Federal Express' Barriers to Entry

This article came out of a May 2018 lecture I gave to the Entrepreneurs’ Club, a group formed

by members of the MIT Sloan Executive Management MBA program. I had been asked to

present an interesting aspect of Federal Express as a start-up. The traditional tales are lost in

the fog of war, having been told so many times with so many variations that one’s memory no

longer separates myth from reality.

 

On the one hand, the most challenging and difficult issue facing Federal Express during the

start-up period was the need to raise substantial capital. Today, one can only marvel at what

Fred Smith pulled off. His tenacity, sophistication, instincts, audacity, and plain old 24/7 hard

work boggles the mind. “No man on earth will ever know what I went through...” Smith told

Author Robert Sigafoos in 1983. In retrospect, it makes me feel guilty for having had such fun.

 

On the other hand, finance is not my long suit. Moreover, these trials and tribulations have

been well documented by authors Robert Sigafoos in 1983, Vance Trimble in 1993, and Roger Frock in 2006.

 

So, I thought about the company’s vulnerability at birth. As a fledgling, Federal Express

seemed to be a sitting duck for some formidable players: UPS. Emery Airfreight. Airborne

Freight. Why didn’t they show up? What happened to “kill’em in the crib”? The late Art Bass,

COO at the time, observed: “When we started out, Emery could have kicked the crap out of us, but it didn’t...”

 

I concluded that a discussion of the circumstances and strategies that posed difficulties for

anyone considering entering the market concurrently with Federal Express would be an

interesting one.

 

Accordingly, I presented the idea to the group and participated in the subsequent discussion.

Consequently, it occurred to me that Fred Smith had created formidable barriers to entry.

Some of the barriers were designed. Some were a matter of exploiting circumstances. None

were by chance. After the session, I began to think more about the subject and decided it

would be interesting to drill deeper and perhaps be able to contribute to a fuller

understanding of the remarkable early Federal Express story.

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