Where and when did you get the idea for Federal Express?
Frederick Smith: The original idea came in two parts. The first part was when...
I was a student at Yale and wrote a paper about the computerized society that was on the horizon. It was pretty clear then, with IBM installing the big computers around, that the world was going to change. And the paper was about how this was going to change a lot of things, and in particular it was going to change the way things had to be distributed and moved to support those automated devices.
Then I sort of let that lie. I didn't get a particularly good grade on it, as I recall. I don't think it was prescient, or brilliant in any respect. When I graduated from Yale in 1966, I went into the service, like a great percentage of my classmates at that time. The Vietnam War had begun in earnest, and I spent four and a half years in the Marine Corps. That's when I sort of crystallized the idea for FedEx on the supply side, how to solve the problem that had been identified in that paper.
In the military there's a tremendous amount of waste. The supplies were sort of pushed forward, like you push food onto a table. And invariably, all of the supplies were in the wrong place for where they were needed. Observing that and trying to think about ways to have a different type of a distribution system is what crystallized the idea.
The solution was, in my mind, to have an integrated air and ground system, which had never been done. And to operate not on a linear basis, where you try to take things from one point to another, but operate in a systemic manner. Sort of the way a bank clearing house does, you know? They have a bank clearing house in the middle of all the banks and everybody sends someone down there and they swap everything around. Well, that had been done in transportation before: the Indian post office, the French post office. American Airlines had tried a system like that shortly after World War II. But the demand side and supply side had really not met at an appropriate level of maturation.
By the early '70s when I'd gotten out of the service it was very clear that this new society was coming in earnest. And so, at that point I said, "What the hell, let's try to put it together." And that's how FedEx came to be. And then from that point forward, the requirements for this type of system were so profound and so big, really for the next 25 years to this date we've simply been running just to keep up with the requirements. And that's what led to the hundreds of planes and the thousands of trucks. I wish it was something that I could say I was so smart. It was just like Pogo the Possum said, "If you want to be a great leader, find a big parade and run in front of it." And that's what we've been doing for the last quarter century.
How would you describe your childhood?
Frederick Smith: My childhood was autonomous, in the main. My father passed away when I was four. I had a lovely mother, but not having a father influence, I learned a lot of things on my own. I think that would be the best characterization of it.
How did you learn those things?
Frederick Smith: Through a lot of hard knocks. Learning when to stand up, when to sit down, when to shut up and when not to. I had a couple of uncles that were very helpful to me, but I was not around them every day. But in the summers and so forth they were very good to me in terms of teaching me a few things about life. Certainly, my coaches were very important to me. My high school football coach was very important to me, in setting me straight on a few things.
What did you learn from your high school football coach?
Frederick Smith: He was a little guy who was a great football player at Georgia Tech, and he just was indefatigable. He just would never, ever say die. He absolutely proved to me that persistence was a very big part of making it in life. I never forgot that lesson.
Do you have siblings?
Frederick Smith: I have a half-brother and had another half-brother who passed away. I had an adopted sister and a half-sister, but I never lived with them.
How did you get along with your brothers and sisters?
Did you think being a younger brother affected you in any way?
Frederick Smith: Perhaps it did, but the age differences were so great that it wasn't to the extent that it might be with brothers who are closer in age.
Were there any important experiences that influenced you or inspired you as a youngster?
Frederick Smith: I don't think that there was any one incident that changed my life. It was simply the observation of a lot of people that I admired. I synthesized a lot of things from my coach, my uncles, my teachers in a certain area. I had a marvelous English teacher who opened my eyes to the fact there'd been a lot of people on this planet before my time who might have a thing or two to say that were of use. So, I got a lot of things from a lot of people. I picked and chose.
What kind of a student were you?
Frederick Smith: I was a good student. I liked to read enormously. I loved history. It was not difficult for me to make good grades.
Were there any books that were important to you when you were a kid?
Frederick Smith: I read a lot of history, and still do, as a matter of fact. I remember reading a very famous book called Death Be Not Proud, that affected me a lot. It's about a young boy who had a brain tumor and how he handled that. I read an awful lot about famous people, the generals and the presidents, and things of that nature.
