By now Smith had devised a well-thought-out strategy to implement his idea while making the most of his resources. Originally Smith wanted to do contract work for the Federal Reserve System, transporting, sorting, and rerouting checks. His business plan called for a fleet of planes that would pick up packages for delivery. The planes and cargo would be flown at night, when air traffic was minimal; packages would then be dropped at a central location or hub, where they would be sorted. From there the parcels, using both ground and air, would be routed to their destinations within a 24-hour period. Smith chose Memphis as the hub city because of its central location, moderate climate, and labor resources. Smith also wanted the company to own its own planes in order to bypass federal shipping regulations.
Despite Smith's proposals, which he calculated would have saved the nation's banking system an estimated $3 million a day, many financial institutions, while interested, were not convinced that Smith's ideas could realistically be carried out. On paper Smith's delivery system was simple and practical. However, there were many problems to overcome to make it work. Financially, the business required a tremendous amount of money for planes, pilots, and insurance. Smith also needed to design a transportation system that could not only link any two parts of the country but also ensure that packages going back and forth could be delivered within the promised 24-hour window – something that had never been tried before in cargo delivery.
Although Smith was unable to convince the Federal Reserve that his plan would work, he decided to spend money on an intensive advertising campaign to persuade anyone else who might be interested in such a venture. Smith also realized that by using both air and ground transport, package deliveries did not have to take the most direct route, as long as they made it to their destinations within 24 hours. Over time a web of interconnecting cities was established that would provide Federal Express service. Finally, on June 18, 1971, Smith, then 27 years old, created the Federal Express Corporation. His startup funds consisted of $91 million from venture capitalists in addition to his own $4 million inheritance. By 1973 Smith was ready to go; Federal Express, with a fleet of 14 jets and several vans, began offering service to 25 cities. Still, as Smith later recalled, few people were encouraged by his new venture. In a 1979 interview, Smith said, "People thought we were bananas. We were too ignorant to know that we weren't supposed to be able to do certain things" (New York Times, January 7, 1979).
Federal Express's first two years were grim. In fact, on its first night of business, the fledgling company shipped only 186 packages onto its 14 Falcon jets routed to 22 cities. Within the first three months of operation, the company had lost almost a third of its start-up cash. It was not uncommon for Federal Express drivers to dig into their own pockets to pay for gas. The company also lost money because of high advertising costs (Smith believed advertising to be essential for his company's survival) and because of increased aircraft fuel and gasoline prices resulting from the Arab Oil Embargo of 1973. Smith's sisters also brought suit against their brother for misappropriating their trust fund monies. These and other factors, such as outdated federal aviation restrictions and run-ins with the International Brotherhood of Teamsters, caused FedEx to lose $29 million in its first two years of operation. However, by 1976 the company had begun to show a profit as it delivered everything from documents and computer parts to sensitive parcels, such as blood and organs. Despite competition from UPS and other delivery companies, the Federal Express customer base was growing as well; besides counting several businesses among its clientele, Federal Express was also handling deliveries for the federal government. By 1978 the company had proven itself financially stable enough to begin selling shares on the New York Stock Exchange. In 1984 Federal Express reached a milestone not only for itself but also for American business when it surpassed $1 billion in revenues.
Not content just to oversee his growing delivery network, Smith cast about for other ideas that would maintain Federal Express's position as the fastest-growing and speediest delivery service. To that end, the decades of the 1980s and 1990s were characterized by adaptation and experimentation. In 1984, to aid clients in sending documents anywhere in the United States within a short period of time, Smith created ZapMail, a satellite-based system of linked stations that guaranteed delivery of documents by fax machines and courier within two hours. Unfortunately ZapMail never really caught on with customers, and by the end of the decade, fax machines were becoming more commonplace in businesses. Finally, in 1989 Smith discontinued ZapMail, but not before it had ended up costing the company over $300 million. Federal Express also continued to suffer severe financial losses, in part because of increased competition from UPS. To combat the problem, Smith became more aggressive in dealing with the competition. In 1988 Federal Express bought the Los Angeles-based international heavy freight carrier Flying Tigers for $880 million, thereby becoming the largest all-cargo airline in the world. Now Smith had his own network of overseas delivery routes and no longer had to rely on outside contractors to make his foreign deliveries. He also negotiated the purchase of several trucking companies in an attempt to make Federal Express a more diversified freight and parcel powerhouse. Still, Smith's entry into the foreign markets suffered. Even though the company's international traffic had grown to include over 560 planes flying out of three hubs, Europe as a whole was slow to develop as an express market.
In 1994 the company changed its name to FedEx. That same year Smith, sensing the importance of the Internet and trying to recuperate from losses in his international division, introduced InterNetShip, a service that allowed customers to coordinate their domestic deliveries via Internet-linked computer software. Smith also developed BusinessLink, a marketing service that provided businesses with an online catalogue of their goods directly linked to FedEx. Despite financial setbacks, the company continued to grow. By 1997 FedEx employed 120,000 employees worldwide; delivered an average of 2.5 million packages a day in 211 countries and territories through one of its 37,000 trucks; and had made Smith one of the four hundred wealthiest people in the world. In 1998 FedEx formed the FDX Company, which served as a holding company that oversaw both domestic and international operations of the organization.
A vision of the future
Despite intense competition and financial setbacks, Smith continued to persevere. His success came in part because of his ability to understand the changing needs of business and the importance of such things as the Internet, deregulated trade, and changing business practices. But Smith found that he had to wait for American and European business owners to understand his vision of a delivery system that promised savings, increased productivity, and improved efficiency. Smith also saw the possibilities with the Internet and the growing potential of e-commerce for the shipping industry. Toward the end of the 1990s Smith leveraged the company to take advantage of ecommerce opportunities by fostering partnerships with Webbased companies such as Sun Data, a $200 million computer company, which through its Internet sales increased the customer base for FedEx. In speeches and interviews Smith also acknowledged that the business of doing business was rapidly changing as the 20th century came to a close. With the increased availability of express shipping, Smith foresaw a trend in which companies would reduce their inventory as they became more dependent on express shipments. This development would in turn make the intermediary warehousing and distribution facilities less necessary. Smith pushed for the United States in cooperation with other countries, such as Japan , to work on fashioning a model of such a network that other countries could follow. Smith continued to increase his hold on the express delivery market. In 2003 FedEx purchased Kinko's, a large office and print store chain, for $2.4 billion. With the purchase of the company, all 1,200 Kinko's locations worldwide offered FedEx shipping services and increased FedEx's share of the express document and delivery business, helping FedEx to build an even larger customer base.
By 1999 FedEx was shipping three million packages every day with annual sales totaling $16.7 billion. In 2000 the company changed names once more to the FedEx Corporation. Once again, though, the company stumbled. In streamlining company operations, Smith decided to let various divisions of FedEx operate more independently. In April 2000 it was discovered that a number of FedEx drivers and couriers had been using company vehicles to deliver more than 120 tons of marijuana in a delivery system that went back and forth between the East Coast and the West Coast.