This year Fidelitone Logistics marked its 81st anniversary as a family-run business. The Hudson family is still at the helm, but the company is unrecognizable from its origins. For more than 40 years it manufactured and distributed high-quality needles for phonograph players and jukeboxes. But by the early '70s, the transition from vinyl records to audio cassettes was well under way. With its one product on the path to obsolescence and its revenues dwindling, the company had to move quickly to stay afloat. It had had years of experience distributing its own product around the world, so why couldn't it do the same for other companies?
Today Fidelitone Logistics is recognized as an innovator in supply-chain management and third-party logistics—confusing terminology for people outside the industry. Simply put, the company finds solutions for moving clients' products quickly and economically to their customers. Fidelitone Logistics provides global support services to some of the biggest brands in retail, consumer goods, electronics and medical devices.
Headquartered in Wauconda, Ill., a northwest suburb of Chicago, the company generates $360 million in annual revenues and has more than 600 employees and 20 locations worldwide. A far cry from its days as a one-product company, its diverse offerings include inventory planning, global sourcing, technology solutions, warehousing, last-mile delivery and installation, logistics for handling returned and repair parts, and printing and packaging. And it's looking to add even more services through acquisitions.
The recession has benefited Fidelitone Logistics' business. In a weak economy, companies ship more repair parts rather than buy new equipment and forgo investments in warehouses and transportation or new technology and staff to run it. Many small and midsized companies find that outsourcing some or all of their logistics operations is cheaper and more efficient and frees them to concentrate on strengthening their businesses.
Between 2006 and 2009, Fidelitone Logistics' revenues jumped by 17%, and it expects profits from recent acquisitions and rising sales to boost revenues again in 2010. In this tough economy, Fidelitone Logistics is in the enviable position of having the resources to invest in technology, streamlining operations and hiring top non-family talent.
“A lot of companies are looking to save money these days, and that's what we do,” says Josh Johnson, Fidelitone Logistics' president. “We partner with our customers to help them eliminate waste and become more competitive and more profitable.”
‘The innovation gene'
“It takes a different skill set to run a large and highly diversified company,” says family business psychologist Ellen Frankenberg, CEO of the Frankenberg Group in Cincinnati. “That they took a basic competency in logistics and distribution and translated it into multiple industries is quite remarkable,” says Frankenberg, who has not advised the Hudsons. “Making a successful transition like this requires exceptional leadership and understanding of changing markets. This family definitely has the innovation gene.”
Fidelitone was founded in 1929 by Arthur Olsen. He got the idea for a long-playing phonograph needle while he was recovering from wounds suffered in World War I. “Arthur spent his time listening to records when he was in the hospital,” says Arless Hudson, the sister of Olsen's wife, Ruth. “He was frustrated having to change the needle so often. After he got out of the hospital he set up a one-room workshop and began grinding his own needles.” Olsen went on to develop the long-playing diamond stylus, which dominated the market for decades and is now considered a collector's item.
Arless's husband, Douglas Hudson Sr., had been working for the company as a district manager. After Olsen died at age 54 in the mid-1950s, Doug and Arless bought the Fidelitone shares held by Olsen's only child, an adopted daughter who was not interested in the business. With a stake in Fidelitone's future, Doug assumed leadership of the company.
Doug's son Craig, Fidelitone Logistics' current CEO, says the company never mapped out a strategy for reinventing itself; it evolved from its original business. “The phonograph needle is really a repair part,” he says. “We sold needles to Sears, whose customer brought their phonograph players in for repairs. In the '70s there was a big influx of Japanese consumer products into the country. We convinced Sears to let us handle the repairs for TVs and radios. With that, Fidelitone went from manufacturing a dying product to distributing parts for a rapidly growing industry.”
Craig says that Fidelitone, as it was known then, was in the right place at the right time, but it wouldn't have become an international leader in parts distribution so quickly without his father's leadership skills. An extrovert and adventurous entrepreneur, Douglas Hudson Sr. led the company through the transition in the '70s—with help from his sons.
