There are more stories about the great Fred Smith (founder and CEO of FedEx) who have been following him for decades. Especially when the former was on the Federal Express as its star began to rise, it is often rumored that a Yale professor gave Smith a C in an article about a business that would offer overnight delivery anywhere. There is also the case of Smith who is close to a payday without the funds needed to make a paycheck, just as his employees were paid to play a few winning hands in Las Vegas for a brilliant entrepreneur.
Are the stories true or irrelevant? The point here is that the answer to the previous question does not matter. The important thing is that an entrepreneur of any age has just announced that he will step down as CEO of FedEx, the extraordinary company he has created. The stories aren’t just important because they don’t need to know for sure to understand any halfway personally that Smith has been on the brink of corporate death several times since the Federal Express opened its doors in the early 1970’s.
How do we know for sure that the previous claim is true? We do because Smith is worth billions. That he points out that Smith not only discovered an imperfect demand in the market, but did so in stunning fashion. When New York Times Columnist David Brooks writes nicely (and simply) that on the path to billionaire status, “I just need a hedge fund to get started”, the gut-ranching road of “billionaires” in the real world is full of terrible risks, seemingly insurmountable obstacles, your business will survive in the morning. Not a long night full of thoughts, and endless ridicule from the established – and cash – commercial power that can be.
Billions upon billions of Smith is a definite sign that he has endured all of the above and much more. In fact, if Smith’s approach to paying for all new payments was justified, it is certain that other well-capitalized businesses would have done the same. What they didn’t do was a reminder that the established transport giants of the 1970s thought Smith was confusing, impossible to follow, and probably both. Even better, those who have jets and have access to capital to acquire more jets probably never considered the business line that Smith believed so deeply.
I first became aware of the Federal Express in 1978. My aunt Kathy got a job there. Please understand the context of this Federal Express In 1978. Roughly 70% of Americans have never boarded a plane, yet Smith was offering customers overnight delivery? On the plane? It was very difficult to think of the service considering the world at that time.
Please also consider the funding environment that existed when Smith decided to pursue the impossible. In 1969, the capital gains tax rate was increased by 50%. And then in 1971, the dollar was disconnected from gold by President Nixon; The next one is a clear devaluation of the dollar that logically coincides with an increase in the price of fuel that fuels the aircraft … a brutal tax combined with a 50% capital gains tax which is a declining currency (investors want a return when they use the assets in dollars) blue chips Investing in blue chips (the S&P 500 grew 17% in the 1970s) is a bit of a fool’s errand, which means that the very capital intensive Federal Express has brought all the new money to the fearless investment.
Of course, this is why entrepreneurs are 99.99999% different from the rest of us. They see things that are rarely seen microscopically. They believe deeply. Not to mention Smith’s courage and resilience, his relentless devotion to his vision must have been from another world.
While it’s interesting to read this, you all know that FedEx (Federal Express was abbreviated in 1994) has finally made it and made it bigger. But even then, the story is not so simple.
FedEx was a document company in many ways, just raining down its brilliant parade theoretically for technology. Fax machines became commonplace in the office (and increasingly at home) in the 1980s and, of course, the 1990s. As the Internet quickly became a thing of the late 1990s, more and more people saw the machines as an existential threat to FedEx due to the high speed of reaching fax customers. The Internet quickly rendered yesterday’s news to fax machines, but FedEx continued to rise in value.
One speculates that in the face of this perceived threat to his business, the opposite-minded Smith saw the opportunity. In an economy defined by such relentless innovation, abundant resources will certainly have happy results; Resources that will lift boats of all sizes. And increasingly affluent people want the fruits of wealth in fast fashion. Originally, Smith overcame the perceived barrier to FedEx, only to improve his business.
How appropriate in this sense that Smith announced his resignation on the same day that President Biden drafted a budget and announced a major tax increase on billionaires. Regarding Biden’s proposal, Ed Crane, co-founder of the Cato Institute (Smith was a Cato board member) emailed me jokingly to ask, “What have the billionaires done for us?” Crane knew the answer to his own question very well.
In the face of the longest adversity, billionaires rush to a better future in the present for the betterment of all of us. Fred Smith’s amazing achievement brings this truth to life. For a man looking for a cheap political point with his offensive tax, it’s clear he’s still able to do something at 79.
Reprinted from RealClearMarkets
John Tamney
John Tamney, Research Fellow of AIER, Editor of RealClearMarkets.
His book on current ideological trends is: They are both wrong (AIER, 2019).