On April 17, 1973, 14 sleek Falcon jets carrying 186 packages touched down at the Memphis, TN, airport. The Falcons also carried Frederick W. Smith’s high hopes, ambitious plans and big dreams for the start up Federal Express, which that night became the boldest competitor in the overnight shipping business.

Although few insiders took the undercapitalized company seriously, within three years it had captured a 19% share of the as yet underdeveloped small package air express market. By 1977 sales had hit $75 million and the rapidly growing company reported a pretax profit of $3.6 million. By 1983 sales had skyrocketed to an astounding $1 billion, a record in business history with the second billion mark only two years away. In 1990 the company expects a staggering $7 billion sales worldwide. Today, Federal Express employs over 80,000 quality-focused people and operates a fleet of 331 airplanes (21 – 747s, 24 – DC 10s, 116 – 727s with 170 smaller aircraft) and over 30,000 trucks and vans. Weekly package volume exceeds 6 million. In 16 short years, the Federal Express phenomenon has catapulted the infant overnight air delivery industry into major market status. Federal Express is truly an overnight success story.

Adversity and Luck – Stepping Stones to Success
Frederick W. Smith, founder and Chairman of Federal Express, is also the company’s most persistent salesman. Smith’s biggest selling asset may be his ability to deal with adversity. Since his earliest years, Smith has successfully overcome personal disappointment, and as an entrepreneur, he has had more than his share of setbacks and hardships.

During his teenage years, Fred developed a love of airplanes, receiving his pilot’s license at age 15. He later became a part-time crop duster and went on to study economics at Yale University. For an assignment paper during one course, Smith developed the idea of an overnight package delivery system. Smith’s innovative concept was awarded a disappointing C. After graduation, he enlisted in the U.S. Marine Corps, serving 27 months in Vietnam where he survived a Vietcong ambush and 200 ground support missions. In July 1969 Captain Fred Smith returned home a decorated hero. He brought with him six medals, the experience of overcoming the most difficult circumstances, and a business plan for success. Smith immediately purchased controlling interest in his stepfather’s aircraft sales and service business in Little Rock, and began buying and selling used corporate jets.

Always driven to take on new challenges, he refined his master plan for an overnight package delivery service. In 1971, the 27 year old entrepreneur negotiated a contract with the Federal Reserve to move packages containing cash overnight. Encouraged by the Federal Reserve’s serious interest, he secured a loan by pledging part of his inheritance, then purchased two Falcon 20 jets. Taking his new company name from the prospective account, Smith called his fledgling enterprise Federal Express. A short time after buying the planes, the Federal Reserve deal collapsed. Smith was stuck on the runway.

Smith refused to give up on his original idea, and, with the determination, drive and creativity that have become his forte, this remarkable young exec kept the planes and went back to the drawing board. He commissioned an extensive market study and developed a new business plan. After the historic launch in April 1973, business picked up, albeit gradually.

Smith put together a sales team of nine people who called on industrial customers to present the idea of shipping goods from one location instead of duplicating inventories in warehouses located across the country. Sales were growing, but cash had become a precious commodity.

By October 1973, refinancing negotiations stalled while Smith worked feverishly to sell venture capitalists on supplying additional funds. Federal Express was on the brink of a catastrophic failure. A new credit agreement was signed just in time to stave off collapse and the company continued its rapid growth pattern. Smith then successfully managed a second and third round of financing.

By 1975 it was clear that Federal Express could not grow further unless the Civil Aeronautics Act would allow Federal Express to fly larger aircraft. Smith lobbied in Washington for several months and was once quoted as saying, . The government doesn’t have to give us a thing. All they have to do is get out of our way.” In December of 1975 the request for exemption to use larger airplanes for cargo service was rejected. The financial backers got nervous but Smith kept his cool, and worked harder at selling the U.S. Government on removing the trade restrictions. A new bill was introduced in 1976, but it stalled in the House. Again, Smith dismissed the defeat as a temporary inconvenience and waited for the next opportunity which presented itself in 1977 when President Carter encouraged deregulation legislation. This time, the now Washington savvy Smith used his Federal Express clout to solicit nationwide support for a new bill which was enacted in November of 1977. Victory was finally his. Five months later the company went public and embarked on a rapid, yet superbly managed, growth track that took every single competitor by surprise, leaving them scrambling to catch up with the unsurpassed overnight standards set by Federal Express. To this day, Federal Express is praised for delivering earlier and more reliably than any of its competitors.

