Frederick W. Smith: No Overnight Success
businessweek.com
businessweek.com
By 1973, Smith was so desperate for cash that he flew
to Las Vegas to play the blackjack tables. He wired
the $27,000 he won back to FedEx.
"by mid-July our funds were so meager that on Friday we were down to about $5,000 in the checking account, while we needed $24,000 for the jet fuel payment."
...
"you mean you took our last $5,000 -- how could you do that?"
Original headline was factually correct (even though, as you correctly point out, the $5,000 part wasn't mentioned in the article)
IMGUR screenshot: http://imgur.com/itzcF3Z
Here's a reference to another reference: http://www.huffingtonpost.com/2012/10/15/fred-smith-blackjac...
Staying power and testing monetization from day 1 never get mentioned. Oink had a 150 000 users within a quarter i believe but still shutdown, Pinterest were stuck on around 11000 users for a long time before they reached a tipping point. Life happens in spits and spurts, even looking at a stock chart, a companies stock price moves in a contraction expansion pattern. Bottom line we all get taught that the startup lifecycle follows a normal distribution but it is actually fat-tailed so is VC returns coincidentally. I think the last chapter of Emmanuel Dermans's book, 'My life as a quant' can apply to the startup industry as well.
Also should count Fred's time at his Little Rock Airmotive where he did the engineering on the special cargo door and got the FAA approval. So, FedEx really grew from a going business, Little Rock Airmotive, and was not started with just an idea.
By late 1972, White-Weld was supposed to have done a good private placement, but they didn't get it done. Although later one of the guys from White-Weld, Phil Greer, did invest as part of Weis, Peck, and Greer, now Opus. The service went live in early 1973 and was chronically short of money from then for at least some months.
The fuel crisis hurt: FedEx was buying jet fuel for 16 cents a gallon in Memphis but 55 cents a gallon in Nashville with the other cities scattered between and with limits on how much must/could buy. Right: Buy fuel where it's cheap and fly it to where it's expensive. Hmm ...
The more important questions were: How fast can bring the 33 planned planes online to serve the planned 90 US cities? E.g., had to find and buy the planes, get the special cargo door installed, get the pilots, be sure there is enough maintenance staff and facilities. During this growth period, how fast will the package volume and revenue grow? How much does FedEx need to charge, for over-night and for next-day, and how much will the customers pay? Where should the early marketing efforts be aimed -- law firms sending "time-critical documents", lab animals, manufacturers' representatives sending samples, e.g., decorative bricks, spare parts suppliers, suppliers of inventory for just in time inventory manufacturing that just ran out of a crucial part, clinics sending samples for medical testing, fashion, e.g., loads of dresses for a big sale, movie film, both unexposed and ready for showing, etc.
How fast the service would grow was, if you will, an exercise in 'the network effect' because the more cities served, the more opportunities to get shipments from a given city. Further, of course, there was a big 'virality' effect: Each shipment was, in effect, and ad to a good candidate customer. All up, 90 cities, great publicity and reputation, sure, but just 15 cities, no publicity or reputation and the billing sucks? So it was a bit unclear just how fast the service would grow from 15 cities to 90.
In broad terms, the need for the service was quite clear. But some of the planning was not good: E.g., the early planning arithmetic said that could fly the planes half full and print money. Then soon the planes were flying packed full, the rates were doubled, and they were still losing money. We're talking some bad arithmetic.