Ed Beagan, his face flushed with anger, grinds out one cigarette, then lights another. "What's the difference," he demands to know, "between what the Mafia does and what Ericsson did?"
Ericsson is Telefonaktiebolaget L M Ericsson, the $19.8-billion-a-year Swedish telecommunications behemoth. Beagan is Edward M. Beagan, the 42-year-old former chairman and president of the now-defunct Teltronics Services Inc., a New York City-based distributor of Ericsson-made telephone equipment.
And what Ericsson did, Beagan claims, is use fraud, misrepresentation, and unfair business practices to push Teltronics into bankruptcy. The Swedish company, Beagan claims, wanted to acquire Teltronics's assets at fire-sale prices. Ericsson denies the charge.
Who is right? That is a question the courts ultimately will decide. Beagan has filed a $300-million lawsuit against Ericsson in the United States District Court for the Eastern District of New York. But one thing is clear: No one came out with clean hands.
Regardless of the outcome of Beagan's lawsuit, the Teltronics story is a compelling example of what can happen when a chief executive officer -- and his staff -- concentrate almost exclusively on sales growth, and what can happen when one company's health becomes dependent upon the actions and goodwill of another company.
It is a story of grand ambitions and the clash of forceful personalities. It is a story aboutgrowth.
Back in the 1960s, Ed Beagan didn't know much about the telephone business. A tall, husky Irishman reared in the Flatbush section of Brooklyn, Beagan had earned a bachelor's degree in history. His work experience had been limited to the operations division of Chase Manhattan Bank and to programming computers for RE-Con Systems Corp., a nationwide employee placement firm.
Then, in 1968, came Carterfone. In the so-called Carterfone Decision, the U.S. Supreme Court ruled that telephones and other devices manufactured by companies other than The Western Electric Co. could be hooked up or "interconnected" with Bell System lines. The decision paved the way for dozens of small companies to break into the telephone business as distributors of high-priced switchboards, or private automatic branch exchanges (PABXs).
Among the first of these distributors was San Francisco's Arcata Communications. By 1970, Arcata was a major player in the interconnect business, installing systems built by L M Ericsson, among others.
Ed Beagan found his calling when he signed on with Arcata in 1971, and he soon became one of the stars of the company's sales force. "This was my first marketing position," he recalls with relish, "and here I was going head-to-head with AT&T."
After just a year with Arcata, Beagan, brash 29-year-old, struck out on his own, setting up shop in a Manhattan garage to sell PABXs. The customers he called on were delighted to find alternatives to the higher-priced Bell equipment, and sales exploded -- from $30,000 in 1971 to $1.2 million in 1972. In 1973, the year Teltronics went public, revenues increased to $1.5 million.
But to support such growth, Teltronics needed cash. It paid out hundreds of thousands of dollars for new switchboards, installed them, then waited for customers to make their lease or lump-sum payments. The more orders the company filled, the worse the situation became. It was a catch-22.
Ericsson, meanwhile, was having just the opposite problem: not enough sales. The Swedish corporation's U.S. sales of switchboards had remained constant or increased slightly, but its share of the American PABX market had plunged from 37.9% in 1971 to 8.6% in 1974. In addition, a competing telephone manufacturer, Stromberg-Carlson, had acquired Arcata, which later stopped selling Ericsson-made equipment.
At the time, Ericsson's U.S. subsidiary, L M Ericsson Telecommunications Inc., was headed by Sigge Malmstrom, a trim, gray-headed Swede with a deep voice and impeccable manners. He headed the company's drive to shore up its sagging American operations and, as part of that campaign, signed on a hot new distributor: Ed Beagan.
Beagan stopped doing business with most other manufacturers and hitched his company to Ericsson's coattails -- and with good reason. The Swedish Goliath agreed to provide the cash tiny Teltronics needed to grow. Ericsson would guarantee a series of bank loans to help the small company pay for the telephone equipment it purchased from the Swedish conglomerate. At Beagan's suggestion, Teltronics pledged to buy a specified amount of Swedish-made equipment for every dollar it was lent -- at no less than a one-to-one rate. Teltronics would collateralize the bank loans with equipment leases, plus provide the Swedish corporation with annual budgets and monthly financial reports.
Beagan saw the arrangement as an I-scratch-your-back-you-scratch-mine proposition. But there was more to it. What Beagan had done, in effect, was to give Ericsson the power to destroy Teltronics.
By the end of 1975, Teltronics had become one of the largest American distributors of Ericsson PABXs. But it had borrowed $1.7 million from one of the Swedish manufacturer's bankers, Citibank, N.A., in New York.
Beagan remained unperturbed by his company's swelling debt. The economy was recovering from the recession; Teltronics's 1975 sales totaled over $4 million, nearly double the previous year's revenues; and Beagan planned to chalk up a similar increase in 1976. He beefed up the sales staff, hiring, among others, Jack Dawson, a portly high school dropout.
Beagan found Dawson to be an affable and capable salesman, and Dawson enjoyed working for Teltronics. No wonder. Beagan awarded cars in sales contests, entertained lavishly, and was liberal with his sales staff's expense accounts. "My impression of Ed Beagan, even to this day, is that he's dynamic," says Dawson. "A lot of people would follow him to hell."
A central part of Beagan's approach to sales management, though, was a commitment to energetic training programs, such as seminars in the Silva Mind Control method, which some employees found irksome. One example was the regular Wednesday night meeting. Salespeople would assemble once a week, and Beagan would "pump them up" about Teltronics. Attendance was mandatory.
"You'd want to run away," Dawson remembers. "But he'd get up there. He'd talk and talk. He was a tough man to work for." And he could be impulsive, too. "At one of those Wednesday night meetings," Dawson says, "I saw a person yawn when Beagan had the floor. He fired him on the spot." The salesman may have been on his way out, but the sales staff was startled by Beagan's precipitous public firing of him.