The Bear and The Alligator
A story circulating at Federal Express is designed to teach new managers the proper way to attack a problem and to learn the basics for developing a winning strategy. If a bear and an alligator are having a fight, the outcome is going to be determined more by the terrain than by the power and skills of the fighters. If the fight takes place in the swamp, the bear is likely to lose the fight; if the fight takes place on land, the bear can exploit his strategic advantage.”

Bill Razzouk, Vice President of U.S. Sales, told Personal Selling Power, When a Federal Express salesperson is in a situation where a customer is requesting a bid to compare Federal Express against the competition, you’ve got a typical Bear/Alligator situation. If we start by quoting numbers, we’ll be dragged quickly into the swamp. Our mission is to create a satisfied customer at the end of each transaction. To achieve that mission we need to understand the customer’s business first, speak his language and learn about his needs, goals and objectives. Salespeople can avoid swamps by learning how to sell value, not price.”

When asked how many salespeople were employed by Federal Express, Razzouk offered a quick answer: Every employee sells.The manager’s guide clearly states, Every employee at Federal Express must be sales-oriented and each manager must be an outstanding individual salesperson.” To make sure that every manager stays customer focused, every officer in the company is assigned to sales districts. It doesn’t matter if it is the Vice President of Flight Operations or a financial executive. Razzouk explains: Our officers need to understand sales and need to spend a given number of days each quarter with salespeople in the trenches. They benefit from what our salespeople have to say and learn about what our customers want and need. As a result, our officers develop a greater customer sensitivity and we all gain by working together on better programs that more closely meet our customers’ requirements.”

Currently, Federal Express employs 1,300 sales professionals who enjoy a tremendous amount of support from their customer-oriented managers. We’re interlocked, comments Razzouk. Everybody is 100% committed and everybody has a lot of fun. We spend as much time in this company talking about customers as we do about operations.”

In a recent speech to the entire sales organization, Fred Smith offered his ideas about quality: I don’t know how you feel about what you do for a living, but it is important to me that I be proud of the place I work for. The most important job of everyone at Federal Express is that we deliver a quality service 100% of the time, so that we achieve a 100% satisfied customer.” To reach this ambitious goal, Federal Express salespeople are expected to follow a detailed list of 29 well-defined performance standards. The first one reads, Do it right, the first time, no matter how insignificant the task may seem.”

Federal Express managers know only too well how quickly a small mistake can create a daisy chain of troubles. If a truck driver is late, the package sorting will be delayed, the plane will leave late, the team in Memphis will be held up, the flight out of Memphis will take off later and the commitment to deliver to the customer before 10:30 a.m. will be seriously threatened. During the many quality improvement meetings, Federal Express trainers often quote the 1-10-100 Rule developed by Labovitz and Chang. The rule states, For every dollar your company might spend on preventing a quality problem, it will spend ten to inspect and correct the mistake after it occurs. In the worst case, the quality failure goes unchecked and unnoticed until after your customer has taken delivery. To fix the problem at this stage, you’ll probably pay about one hundred times what you could have paid to prevent it from happening at all.” Tom Oliver, Senior Vice President of Sales and Customer Service, explained the logic of the 100% commitment to quality this way:

99.9% is not good enough when we are talking about your heartbeat, or your airplane arriving safely. We have to move against these crimes against customers, employees and shareholders.”

Federal Express managers have even developed a Hierarchy of Horrors” by listing specific events that need to be avoided at all times. The biggest horror is wrong day delivery. Bill Razzouk illustrates the potential consequences: If we are handling a million packages a night, and if we deliver only 1.5% of all packages on the wrong day, that means we are disappointing 15,000 customers every day. If we did that 200 days a year, we would create 3 million negative impressions of our service. We can’t afford anything less than 100% quality work. Our business depends on it!”

The Gazelle And The Lion
Federal Express salespeople are eager competitors trained in the art of winning customers. They are relentless in the pursuit of real opportunities, while they have learned to avoid the hidden costs of wrong ideas that could warp their views of where the true payoff lies. No spending inordinate amounts of time on the hope of prospects who may one day buy; no canvassing markets with no potential to deliver the profit payoffs needed for growth. In a company that demands 100% on the customer service end, salespeople must bring home the bacon in slabs instead of by the slice.

Jim Barksdale, Federal Express Chief Operating Officer, and former IBM executive who used to sell mainframe computers, explained the competitive challenge facing every salesperson: We are in a tough business. Our competitors are tough, mean, go-getting folks. They are not a bunch of idiots. I wish they were.”

