, very valuable time. You know, the entire company's on fire. He's talking about perks. He wants to make sure he has his own parking space. He wants a limo. The very first day, half the day, the secretary has to contact California, like DMV, to get him a refund, because now he moved to Tennessee, and he wants like a partial refund on his license plate. Just absolute dummy. I'll read this paragraph. This is actually the guy that hired, one of the investors named Lay, that hired Estes, looking back at this

• 55:43David Senra?

  period of time. Fred Smith was a good soldier for quite a period of time. He put up with the general, "Who was our storefront dummy, in my opinion. We used him successfully. He got us through at least a very important financing. But after a while, he got to be terribly out of the culture. The general insisted on his perks, his limo, and his expensive hotel rooms, and so on and so forth, while the rest of us were living in $18 a day hotel rooms." So it really began to be Be an issue, not only Fred, but with everybody else. We'd take the general who looked like Daddy Warbucks and he was credible. Here was Fred. He'd gotten a little rundown and his ability to forecast the future was very sully at the time. I couldn't have taken Fred back to these investors and had him put up a nickel. So he's talking about the strategy of saying, hey, now we have adult supervision in charge, right? You know, an investment is an act of faith and you can do all the homework you want,

• 56:27David Senra?

  but in that last analysis, it comes down to whether you believe the guy who's going to execute the plan. And Fred was not very believable in those days. So we needed somebody who was, like the general, and he served a very useful purpose. And it was during this financing that Fred essentially wipes out almost all of his equity in the business. Fred Smith would take a battering. He and his family at the outset owned the controlling stock. But the effect of the third round would be, would cut his holdings down to just 8.5%. Eventually, he buys back, I think, 25% of the company before IPO, if I'm not mistaken, something like that. So he gets this money back. It was excruciating hard. This was the end of the road. I had begun discussions with people about bankruptcy. That was going to be our next step.

• 57:10David Senra?

  Stock for 90% of the business was available for just a relatively modest amount of capital. Fred was being wiped out. He had put his entire personal net worth in this thing. Whoa. Now, it was amazing that Fred never quit, but I don't want to give you the false impression that he didn't try to or didn't think about it. And this is where he almost quit. He says, Fred said, I just, he's talking to a bunch of the, remember these mavericks, these nonconformists and the people that joined him in the early days? He's talking to them. He says, Fred, I just wanted, I just wanted you to know I'm going to resign tomorrow at the board meeting. And one of these guys says, oh, bullshit. You can't do that. Fred said, no, I'm going to do it. And I said, Smith, you are over the hard part. He said, no, there's just too much pressure.

• 57:55David Senra?

  I can't take it anymore. I'm going to resign. I said, "Where are you? Fitz and I will come down and talk to you." So they wound up meeting up with him and, you know, this is an act of, a genuine act of friendship here. Because imagine how different Fred Smith's life would have been if he actually went through quitting, right? They found him in his office on the second floor, in one of the FedEx hangars. Smith had a six-pack of beer up there. So we drank our beer and we talked to him, and we talked to him, and we talked to him. He was serious. He had written a hand, he had written a letter to give, he had handwritten a letter to give to the board. Our arguments with him were just, were basically that we got over the hard part. The hard part is just about over. From then on, it was going to be all downhill. It was very obvious at that point that he had done nothing that he should be basically ashamed of.

• 58:39David Senra?

  So this is where he's under indictment. He essentially falsifies some, two different banks want collateral, so he essentially, he makes up like fake minutes from a board meeting. And the, the, the main issue is that he pledged collateral that was fake. The jury winds up acquitting him. But at this time, he's like, you know, they just found out. I'm going to go to jail. The FBI is on me. The district attorney is on me. So he's very down. So he says, "It was very obvious at that point that he had done nothing that he should be, basically be ashamed of. He had done nothing at all that was detrimental to the company." So what they're talking about there is, they get into like the issue why he got acquitted

• 59:23David Senra?

  was because if, it's the difference between like knowingly and willingly. These are like legal terms that the judge has to explain to the jury like five different times or something. But Fred made the point that he thought he had the authority to do so, and he just thought by forging the documents it would be faster because he needed the money that day. And that if he actually had the meeting, they would have approved it anyways. So that's what they're talking about. "The management group, we knew, believed two things. No matter who would take over the leadership, if Fred Smith wasn't there, the thing would not ultimately be successful. That is how much we believed in Fred Smith and his ability to know and understand the business and in his charisma and his leadership capabilities. That was very sincere. We felt that way. And the other thing was that even if that hadn't been true, we sure as hell weren't going to sit around and take orders from General Estes, because he didn't know what

• 1:00:08David Senra?

  the hell he was doing. In the hangar office, the men drank their beer and talked until 5:30 in the morning. We ultimately convinced him to stay." So he stays a few months, maybe a year later, he's back into financial trouble. So he goes back to Colonel Crown and asks them to, because they already did a small investment, but now they don't want to keep throwing, they don't want to throw good money after bad. So he asked them to guarantee another loan and they won't. And this is where he almost quits again. General Dynamics turned him down on the loan. It was a blow that made him think of resigning. Smith wrote Colonel Henry Crown, asking that they consider him for a management position in either General Dynamics or Trans World Airlines.

• 1:00:53David Senra?