How did you spend your spare time? Obviously, you were an athlete.
Frederick Smith: I always loved to play sports and that was the biggest avocation I had as a youngster. I suspect that I was unusual in the amount of reading I did. I loved to read when I was young, I love to read today. I still spend a tremendous amount of time doing that.
Are there any other books that come to mind from your childhood?
Frederick Smith: I remember reading a biography of General Lee, of course, which was obligatory for any kid from the South. Perhaps he was working for not a very good cause, but the way the man conducted his affairs and managed his life were exemplary. I think that had a very big effect on me.
How did you get along with your classmates?
Frederick Smith: I was okay in that regard. I had a lot of buddies, and got in my share of scrapes and jams, the same way everybody does. The occasional schoolyard tussle and pulling a prank every once in a while, nothing really serious.
When did you know what you wanted to do with your life?
Frederick Smith: I didn't really decide that until I was in the Marine Corps and decided that I wanted to go into business.
How were you affected by your Vietnam experience?
Frederick Smith: Profoundly, in many ways, some good, some bad. Obviously, the war was a very traumatic thing for all of us who participated in it. Clearly, one of the great historical mistakes of all times. Barbara Tuchman wrote a great book about the great historical mistakes: George III losing the colonies, the Catholic Church losing the monopoly on Christendom, and Johnson's prosecution of the Vietnam War. For those of us who were in it, it was very traumatic, as anything like that would be, but there were some good things about it, too.
I learned an awful lot in the Marine Corps -- particularly about, I think, how to treat people, lead people -- which has played a big role in FedEx. A big part of the employee relations systems and all that we have at our company came from my experience in the service. The Marine Corps is the best when it comes to teaching people how to lead other folks. And so, it had a profound experience on me, some bad, some good.
Frederick Smith: Well, you have to remember,
When I was in the Marine Corps as a lieutenant, I had come up from a good background, went to a fine university at Yale. I wasn't exactly exposed to folks that were in the blue collar professions and occupations. And then here I was in the Marine Corps, and became a platoon leader, and I was surrounded by kids like that. I maybe was three years older than they were. I was 21, they were 18. But these were youngsters from very different backgrounds than I was. You know, blue collar backgrounds, steelworkers, and truck drivers, and gas station folks. And there we were, out in the countryside in Vietnam, living together, eating together and obviously going through all sorts of things.
I think I came up with a very, very different perspective than most people that end up in senior management positions about what people who wear blue collars think about things and how they react to things, and what you should do to try to be fair to those folks. So in that regard it was an invaluable experience. And a great deal of what FedEx has been able to accomplish was built on those lessons I learned in the Marine Corps.
Was there anyone in particular in the Marines who had a profound impact on you?
Frederick Smith: There were several people who profoundly affected me. One was my platoon sergeant, Staff Sergeant Jack Jackson, who was a very wise man, about 10 or 15 years older then I was. I was the officer and he was the senior NCO, and of all of the education I ever got, I think he was the one that gave me the Ph.D., so to speak. I also had a very close friend in our battalion chaplain, Father Vince Capodano, who had a profound effect on me. He ended up receiving the Congressional Medal of Honor, as a matter of fact. I think those two people had a big effect on me.
What did you learn from Sergeant Jackson?
Frederick Smith: Sergeant Jackson was a man who knew the ways of the world. He knew the way nine-to-five, blue-collar folks look at things. He gave me a real education on that. He was a wonderful man and taught me a lot.
When I first met Sergeant Jackson I had grown a mustache and had taken up the affectation of smoking cigars, because I thought this made me look, you know, quite dashing and much older than my 22 years, or what have you. And the first thing that Sergeant Jackson did after I asked him to, in essence, take the insignia off, you know, just tell me straight up what I could do to improve my performance. And he told me, he said, "Well, the first thing, shave off that ridiculous mustache, and quite smoking the cigars -- because you look absurd -- and be yourself." And I don't think I ever forgot that. I don't think I ever tried an affectation after that point in my life.
He told me I looked like a smooth-faced kid trying to be something that I wasn't. That stuck with me a long time, to this day.