To illustrate the daily competitive battle for increased business, he offered this story, Every morning on the plains of Africa, a gazelle wakes up. And the gazelle knows that it must run faster than the fastest lion, or it would be killed by sundown. Every morning, on the same plain, a lion wakes up and the lion knows that it must run faster than the slowest gazelle, or it will starve to death. So, it doesn’t matter if you are a lion or a gazelle, when the sun comes up, you better hit the ground running.”

Personal Selling Power talked to several members of the Federal Express sales team. Executives who belong to the President’s Club,” these are the people who tend to run faster, work harder, go for and win higher rewards. Drew Dolison, Senior Account Executive in Tampa, FL, told us, I was having a great deal of difficulty getting to see a decision maker. Cold calls were rebuffed, my letters were ignored, phone calls were not returned, yet I felt that if I could just get his attention, he’d listen. I knew that the customer would realize productivity gains with our automated system. So I had a picture taken with me in a begging pose. I sent the picture with a letter saying, ‘As you can see by the enclosed picture, I am not too proud to beg. Here are the three benefits of our Powership program…’

I sent the letter overnight, the prospect called me back the next day, we met, discussed his company’s needs, and within 90 days he switched to Federal Express. The revenue from this account is $250,000 per year and directly contributed to my earning the President’s Club membership.”

A Cool Sale To Japan
Lee Alcott, a National Account Executive, told this memorable sales story. We had just started flying our own DC-10s from Portland, Oregon to Japan. We talked to the Pacific Northwest cherry growers for two years attempting to gain their business, but they did not have the operational capability to do it. We believed we could help them take advantage of the very narrow window of opportunity that existed for getting their high-quality product to the lucrative Japanese market. (The Japanese have been known to pay over $3 per cherry!)

Once our flights to Japan became routine, our prospects for selling the service brightened. Since we had never performed this task before, we had to sell our management on approving our plan. The approval was contingent on complying with all existing regulations which required us to put an address label and the airbill number on each of the 55,000 boxes to be shipped to Japan. ‘No problem,’ we said, but the customers explained that this had to be done in hydrocooled refrigerators set at 35 degrees. This job was to be handled by a small station of just ten employees. So over the Fourth of July weekend, we walked down the street in 80 degree weather in down jackets, gloves and hats, went to work in the refrigerators and got the job done. We may have looked strange, but our customers loved our team spirit. This sale was so exciting that everyone wanted to pitch in and we look forward to doing it again this year.”

Nobel Prize winning physicist Werner Heisenberg once said, Nature does not reveal its secrets, it only responds to our method of questioning.” Taking a page out of Heisenberg’s handbook, once a year Federal Express asks each of its employees a carefully developed set of questions to determine how they view the company. The program, called Survey Feedback Action, fleshes out unexpressed needs, pinpoints problems with their immediate managers, and addresses specific aspects of their careers.

These surveys are strictly anonymous and managers are told never to ask for, or review, the responses of an individual. Doing so violates the guarantee of an individual’s anonymity and any manager violating this guarantee will be terminated. Federal Express managers receive a composite score of all findings and are expected to sit down with their team to develop a specific action plan for ongoing improvement.

As a result of this Survey Feedback Action program, managers display a high sense of urgency toward solving and preventing problems. To motivate employees throughout the year, Federal Express has created a multi-layered award system ranging from the Bravo Zulu (the Navy’s flag signal for thank you) to the Five Star award, given to the five most innovative and creative achievers who receive checks ranging from $5,000 to $25,000.

The Feedback process is not limited to employees. It also extends to customers. During the annual black-tie awards banquet at the Global Sales Rally, Federal Express presents awards to their six Customers Of The Year selected from different industries. On the next day, these customers deliver seminars to Federal Express salespeople on how their industries work and are asked to share their views of Federal Express’ performance. Customers are also invited to participate in Focus Groups where they review procedures, new product ideas, or make recommendations on solving a specific problem. Like a careful doctor, Federal Express reviews the vital signs of its employees and customers to make sure that they stay healthy and happy.

Technology Creates Sales
From the founding of Federal Express, Fred Smith recognized that business has entered an era in which change occurs with unprecedented speed. To maintain the leadership position in any industry, a company must aggressively deploy advanced technology and combine it with superior methodology.

Smith has been quoted as saying that innovations are good for about three months. He once explained to a journalist the methodology for dealing with the challenge of innovation: I think the key is to be constantly subjecting problems to every possible angle of scrutiny that you can think of, with the idea that you’ll find some way to solve that problem and take the risk necessary to make it happen.”

