32 Slices
Medium 9781576754139

26. Just Step out of the Way

Roger Frock Berrett-Koehler Publishers ePub

159

In June the board of directors took preliminary steps toward an initial public offering, then ran into a few roadblocks. Warrants held by the lending banks and awarded during the three rounds of private placements now gave them a claim on nearly 25 percent of the shares. Fred questioned the legitimacy of the banks’ claim to the warrants and charged that the banks had reneged on their obligation to return the warrants. Charges and countercharges resulted in open confrontations, with neither side yielding. Meanwhile, in light of the exasperating situation, the public offering was deferred indefinitely.

The year 1975, the third year after beginning the small-package service, marked a watershed for the company. It was the year of transition from a startup venture to a completely functional operating company with a full complement of modified Falcon aircraft, an established nationwide network with facilities in nearly every major U.S. market area, and a growing reputation for reliable overnight service. July, the second month of the fiscal year, was our first profitable month. Federal Express was now a company capable of generating enough cash to fund continued expansion of its operations and paying for ongoing improvements to its service. The dream was actually becoming a reality.

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10. The Humble House Gang

Roger Frock Berrett-Koehler Publishers ePub

57

As we started to look at the enormous task of establishing the ground pickup and delivery operations, Fred began thinking about ways to shortcut the process. One alternative was to form a joint venture with United Parcel Service. Basch contacted UPS and set up an appointment with Jim McLaughlin, the chief executive officer.

“What are you guys doing here?” McLaughlin asked.

Basch responded, “We have an appointment.”

McLaughlin said he didn’t have the meeting on his calendar, but graciously invited our delegation to the conference room. Fred described what he had in mind and the role he would like UPS to play. McLaughlin abruptly said, “No, we’re not interested in doing that.”

McLaughlin’s indifference turned out to be a “save” for us. If UPS had agreed to become the ground distribution arm of Federal Express, it would have controlled the customer base and, most likely, the priority package business. Federal Express, if it survived at all, would probably have become just the air portion of UPS.

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21. A General in the Guerrilla Camp

Roger Frock Berrett-Koehler Publishers ePub

127

Fred decided to take a vacation, his first since the founding of the company. Federal Express was recovering from its past turmoil, but Fred’s problems seemed to be growing. He was feeling the frustration of the past few months; he was unquestionably exhausted from his continual efforts to keep the company afloat and concerned about the embarrassing events of the past few weeks.

Meanwhile, the search for a new board chairman was bearing fruit. While Fred was on his mid-May vacation, the investor selection committee decided they had found their candidate. When Fred got back from his trip, he was informed that the new chairman had already been hired. Fred was angry that the investors hired the candidate without seeking his opinion, yet he accepted the situation as inevitable.

The candidate was 59-year-old Howell M. Estes, Jr., who had been the youngest four-star general in the air force and had run the Military Airlift Command. Following his retirement from the military, he assumed the presidency of World Airways, a charter airline based in Oakland, California. Estes met the general criteria established by the banks: he was a “candidate older than Fred with broad management experience and a background in aviation.”

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24. A Threatened Resignation

Roger Frock Berrett-Koehler Publishers ePub

147

It was Wednesday evening, February 26, 1975—little more than three years after my first meeting with Fred. I was reading over material for the next day’s meeting of the board of directors. It was an uncommon pleasure to have an evening free of the social dinner and obligatory midnight hub tour for the steady stream of interested visitors and potential investors. The outside directors were doubtless already in town, perhaps having their traditional pre–board meeting discussions. There was, after all, much to discuss and for the board to be apprehensive about.

About 10:00 my phone rang. I was surprised to hear the abrupt voice of our leader: “Roger, this is Fred Smith.”

“Hi, Fred,” I responded. “What’s up?”

“I just wanted to let you know before our board meeting that I am resigning from the company tomorrow.”

“What? You can’t be serious.”

“I am dead serious,” he stressed, “and I have just finished writing my letter of resignation that I’ll submit to the board tomorrow.”

I knew that Fred had been under a tremendous amount of pressure. I could hear the tension in his voice. The current situation was depressing for him, but I also knew that his continued guidance was crucial to the future success of the company.

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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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