There are a lot of people with ideas, and brains, and potential who don't achieve whatever goals they might have. How do you account for your success? For your ability to do what you've done?
Frederick Smith: First and foremost the idea was a profound idea, as has been shown. Today we have 170,000 employees and $16 billion. As I said, the requirement for this type of a system was so great and was increasing at the time. I just had the good luck to have an idea that was on the tide of history.
I'm sure many other people who've been much more successful would say the same thing. Bill Gates was given the opportunity to make the operating system for IBM and then there was a huge explosion of demand for PCs. I wish it were not the case, but an awful lot of success is being in the right place at the right time. That was a very big part of it.
In retrospect it was ridiculous to try to put this system together, which required so much up front money, and required changing a lot of government regulations, but I didn't know that at the time. And I think probably my experience in the service, where -- the currency of exchange in FedEx was just money, it wasn't people's arms and legs, or lives. So my perspective on it was perhaps a bit more -- I don't know how you'd say it. I was willing to take a chance, because losing wasn't the worst thing in the world that could happen to you. I had seen that very clearly.
So luck, naiveté, willingness to roll the dice to do something productive, were all individual parts of the puzzle.
Frederick Smith: I was very convinced that the idea was the central feature of the new economy. That without a system like this, it simply wasn't going to be able to work. So I was, in every sense of the word, a zealot. I mean, I felt very strongly that this needed to be done, that it was something that would be extremely useful to people and that it would make the economy and the society and the system work much better than it would work absent that.
So many things have evolved out of that system. Dell Computer relies on the types of systems that we pioneered. High-tech and high value-added businesses are by far the preponderance of economic activity in this country and increasingly around the world, and these types of business are facilitated by systems like FedEx, or (I hate to say it) our able competitors.
There are always detours. What kind of adversities have you had to overcome?
Frederick Smith: I've had all kinds of adversity, but I think you have to put those things in perspective. I have to go back to my experience in the Marine Corps. My life has been a walk in the park compared to the adversity that a lot of people have seen. I've enjoyed every bit of putting the company together. Even the bad parts I learned from. I've enjoyed it immensely, and I enjoy what I'm doing today. I enjoy running the company.
Going to war does give one some perspective.
Frederick Smith: It really does. I can't emphasize that enough. That puts a different perspective on things forever.
Frederick Smith: We'd run out of money and we didn't have all of the regulatory requirements that we needed. My half-sisters were up in arms because it looked like we were going to lose some money. I mean, everything was going wrong, except the fundamentals of the business were proving every single day that the idea was right. I mean, every single day the traffic was going up, and so eventually everything came right and worked out fine.
The motivation I had in those days was that I didn't want to let down the people who had signed on with me. It goes straight back to that Marine Corps experience. I wasn't afraid to lose my money. I knew I was right, I knew I had put this thing together properly and that it was going to be all right. That was what stood me in good stead.
Frederick Smith: The reason I never lost confidence is because I never believed that the consequences of losing were as bad as some other people might have thought, you know? "Oh my goodness, I've lost my money!" or what have you. I mean, I just wasn't motivated along those lines. And I was very, very, very sure that what we were doing was extremely important and was destined to be successful. So that's the definition I think of an insane person, or a zealot. And most entrepreneurs, I think you would find, have that sort of green wire laid in there just a little bit cross-wise. And they begin to get focused on something, and they believe in the idea or themselves far beyond what they probably should.
Did you ever wake up in the middle of the night and say, "I want to give it all up?"
Frederick Smith: No, I never felt that way at all. I was very committed to the people that had signed on with me and if we were going to go down, we were going to go down with a fight. It wasn't going to be because I checked out and didn't finish it out.
What sacrifices have you had to make?
Frederick Smith: You have to pay a big personal price in terms of time and other things. You have to have a decision regarding priorities. If you're not willing to work hard, if you're not willing to give it your total commitment, you're probably not going to be successful.
That means you're probably not going to be a very good golfer. You have to do what I do, take up tennis, where you can do it in an hour and a half. You can't spend five hours on it. You have to prioritize what's important for you and what's not.
