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GET THE PACKAGES: The FedEx Success Story from the Inside

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Federal Express' obsession with the conscious development of customer-focused systems and the use of technology has enabled it to maintain market share in the face of ruthless competition. Read the story of its beginnings in 1973 as a package carrier with a fleet of only ten planes.
This chapter is from the book

Introduction

It was March 12, 1973. We had been working for years for this day—the first day of operations for Federal Express. We had 28 people selling in 10 cities since January 2, 1973. We had 23 executive jet airplanes (10 of which had been converted to freighters); hundreds of employees; a hub and World War II facilities in Memphis, TN; and no money.

Frederick W. Smith, the founder, had used all of his family's trust fund and incredible banking and leasing salesmanship to get us here, but that was all there was.

Fred Smith, myself, and others had traveled to New York and had appointments with venture capitalists all around the city the next day. Fred had seen most of these venture capitalists earlier, and they had told him to come back when we were in business. Now we were, and we were ready.

I was Senior Vice President of Sales and Customer Service. That meant setting up the pickup and delivery operation, along with the sales and service operations.

Each evening, for the past two and a half months, we had a conference call to review the results of the sales calls for the day, and we'd track the expected number of packages the first night. By mid-February, we were estimating as high as 3,000 packages for that first night.

The problem, at that level, was that our planes only held 300 packages each, and most of the 10 airplanes were contracted to the post office and other charter commitments. We could cancel contracts and deploy all 10 airplanes, but it would be very costly and risky if we didn't actually get 3,000 packages.

I decided that we'd better verify that the customer commitments were real. I started asking more specific questions and found out that sometimes salespeople lie, or at least tell you what you want to hear.

For example, one of the shippers from Memphis was a brick company that was supposed to give us 20 packages a day. I asked the salesperson why they were using an overnight service. "Are they going to ship samples to architects?" He replied, "No, they're shipping bricks to the construction site."

I knew we were in trouble. After nearly a week of probing, we had changed our estimate to 300 packages. This was perfect: two airplanes averaging 150 packages each at 50% capacity. We were off and running.

America, you have a new airline.

On that opening Monday night, the Memphis hub was alive with local and national TV, the Wall Street Journal, and local newspapers. It was the first new airline in America in 20 years, and certainly the first all-package airline ever. It was newsworthy stuff.

It was 10:00 p.m. on that Monday in March, and we had just arrived at the Yale Club in New York City. I called Memphis to get the actual package count and asked John Henry, "What's the package count?"

"Are you sitting down?"

"Should I be?"

"Well, there's good news and bad news," he replied.

"Give me the good news."

"Single digit—six packages."

"John," I replied, totally shocked, "what could possibly be the bad news?"

"Four were from salespeople testing the system. Only two from customers."

Can you picture it? Dozens of people out in the middle of the night, the media, conveyors, spotlights washing WWII ramps and hangars with light. The first plane pulls up, the cargo door swings open, and two pilots, each with a package in his hands, passes it to the awaiting throng—a throng expecting two full airplanes or at least half-full airplanes.

Back in New York, after getting the news, I walked down the hall to Fred Smith's room and knocked timidly. I told him the news, and we had a brief discussion about what we were going to do with the rest of our lives because this wasn't going to work.

The next morning Fred had recovered. As we settled into a taxi to begin our venture capital tour, he looked at each of us and said, "Fix bayonets. We're in the trenches now. Our dream is a reality. Let's make it happen."

There was such an incredible sense of commitment from Fred that we did a reasonable job of explaining why we had spent two and a half months with 28 salespeople to get two packages.

I say reasonable because we didn't get thrown out, nor did we generate any capital.

As we were riding to our first appointment, one of the attorneys said, "Take heart. The first night is always rough. You'll have dozens of packages by Friday." On Friday of that week, we had one package in the system. I calculated the cost of that package at about $500,000 to deliver—a heck of a value to the shipper.

The immediate and very profound vision for all Federal Express people was spawned that first day:

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