32 Slices
Medium 9781576754139

5. An Irrational Decision

Roger Frock Berrett-Koehler Publishers ePub

27

The following week Fred was in New York and had some people he wanted me to meet after work. Later that day at a Midtown Manhattan hotel, I was introduced to Art Bass and Vince Fagan. Fred then proceeded to explain that Art and Vince were consultants from the Aerospace Advanced Planning Group. They had just completed a study to evaluate the potential market for the proposed Federal Express service!

I had no clue that another team had been working on a study, duplicating at least a part of the research we had been doing. Trying to conceal my astonishment, I calmly probed to find out more. Fred had first become acquainted with AAPG when Art was making a sales presentation to Little Rock Airmotive, the neighboring airplane modification center on Adams Field. The month before Fred first contacted Kearney, he authorized AAPG to determine the size and nature of the market for priority small packages and to recommend the most effective way to structure a marketing program for the service.

Art and Vince were confident in their assessment of the market but practical in their appraisal of the proposed venture. It seemed odd to me to have two independent groups developing information on the size and nature of the market; however, as I was later to learn repeatedly, Fred was anything but a conventional businessman.

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1. The Trail of Inspiration

Roger Frock Berrett-Koehler Publishers ePub

9

FedEx originated the modern integrated priority package express industry, the first small-package airline to maintain direct control of shipments with a self-contained transportation system from pickup to delivery. Millions of people rely on FedEx every day for their most important business and personal deliveries whenever and wherever they must have overnight and time-definite service. The delivery service is so much a part of our lives that we can barely recall living without it.

It seems that FedEx has always been there, ready to respond to our most urgent needs, yet few people know how it was first conceived. When its efficient hub-and-spokes network was originally proposed, the concept was ridiculed as impractical. Existing regulations prohibited this form of nationwide delivery service, experts considered it a financial impossibility, and airline executives forecast its demise.

To understand the mountainous road to success, we must look back more than 40 years to glimpse the early dreams that inspired and motivated Frederick Wallace Smith, the Mississippi-born founder of the company.

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15. The Marine Corps Boot Camp Mode

Roger Frock Berrett-Koehler Publishers ePub

83

The “system test” network generated so few packages that we decided to cancel the flight schedule and place the packages on commercial airlines. We did not fly planes in the package system again until the next startup. It was a matter of reducing our operating expenses and conserving our dwindling supply of funds.

The daily volume from the five original cities averaged only about ten to twelve packages. Later we developed sophisticated analytical tools and ran the program to understand more about the test network. We discovered that the expected volume between all ten original cities was only forty packages per day for the penetration level we anticipated. The analysis also showed that each new city added to the network raised the volume levels geometrically. We were facing the classic chicken-and-egg dilemma: Federal Express needed an expanded network to reach higher volume levels, and an infusion of funds to expand the system to a level of sustainability.

In March, Charles Brandon joined us as our vice president of operations research. With his wrinkled corduroy jacket, worn blue jeans, and long rumpled hair, Charles was our technical wizard, the stereotypical absent-minded professor. Our management structure was constantly in flux throughout the early years; flexibility and fluidity were its main characteristics. There was no hierarchy, just a partnership of equals.

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6. Kick the Tires, Light the Fires

Roger Frock Berrett-Koehler Publishers ePub

31

Fred was never one to wait around for things to happen. Near the end of the consulting study, Fred began searching for an agency to develop a professional corporate image and logo. At his request, I made several calls to New York firms, but the best price I could get was over $100,000, and that was just too expensive. The company was still months away from startup, and Fred decided to defer development of the corporate image while he attended to other more pressing matters.

Then fate stepped in. Rick Runyon, a young designer from Los Angeles, flew his own airplane, a Cessna 310 to Little Rock on a mission to convince Fred that he was the one to create our corporate image. Rick had his own West Coast graphics company and was responsible for the branding for Getty Oil. He now wanted to do the same for a new airline in need of a dramatic, eye-catching image. Fred was somewhat skeptical, but Rick offered to do the whole thing at his own risk and charge a fee of $25,000 only if Federal Express used his design. It was a generous offer, and one that Fred was pleased to accept.

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18. Light at the End of the Tunnel

Roger Frock Berrett-Koehler Publishers ePub

101

The loan guarantee from General Dynamics raised our hopes and increased our spirits, but also increased the pressure to finalize the private placement. We continued to be in desperate financial trouble, particularly with our suppliers. The most demanding suppliers when it came to payments were the oil companies. Every Monday, they required Federal Express to prepay for the anticipated weekly usage of jet fuel. 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. I was still commuting to Connecticut on the weekends and really did not know what was going to transpire on my return.

However, when I arrived back in Memphis on Monday morning, much to my surprise, the bank balance stood at nearly $32,000. I asked Fred where the funds had come from, and he responded, “The meeting with the General Dynamics board was a bust and I knew we needed money for Monday, so I took a plane to Las Vegas and won $27,000.” I said, “You mean you took our last $5,000—how could you do that?” He shrugged his shoulders and said, “What difference did it make? Without the funds for the fuel companies, we couldn’t have flown anyway.” Fred’s luck held again. It was not much but it came at a critical time and kept us in business for another week.

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