What do you think are the most important principles, or ideals, or policies that have made Federal Express such a success?
You can't make people do what's right. You can lead them, and you can empower them to make the right decision, but if you don't produce a culture that allows them to do that, then all the rest is just bumping your gums as one of my old business partners used to say. That's Jim Barksdale of Netscape, by the way, who's been very successful himself.
Our "People, Service, Profit" philosophy insists that our people be treated fairly. If we give good service and we come up with a reasonable profit, we make that a good deal for our employees, with profit sharing, promotions, complaint procedures. If you spend any time looking at the culture of FedEx you'll find that PSP philosophy is the foundation of everything else. Secondarily, our management system is built on continuous quality improvement.
We decided a long time ago that percentages were not acceptable to our customers. In other words, 99 percent sounds great, unless you're the one percent who we don't deliver for. So we never talk about percentages. We built a management system which measures problems on an absolute basis. And the secret is, as traffic or volume increases, the number of complaints have to go down on an absolute basis. In other words, we've got to get better and better year after year.
We spend a huge amount of money, particularly on the technology, to allow us incremental improvements in every part of the operation year after year, month after month. That's the second thing that was a big part of our success. The third underlying element of the FedEx culture, after the philosophy and the continuous improvement management system, has been the focus on change.
As time changed and markets changed and peoples' expectations changed, we changed with them. For example, when it became obvious that people wanted to interface with FedEx electronically, many years before people were doing this, we built an electronic interface system that allowed them to do business with us. When the Internet came on the horizon, we built versions of that that allowed people to interface with FedEx over the Internet. And now there are millions of people doing business with FedEx every day electronically.
There are lots of different examples of that. We have a culture that allows us to change without threatening the people that work at the company.
Frederick Smith: That was putting our money where our mouth is. The fundamental principle behind fast cycle or express transportation is that you are substituting your services for other processes. If an electronics manufacturer is going to operate without inventory, or field service engineers are not going to have the parts and pieces to fix things rat-holed in the trunk of their car, then when they need the part or piece, or they need the item delivered to the customer, you've got to perform. You've got to be able to let them know where this item is all the time.
It's not like we're carrying sand and gravel. You know, we're carrying chemotherapy drugs, and important manuscripts, and electronic parts, and pieces for airplanes that are grounded. So when we pick it up and say, "We're going to have it there early the next morning," I mean we have to deliver. There's nothing else to it. So putting the guarantee in place was much more important internally than it was externally. Because most of our customers -- based on the experience they've had with us -- they believe we'll do it. But it's when we said to all of the employees, "This is guaranteed. If we don't get it there, we don't get paid."
That made it very clear to everybody what they need to do every day. We manage the continuous improvement in a mathematical manner every single day. Our service gets better each year. That's very rare for big service organizations. Most of the time, as they get larger service deteriorates, it doesn't improve.
How do you handle the stress, and the responsibility for all these employees?
Frederick Smith: I don't find it that stressful. I find it fun. Business is a game, it's great fun. I take enormous pride in the fact that we now have 170,000 people employed. That's what it's all about, giving people good jobs and we try to have a lot of fun. Our very famous advertising has always been tongue in cheek. The fast-talking man, and 10 or 15 years ago, up to the 1998 Super Bowl, where we ran a test pattern and put a little script down at the bottom that said, "It would have been a great commercial but they didn't send it FedEx."
How important is a sense of humor?
Frederick Smith: It's everything. I can't imagine going through life without being able to laugh at things. Even when things get bad, there's always a humorous side to it. I think it may be the most important attribute somebody can have to get through life, because everybody has tragedy, and everybody has bad things happen. If you don't have that reservoir good will, or ability to look at yourself with a little bit of humor, I think you're missing an awful lot of life.
No matter what the field, you can't please all the people all the time. How do you deal with criticism?
What do you think your most important traits have been in achieving what you have done?
Frederick Smith: Probably conviction. I was convinced that what I was trying to do with my teammates was important and that it would be successful. The opposite side of that coin is persistence. Very rarely have I ever seen any business or major undertaking that goes in a straight line. There's zigs and zags, victories and defeat, and you have to be propelled by that conviction that what you're doing is right and what you're doing is important, and to persevere in it. That's probably more important than anything else.
