Monday, December 17, 2018

Changing How The World Does Business

Some business moats get built by accident. Fedex was no such accident. Its founder, Fred Smith, knew exactly what he was doing when he created the most reliable business in the world for overnight delivery. Roger Frock ran the numbers for Smith as a consultant before Fedex was launched, and then became one of the company's earliest executives, as he too saw the potential for this business. He writes about the company in his book Changing How the World Does Business: FedEx's Incredible Journey to Success The Inside Story

Smith must be an incredible person. He saw a better way of transporting packages than all the companies that actually were in the package transport business (e.g. UPS and the US Post Office); not only that, he was able to execute on his idea. Instead of forwarding packages through the cargo section of passenger airlines, where delays/cancellations/damages were out of the forwarders control, he had the vision of a hub model where all packages were flown to and sorted at night at a single location, and then flown out in the morning. This insight created a new way of doing business that was more reliable than what existed before, and caused all the incumbents to have to copy.

Interestingly, there were many points where it could have failed. Regulations made new ways of doing business almost impossible, but Smith used lobby groups to change the regulations. Launching almost empty airplanes from a number of cities also doesn't come cheap, and at a number of points Smith almost ran out of money before the company eventually hit critical mass and a moat was born. I wonder how many companies with incredible potential don't exist today because regulations or financing issues caused them to never get to a point where they could take off and allow us to use them.

This is far from a rags to riches story, though. Smith had a $14 million trust fund inherited from his dad that allowed him to start Fedex when there were few believers. While today that kind of money might buy you a house in San Fran, an iPhone and a serving of avocado toast, I'm told that back in the 1960s this was a lot of money.

What I really enjoyed about the book was how much operational detail was provided about the early startup years, which I haven't seen often in this kind of book.


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