The Milan News-Leader
A Heritage Newspaper
Weekly Publication
Back from the brink
Milan company turns tables to path of success
By Kym Boelter-Muckler, Staff Writer
PUBLISHED: July 6, 2006
The three businessmen meet at Milan Screw Products every few weeks, as they have for the past six years. The meetings are important to MSP owner Chuck Tellas, 59, because they altered the fate of his company.
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"There was a time when I just wanted out," Tellas said. "I don't feel that way anymore."
In 1954, when Frank Tellas started MSP, it was a small manufacturing business that created turned metal products, located on the edge of a residential Milan neighborhood. Their main customers were automotive component manufacturers.
"In 1965, my father began a long relationship with a manufacturer of hydraulic hose and fittings assemblies out of Ohio," Tellas related.
Frank Tellas ran the company successfully until his death in 1971.
"At the time my father died, our company depended on that Ohio client for some 50 percent of our entire business," Tellas explained.
Chuck Tellas began purchasing the company from his father's estate. From 1971 until 1997, the relationship between MSP and the Ohio-based manufacturer grew until they represented the lion's share of MSP's business.
"It was a great relationship. Based on their growth, we built a new plant in 1997 in the Milan Industrial Park," Tellas said.
In 2000, Tellas joined The Executive Committee, [TEC,] to improve his business organization and management skills. TEC organized in 1957 as a support group for CEOs. Tellas's decision to join the group proved timely.
IN THE 1990s, the business climate began to shift; large companies bought the smaller ones, until a tier system was created, leaving the small companies at the bottom of a food chain with little or no control over their future.
MSP found itself in the same situation, when a global corporation devoured its largest customer. MSP's customer was now in the belly of a big fish—-and to make matters worse, this big fish forced MSP to bid for its own business.
"I felt beaten," Tellas admitted. "The relationship we had with the Ohio company was replaced by relentless pressure from the new owner to lower our prices. We lost more than a third of their business when we could not meet their price targets."
The situation, although unpleasant, is common and in southeastern Michigan the trend has destroyed many businesses that were forced to compete in a "Freemarket.com exercise" of bidding for business in a computerized reverse auction, competing against other suppliers known only to the "big fish" global customer.
"IN HINDSIGHT, it was foolish to place so much business with one customer, regardless of the fine relationship we had. It made us vulnerable," Tellas added.
In 2001 the Ohio global customer decided to place the balance of their purchases from MSP—now 90 percent of Milan's sales – on the new Freemarket.com event.
"We offered a 7 percent price reduction, but they demanded 15 percent which we could not meet," Tellas said. "I did not know what to do. I prayed. I asked God to please give me direction, and I would obey, because I did not know what to do."
The next morning, he had his answer.
"I was going to just say no," Tellas said. "This wasn't the answer I expected."
On auction day, MSP did not sign in for the bidding war. The phone rang and he took the call.
"They told me to sign in and I told them, 'No, I don't think I will."
The global giant told Tellas he could lose 90 percent of his business.
"They asked me where our 28 employees would find jobs when we closed our doors," Tellas said. "In that moment of desperation, a warm, comforting feeling welled up inside me and a voice said, 'Just say no.' I told them I respectfully declined to participate."
TWO WEEKS later the customer called and asked Tellas to lunch to discuss the auction results. And MSP agreed to an 8 percent price reduction in exchange for a two-year contract.
"We retained all the work and survived," Tellas said.
MSP's fate began to shift when Tellas met with TEC Chairman Larry Short, 75, one of several TEC chairpersons in the TEC Detroit region.
"We encourage the idea of self-help, and the members offer each other ideas, support and advice," Short said.
Short introduced Tellas to a mentor, Doug Price, 58, also a TEC member. Price was a vice president of a plastics manufacturer that employed some 350 people.
"I never went to business school. I felt I was the barrier to growth of MSP and I just wanted out of the business," Tellas said. "I met with Doug Price with the goal of getting the company to a point where we could sell it."
Short met with Tellas and Price intermittently to facilitate their personal relationship.
This was the beginning of a new exciting future, for Tellas and Price.
"In early 2004, despite having a written contract, the global customer demanded a 10 percent reduction in price and extended payment terms. We decided to aggressively find new customers and plan an exit strategy from the "big fish."
Knowing everything was literally at stake, they created a worst-case scenario plan and called it, "Fresh Start."
THE PLAN gave them the courage to face losing 90 percent of their business.
"We now knew exactly what we faced and we had a plan to deal with it," Price said. "We weren't afraid of the unknown."
Once fear was removed from the equation the global company could no longer control MSP's future, Tellas indicated.
"We really believe others can learn from Chuck and Doug's story," said Larry Short, who contends this part of the state has been hit the hardest by the corporate tier system.
Price, through a chance conversation learned that the global giants have a certain protocol they use when bucked by small suppliers. The two formed their own plan to deal with the larger company. Like David going against Goliath, the negotiations began in 2004.
TELLAS RECALLED:
"They said, do you realize that you could lose everything if you don't agree to our terms? And I just said, yep. I'm prepared to deal with that."
Eventually MSP negotiated favorable terms, and currently enjoys a respectful relationship with the global company, that includes a schedule for parting ways.
"There is a spiritual story behind this, too. I no longer want out. In fact I look forward to the future with anticipation."
Tellas contends MSP was too dependent on one customer for their business, and that left them weak. Since the last round of negotiations, MSP increased sales from $2.5 million to $6.5 million, and Tellas and Price look to the future with anticipation.
"We're now working on our diversification through acquisitions and we've formed a holding company called Cixacor International," Tellas said.
While many Michigan companies face the same predicament that MSP faced, Tellas believes the biggest enemy they face is a self-defeatist attitude.
"I whined and complained for a while, but then I became prayerfully focused and determined," Tellas said. "I really believe others can learn from this story. It is possible to take back control of your company if you are willing to face your fears. These global corporations prey on the fears of the smaller companies and leverage them right out of business."
Tellas concluded:
"Help is available, and it's not always in the phone book."
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