Secondarily, I've been very interested in the people who I work with being successful as well. I don't think we have many people who've worked at FedEx, particularly in the executive ranks, who don't have good feelings about the company. I hope that's because they feel they were treated fairly and got their shot at glory and opportunity. I think that's a big part of it. To make sure that the people you're working with have a chance to be successful.
And then, third, is that element of humor. You've got to enjoy what you're doing, and have some fun, and be able to laugh at yourself a bit.
Frederick Smith: In certain ways the big challenge for our company parallels the big challenges for the country. Our company has become enormously global in nature. FedEx and our competitors are the primary means of moving the high value-added, high-tech goods around the world. And that's what's propelling global growth today. It's not the growth in mining, and lumbering and agriculture. It's the growth in electronics, and computers, and new medicines, and equipment and things of that nature. We're the way those things get to market.
We're the thing that binds everybody else together. And successfully navigating from a mostly national economic structure, to now a global structure with different types of cultures and governments and what have you. I mean, all you have to do is pick up the newspaper and see it every day. And it's going to be important that the United States and FedEx, every year that goes by, does better in the way we deal with other cultures. And is respectful of other peoples' points of view and makes a contribution and doesn't become one of the problems in the world.
So I think they're very parallel in a certain way.
Is there anything you haven't done that you'd like to do?
Frederick Smith: I would like to sit down some time and put a few thoughts down on paper. I've got a few observations that might be useful for someone. It'd be fun for me to do it, and I intend to at some point. Other than that, I enjoy my family, enjoy the business and get to see a lot of the world, so I have no complaints.
Looking back, what advice would you give to a young person who came to you for advice?
Frederick Smith: The most important piece of advice that I could give them is to take advantage of the tremendous reservoir of knowledge that's out there today. Spend some time learning how the world has evolved. There are a lot of good lessons in history, and other peoples' experiences in the past, that could be exactly the solution to the problem you're looking for. Particularly today, with everything available on-line and on the Internet, and with quick delivery of books or whatever you need, to not take advantage of this educational opportunity is a real tragedy.
What books have been important to you as an adult?
I just finished reading one by Daniel Yergin which is very popular right now. It's called The Commanding Heights, which was a statement by Lenin about the necessity of government controlling the commanding heights of the economy, the big companies, the big economic activities. The book is about the way the market economy has overwhelmed governments and national systems everywhere. Some books like that that have really grabbed my attention over the years. Not only Yergin's current book, but his previous book, The Prize -- about the evolution of the oil industry over the years -- is probably as good as anything on how the modern world came to exist.
What books might you recommend to a young person?
Frederick Smith: A book called Modern Times by Paul Johnson, who's an irascible fellow in England, is a great compilation of all the absurdities of the 20th century. It really gives you a picture of a lot of things that have happened over the entire century that have created opportunities in the world we live in today. David Halberstam has written several good books that I would recommend to people.
What do you think the most important documents of the 20th century have been?
Frederick Smith: I think the most important documents probably precede the 20th century. I think they made a good stab at trying to set a stage for human development in the UN Charter. There's a lot of good things in there. It's been corrupted a bit by the flow of things, but if you really read it, it takes the importance of the individual -- the inherent rights that individuals have -- from the thoughts of the American Revolution, and straight back to Magna Carta.
That battle is still being fought around the world. I don't think there are many documents in modern times that are any more important than for all the nations of the world to write that down on a piece of paper and codify it. I think there's a good chance that people can build a much better world in the 21st century than they've done in the 20th on that foundation.
What does the American Dream mean to you?
Frederick Smith: I think the American Dream is freedom. It's the ability to do what you want to do. It's the freedom to succeed, it's the freedom to fail. And the freedom to live your lifestyle the way you want to live it, within reason, as long as you're not hurting anybody else. To me that's the American Dream. Very few people in the history of the world have ever had that enormous opportunity.
Thank you for giving us the opportunity to talk with you.
You're very welcome.