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Frederick W. Smith: No Overnight Success


As part of its anniversary celebration, BusinessWeek is presenting a series of weekly profiles of the greatest innovators of the past 75 years. Some made their mark in science or technology; others in management, finance, marketing, or government. In late September, 2004, BusinessWeek will publish a special commemorative issue on Innovation.

Frederick W. Smith, founder of FedEx Corp. (FDX), has transportation in his blood. His grandfather was a steamboat captain, and his father built from scratch a regional bus line that became the Southern backbone of the Greyhound Bus system. Smith learned to fly as a teenager, a skill he turned to cash by working weekends as a charter pilot during his years as a student at Yale University in the 1960s. While flying students and other passengers around, Smith had the insight that led him to revolutionize the delivery business. He noticed that he was also frequently ferrying spare parts for computer companies such as IBM (IBM) that didn't want to wait for the passenger airlines to get critical components to customers.

Smith, an economics major, first broached his idea for an express delivery service in 1965 in what became one of the most infamous term papers in Corporate America. Lore has it that he received a modest C, though Smith doesn't think that was the case. Whatever the grade, he wasn't deterred. "I knew the idea was profound," he says.

After a hitch with the Marines in Vietnam, Smith returned in the late '60s and began to chase his dream. He soon found backers with more faith in his ideas than his professors. With $4 million inherited from his father and $80 million from venture capitalists, he set up Federal Express Corp. in 1971. Its promise: guaranteed overnight delivery of critical goods between any two points in the 11-city network Smith created.

Unique, but hardly an overnight success. Ready to launch the service from Memphis on Mar. 12, 1973, Smith secured just seven packages for the first night's run. He sent his salesmen back into the field, more than doubled his network to 25 cities, and relaunched the service a month later -- this time handling a grand total of 186 packages.

Sparse initial volume wasn't the only headache. Until the late '70s, the postal monopoly stopped FedEx from delivering documents. Onerous airline regulations at first restricted it to flying tiny Falcon jets. By 1973, Smith was so desperate for cash that he flew to Las Vegas to play the blackjack tables. He wired the $27,000 he won back to FedEx.

Smith's persistence paid off. By the late 1970s, America came to rely on FedEx' ability to deliver goods overnight -- be it spare parts, urgent business documents, or 11th-hour birthday gifts. Merrill Lynch & Co. (MER) execs even discovered employees were using FedEx to deliver documents between floors of its Manhattan headquarters building because it was faster and more reliable than the interoffice mail. These days, FedEx is a linchpin of the just-in-time deliveries revolution -- its planes and trucks serving as mobile warehouses -- that has helped companies around the globe cut costs and boost their productivity. The logistics service now contributes the lion's share -- 92% -- of FedEx' $26 billion in annual revenues.

Although FedEx has spawned numerous competitors, it is still the biggest operator, with a 44% share of the air express market. Its fleet of 645 aircraft and 71,000 trucks carry an average of 5.5 million shipments each day. And all because a college kid could see a market that others couldn't.

By Dean Foust


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