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Crazy Business Ideas That Actually Worked: FedEx

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Launching the iconic company required steadfast dedication to a theory first proposed in an unremarkable college paper.

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A term paper, for a lot of college students, is just one more task to quickly complete for a professor's fast approval. For Frederick W. Smith, the founder of FedEx (FDX), the assignment proved transformational both for himself and corporate America.

Smith first floated his idea of an express delivery service in 1965, when he was a student of economics at Yale University. The executive-to-be, as the company details, wrote of the need for shippers to have a system designed specifically for airfreight that could accommodate time-sensitive shipments such as medicines, computer parts, and electronics.

Legend has it that Smith earned a C for the paper, but the future CEO later admitted that he couldn't really recall the exact grade, but guessed it was his "usual gentlemanly C."

Regardless of the professor's grade, Smith bet that he had stumbled on a money-making plan, as he later modestly recalled to BusinessWeek: "I knew the idea was profound."

In August 1971 -- following a four-year stint in the Marines where he served as a second lieutenant in Vietnam -- Smith came home and started the Federal Express Corp., with $4 million inherited from his father and $80 million from venture capitalists. (Smith chose the name, in part, because he initially intended to secure a contract transporting checks for the Federal Reserve System, which never happened.)

Born in 1944 in Marks, Mississippi, Smith had earned money during college working as a charter pilot, and it was then that the idea of revolutionizing the delivery business first blossomed. He flew passengers here and there, but also transported spare parts for companies like IBM (IBM) that couldn't wait for passenger airlines to move their sought-after components to customers.

However, while the idea of overnight delivery might have seemed a surefire success to Smith, the company suffered a rocky start: When Smith launched the service on March 12, 1973, he had just seven packages for the first night's run. But the Mississippi native remained undeterred: He ordered his salesmen back into the field, doubled his network to 25 cities, and re-launched the service four weeks later.

The young executive looked for cash anywhere he could find it: At one point, he even hightailed it to Las Vegas to play the blackjack tables and then wired his $27,000 of winnings back to FedEx so that the company could help meet a payroll.

However, as tough as times became, Smith proved determined and, as BusinessWeek notes, the persistence paid off. By the late 1970s, America had come to depend on the Memphis-based company to guarantee overnight delivery of everything from spare parts to business documents. (Merrill Lynch staffers found the service so reliable and quick that they reportedly used it to deliver documents between floors at their Manhattan headquarters rather than interoffice mail.)

In fiscal year 1983, FedEx reported $1 billion in revenues, becoming the first company to reach that financial hallmark inside 10 years of start-up and without mergers or acquisitions. The second billion dollars in revenues came two years later and the third billion in fiscal 1987.

This might have surprised everyone except Smith who, when asked by a Forbes reporter whether FedEx would ever be a billion-dollar company, had responded: "No doubt about it."

Today, after nearly four decades, Smith's vision has ballooned into a multinational powerhouse: FedEx Corporation is a $23-billion global transportation, business services, and logistics company, where Smith is still responsible for providing strategic direction for all FedEx Corporation operating companies, including FedEx Services, FedEx Express, FedEx Ground, and FedEx Freight.

FedEx now serves more than 220 countries and territories with operations that include 664 aircraft and over 80,000 vehicles. More than 280,000 employees worldwide handle more than 8 million shipments each business day.

Looking back many years later, Smith credited a few factors with the success of his company: He put up a lot of his own cash ("I wasn't just some guy with an idea," he has written. "I was really risking something of my own to start this company"); he had a business plan that was detailed and achievable; and he engaged in constant change.

"Every business is in the process of being commoditized," he says. "The question that you have to ask yourself is, What do I have to change to avoid being commoditized? And once you see what that is, you'd better do it."

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