(this article is part of the analysis of successful business models by DART Analysts)

Frederick W. Smith is the founder, chairman, president, and CEO of FedEx, a global leading transportation, business services, and logistics company. He is the person responsible for the revolutionary idea of overnight delivery services around the world.

FedEx was established in 1971. Frederick invested his own US$4 million in the company which he inherited in addition to US$91 million he raised from the Venture Capitalists. However, the company lost US$27 million during its first two years in operations, and was on the verge of filing bankruptcy by then. Unable to raise additional capital from its existing investors and in a desperate attempt to keep the company afloat, Frederick once flew to Las Vegas and won US$27,000 in Blackjack which he wired back to the company’s account. Even though the money was not enough to keep the company afloat, Frederick mentioned that it was enough to reassure his faith about the good times ahead.

 

As of now, FedEx is a global leading express transportation services provider. The company has a fleet of more than 660 airplanes and over 90,000 vehicles and employs more than 300,000 employees to deliver over 10 million packages every business day across 220 countries and territories around the world. The company posted record revenues of over US$47 billion for the fiscal year 2015.

What did it disturb?

FedEx changed the way the retail business was conducted. The exchange of mail has been happening since long time but the medium used was different. His idea restructured the postal industry by integrating air and ground delivery systems. It offered an effective and efficient alternative to the mail, and reduced the dependence of government owned postal services for mail exchange. This idea brought world’s first overnight delivery company in a computerized information age but also established an entirely new industry – hub and spoke express shipping. Frederick’s idea disturbed many of the existing business models, and resulted in creating new enterprises.

It allowed the expansion of various companies, and enabled many small firms to become corporate giants by providing overnight connections with global markets – all in the name of delivery of mails or parcels. At the same time, it stymied the growth of traditional postal services and brought higher efficiencies in the system.

How did the idea emerge?

Born in August 1944, he came up with the idea for providing reliable overnight delivery services while he was attending Yale University where he went to study economics and political science. He outlined the idea in a term paper for economics class about a company that would guarantee overnight delivery of time-sensitive goods including replacement parts and medical supplies to all the major cities in the US. His economics professor found the idea to be interesting, and well-thought but unfeasible and rewarded him a grade “C” for his idea. However, Smith didn’t let his mediocre grade to affect his idea, and went on to found one of the largest corporations in the world.

His business idea was focused around bringing packages from all over the country to a central point called “hub”, and then sorted and flown out along specific routes called “spokes” to their destinations. Under this first-of-its-kind “hub and spokes network” system, the planes and cargo would plan to be flown at night when air traffic was minimal to offer efficient and effective deliveries.

Many magazines and articles around the world have mentioned the company in its list of top business ideas in the world, including the Fortune Magazine which lists the company in the Top 10 most admired companies in America and the World and describes as one of the Top 10 Business Triumphs of 1970s.

Frederick W. Smith and FedEx

After graduating from Yale University in 1966, Frederick joined the US Marine Corps and did two tours in Vietnam. After returning to the US in 1970, Smith revisited his idea about the express delivery company, and led the foundation of the company in 1971.

The company did not take much profit in the initial years and lost more than US$27 million in the first two years of operations. But due to the sheer determination and his PSP (People, Service, and Profit) philosophy, by 1976 the company began to report profits as it expanded its services from delivering documents and small packages to sensitive parcels and mechanical parts and supplies such as blood and organs. In 1978, the company went public and its shares were first time listed on the New York Stock Exchange (NYSE). The company achieved a milestone when it reported revenues of over US$1 billion in 1984.

The company achieved many other milestones as well, including:
• The first PC-based automated shipping system, FedEx PowerShip
• The first company in the history of the American business to surpass US$10 billion in profits
• The first all-electric trucks to be used in the US parcel delivery business.