The idea for FedEx came from an assignment Frederick Smith wrote while an undergraduate at Yale about how the mail delivery companies of the day were inefficiently using the passenger air routes for package delivery. This idea would launch a company that was the first in American history to reach $1 billion in less than 10 years without a merger or takeover.
Frederick Smith would not have the opportunity to test his theories until 1971, when he bought stake in the Arkansas Aviation Sales. However, he found the delivery system inefficient and set about trying to create a model for more financially feasible delivery. He put $4 million of his own money and raised $91 million of venture capital into creating a new company. His goal was to create a company that could provide a nationwide express delivery system that could get packages delivered efficiently.
Frederick Smith came up with the name Federal Express because of its connotations with serving the entire country and its potential for name recognition. He incorporated his new company and it began delivering packages in April 1973. The company began with just 14 planes flying out of Memphis and serving 25 American cities. Memphis was chosen because of its central location and minimal closures of the airport for bad weather. In July 1975, the company turned its first profit.
FedEx grew rapidly in the late 1970s and early 1980s. In 1977, the federal government deregulated the airline industry, which allowed FedEx to use bigger planes and increase efficiency. The company switched to a single computer system, called COSMOS, in 1979 that allowed it to track various aspects of the company. Profits topped $20 million in 1979.
FedEx did not back away from competition. In 1981, it challenged the United States Postal Service by offering to ship overnight letters. In the mid-1980s, FedEx started to go global. It purchased Gelco Express, a company that had a presence in 84 countries. It was the first of several purchases that FedEx made to expand its dominance overseas.
FedEx revolutionized the way that package delivery was thought of in the business world. It replaced the model of using the same routes as passenger aircraft and developed economically feasible methods of guaranteeing overnight package delivery. As of 2009, FedEx works in more than 200 countries providing next-day service.