  That's crazy. Okay, you won't give me a loan, will you give me a job? The file did not show their response. It may have been considered the momentary whim of a terribly distraught man. The strain affected his home life. His wife was young and wanted a social life. Fred was not much inclined towards the social realm. When Smith was not at Federal Express or flying around the country on company business, he stayed at home to read. "I read about four hours a day," he told an interviewer. So that's going to lead to his divorce. Before I get to the IPO, which saves the day, he's got a great quote on time management.

• 1:01:34David Senra?

  "You have to be absolutely brutal in the management of your time." So they managed to actually do the initial public offering and this really helps FedEx. They're finally, for the first time in their lives, on solid financial footing. And this is where it just takes off like a rocket. So he's over the hill, over the really, really hard part, obviously building up and some management companies not by any means easy, but it's probably not going to go out of business. It says, "The first profitable fiscal year was 1976 with a net income of 3.5 million." I'm just going to list off the profits as they go, right? Next year, so it starts out 3.5 million, then they make 8.1 million, then they make 20 million, and then by five years later, they're making 90 million a year in profit.

• 1:02:19David Senra?

  So when they make 90 million a year in profit, at that time, the company was only nine years old.

• 1:02:26David Senra?

  Just a quote from Fred on problem solving. Smith believes that the key to successful innovation is constantly to subject problems to every angle of scrutiny that can be thought of, with the idea that unless you are trying to defy the laws of nature, some risk-taking way will be found to solve the problem. And he's saying this in a 1986 interview, looking back, he's describing the very early days of FedEx. That's why I thought it was so important. Okay, and I'll close on this. This book ends, it reminds me very much of the Bill Gates book, because it talks about his early life and then up until the IPO. It ends, let's see, late 80s, essentially in the history of FedEx.

• 1:03:08David Senra?

  So still, obviously, post-IPO, relatively successful, obviously grew from leaps and bounds from here. But this is Fred talking to us, essentially about the importance of timing, the importance of reading, and how to synthesize information to get ideas and solve problems. And I thought this was a good place to end. Smith estimated that throughout the 80s, he spent at least four hours a day reading. He found he relied quite heavily on his own vision, backed by assimilating information from many different disciplines all at once. The common trait of people who have vision is that they spend a lot of time reading and gathering information, and then synthesize it until they come up with an idea. That precisely happened to him.

• 1:03:50David Senra?

  It became more and more obvious, so he's talking about the innovation, according to this book, the first, now you know, you track a package, you know exactly where it is. FedEx was the first one to come up with that system, and then other people copied it. So he says, "It became more and more obvious that FedEx Express must have the ability to track at every moment, every item their system was transporting." This is where Smith is, direct quote from Smith. "It looked as if it were impossible. It had never been done before. At that time, I'd been reading some very different types of things about the grocery business and the price performance of computers. Well, one thing led to another, and we began to look into using a version of those barcodes that are on soup cans to give a number in sequence to every packaged. It turned out to be a very good idea."

• 1:04:34David Senra?

  It's interesting, remember, he talks about the inspiration for the hub-and-spoke concept he took from the telephone network. Now he comes up with this barcode idea from grocery stores and soup cans. Without it, he's talking about how important this innovation was. Without it, we could not have controlled this organization. It would have been impossible to take millions of items every night and deliver them with the reliability we do. And he talks about the very next page, he's talking about, again, he starts off with the importance of reading, of being curious of the world around you, assimilating and synthesizing different ideas. He picked up an autobiography of Dwight Eisenhower and discovered what he considered a perfect example of the role of luck in terms of success.

• 1:05:18David Senra?

  Now, this is a direct quote from Smith. Dwight Eisenhower in 1940 was a soon to retire lieutenant colonel with a respectable but not particularly outstanding military career. But it just so happened that he turned out, now watch how he, which I think everybody does, you know, I've told you over and over again, it's amazing that when you read biographies of great people, you realize they, the people that we're studying in themselves read biographies of great people. Why? Because they take parallels in other people's lives and apply it to them. He's going to apply the role of timing in the success of Dwight Eisenhower to FedEx, and then he's going to further elaborate on how that applies to other startups. So he, okay, so he says, "But it just so happened that he turned out to be the right person in the right place at the right time. And most important, he had the right skills, mainly the skill to force coalitions.

• 1:06:01David Senra?

  And then he built on that opportunity and those skills to go on to be President of the United States." Well, my guess is that there are probably a thousand Dwight Eisenhowers at any point in time, and Fred Smith's too. I'm going to read that because it's very important. Remember, last week I ended on what Walton said in his book, that there's hundreds of thousands of people out there that can, that are out there that are looking for opportunities just like he did, and that could do the things that he did, right? So he uses hundreds of thousands. We are those hundreds of thousands. Now, let's go back to what Fred Smith's saying here. Well, my guess is that there are probably a thousand Dwight Eisenhowers at any point in time, and thousands of Fred Smith's too. We are those thousands. The same exact idea here. Isn't that amazing?

• 1:06:44David Senra?

  "I think timing is often more important than luck. In my case, for example, the idea that is Federal Express absolutely, positively would not have worked five years before we did it. And five years later, the market would have been so clear that somebody would have served it in one way or another. And that is probably true for most startup organizations."

• 1:07:09David Senra?

  And that is where I will leave it. If you want to read the book and support the podcast at the same time, there is a link in the show notes. Also, you can go to founderspodcast.com. On that link, you'll see every single book that I've ever done. If you buy a book using that link, it benefits the podcast. If you want to go directly to the URL, it's amazon.com/shop/founderspodcast. That is 151 books done, 1,000 to go, and I'll talk to you again soon.