To achieve superiority over competition, Federal Express has invested in the most advanced technological systems that offer the greatest ease of operation and highest speed of service. For example, Federal Express created four major on-line computer systems. Each is comprised of a major data base which is in turn cross-referenced to the other three systems as needed. The COSMOS System (Customers, Operations, and Service Master On-line System) allows real-time inputs by couriers, agents and customers. Federal Express employees use hand-held SuperTrackers to positively control each package by scanning the individual number printed in bar code on each package. The information from the SuperTracker is uploaded to a mobile dispatch system mounted in each vehicle which beams the information to the local dispatch stations. Every single Federal Express package is monitored electronically from the time of pickup to the moment it reaches its destination.

This mobile network is the largest mobile system in the world. Customer requests for tracing, pricing inquiries, package drop-off requests or service commitment validations can be handled by Customer Service people with a few keystrokes. Federal Express salespeople use this advanced computer system for special customer reports. Sales managers use Macintosh-based units for management tasks and developing quality graphics for sales presentations.

Last fall, the company purchased 80 Compaq laptop computers to be used by national account executives and national account managers as well as business development executives. Other recent technological additions include E-Mail with an electronic sales bulletin board and an in-house Voice Mail system that has made telephone tag a thing of the past.

Logic Behind The 5% Rule
To be a success in selling, explains Bill Razzouk, you’ve got to remember the 5% Rule. When you call on a suspect, let’s say the head of manufacturing, he or she knows 95% about everything that is important in their department, but only about 5% of what is important in any other department. It is virtually impossible to learn all you need to know about a company’s business needs from only one contact.”

To expand the business opportunities for Federal Express, salespeople are encouraged to act as if they were running their own businesses and develop account strategies based on the 5% Rule. Razzouk offered this memorable sales story to illustrate how well the rule works: I made a joint call with Alan Meismer, one of our field salespeople in Chicago, on an account that was doing enough business to earn national account status with Federal Express. These accounts receive volume discounts and benefit from a more sophisticated monthly management report. We earned the customer’s entire air express business, which was approximately $250,000 a year. At the end of the meeting, we asked about the value of their ground shipments. The customer didn’t know. We asked if we could go to the loading dock and look at some of the packages. We found that they shipped a great deal of high-value, time-sensitive products and we asked for additional input from the other managers in the company to get the complete picture. It turned out that the company was spending over $8 million on ground shipments. Within two weeks Alan peeled off one million dollars worth of ground shipments and converted them to air. Within a year that figure rose to $2.5 million.” Razzouk’s point proves that you never know how big your opportunities are until you see the right people and ask the right questions.

Survival Of The Fastest
At the 1989 Conference Board Marketing Conference, Michael Glenn, Vice President, Express Marketing of Federal Express, told a select group of sales and marketing managers, We are in a time-poor society looking for value in time, as well as money.” On a tour of the Federal Express Hub in Newark, New Jersey between 10 p.m. and 2 a.m., I noticed a crate as it fell off the package chute. The top split open and a heavy drive shaft for a printing press fell out. A supervisor quickly sent the package to a special area where it was safely repackaged. The critical part was promptly delivered the next morning and installed to keep the press running. The part was shipped overnight by Federal Express, because the printer could save several hours worth of downtime which can translate into a savings of several thousand dollars.

In business-to-business sales, the higher the value of time, the more insignificant the cost of shipping. In the consumer market, speed of service equals fun and excitement. For example, the food industry has posted significant sales increases through the guaranteed overnight delivery system. Consumers can order such delicacies as Maine lobster, Alaska king crabs, chocolate covered raspberries, Omaha steaks, Russian caviar or a complete gourmet meal with French champagne from a host of companies and restaurants across the nation that ship food via Federal Express. (To order this mouth-watering directory call 800-334-MEAL; to have your product included in a future directory, write to Federal Express, 38194/Memphis, TN, Dept 1862). To catalog marketers, speed of service has become the most critical factor. Robert Earley, Vice President, Distribution with William-Sonoma says, Mail order companies who do not offer low-cost air express will disappear.” With Federal Express, William-Sonoma can deliver orders received as little as two days before Christmas. Says Earley, That means thousands more orders, nearly $1 million more for us in December.” In 1988, Land’s End shipped 42,000 customer orders in the three days prior to Christmas.

At the heart of the Federal Express sales success story is the value of time. Many overnight packages represent a sigh of relief to sender and receiver alike. In fact, many shippers equate saving time with saving a sale. Federal Express, once the underdog competitor, has created an international expressway for the exchange of ideas and goods. The Federal Express system gave birth to time-based competition an advanced marketing weapon. The future of marketing and selling seems to follow the old saying, The race doesn’t always go to the smartest and the swiftest, but that’s the way to bet.”