Doug Sr. and his wife, Arless, had four children: Doug Jr., Drew, Craig and Art, whose current ages are, respectively, 64, 63, 60 and 58. For a time, all four sons worked in the company. Drew decided early on he wasn't cut out for business and left to teach school. Doug Jr. ran the facility in Scotland where the company manufactured its needles, while Art traveled in Europe selling the product. Craig, who started working in sales in 1970 in the middle of the transition, recalls making 20 cold calls a day without a sale. “I might as well have been selling buggy whips,” he says. Fidelitone closed its facility in Scotland in the mid-'70s, and Doug Jr. and Art returned to Wauconda to join their father and Craig in building Fidelitone's distribution business.
Growth through acquisition
The company quickly made its mark as a pioneer in the distribution business. Taking advantage of new freight systems, it designed a shipping program that bypassed one or more midpoint distributors. Fidelitone's innovation, which allowed manufacturers to ship directly to the end user and dramatically improve delivery time, quickly became the industry standard.
In 1981, Doug Jr. was named president of Fidelitone. After four years he left the company to start a leveraged buyout firm, and Craig succeeded him as president. In the '80s, Fidelitone had concentrated on growing its distribution business. In the '90s, it moved into acquisition mode, diversifying its holdings and services. Under Craig's leadership, it bought and sold more than a dozen businesses while expanding its warehouses and automating to deliver faster service, accuracy and cost control for customers.
The company hit a home run when it acquired Aerobed, a manufacturer of inflatable products. Fidelitone had handled Aerobed's shipping and knew it was losing money, but Craig and his brother Art thought the company had potential. In 1996, Fidelitone bought Aerobed and promoted it through television infomercials. In one year, its revenues soared from $5 million to $100 million.
In 1997 the company was rechristened Fidelitone Logistics to end customers' confusion about its name. “Our family has an emotional attachment to the name Fidelitone, even though it has no logical connection to our business now,” says Craig. “My father used to say it was a lucky name, and we wanted to keep it.”
In 1998, Craig was named CEO of Fidelitone Logistics and Aero Products International. At the same time, Art retired and moved to Florida, leaving Craig as the sole third-generation family member actively working in the business. Craig says the four third-generation Hudson brothers still consult regularly on major business decisions and all serve on the company's family board with their mother, Arless.
The family refers to Fidelitone as a fourth-generation company, with Arthur and Ruth Olsen as the first generation and Douglas Hudson Sr. and Arless as the second. (Sisters Ruth and Arless were 22 years apart in age.)
Doug Sr. died in 2002 at age 83. Arless, now 89, owns all the company's shares, which will be divided among her four sons when she dies. Arless and her sons want Fidelitone Logistics to stay a family business. “My father used to say nepotism is good because loyalty is hard to find,” says Craig, “but family members have to prove their worth if they want to advance in this company.”
One fourth-generation family member who's climbed the corporate ladder is Josh Johnson, 36, Craig's son-in-law. He joined the company in 1997 and worked in sales for Harco Lighting, a small division of Fidelitone Logistics. After Harco was sold in 1999, he became a regional manager at Aero Products. Then, in 2002 Fidelitone Logistics sold Aero Products for a whopping $95 million, and Johnson was promoted to director of sales for Fidelitone Logistics. In 2004, he was named president of the company, replacing the non-family president who had retired. Commenting on his promotion to his current position, Johnson says, “Craig and I had had lots of open-ended, informal talks about my role in the company. I've learned that the art of being in a family business is knowing when a discussion in a family setting is significant.”
Doug Jr.'s son Ross Hudson, 29, joined Fidelitone Logistics in 2009. Ross, who grew up in Scotland, says he always wanted to work in the family business. “My grandparents had a house in Scotland, and my uncles Craig and Art visited us between business trips,” Ross says. “I loved listening to their stories about the people they met through the business.”
Ross says his grandfather's advice to go where the opportunity is guided his career. For three years, Ross worked for a property financing company in England owned by Fidelitone Logistics. In a well-timed move, that business was sold to a venture capitalist in 2006, shortly before the real estate market crashed. Craig offered Ross a job in sales but Ross, who has an MBA and master's degree in accounting, instead accepted a position with Deloitte and Touche. “My goal was to work in mergers and acquisitions,” he says, “so when Josh called me in 2009 and told me that they were buying companies again, I jumped at the opportunity.”
After only ten months as Fidelitone Logistics' director of mergers and acquisitions, Ross was promoted to vice president of strategic affairs. The company acquired three companies in 2009 and has two more acquisitions in the pipeline for this year. “It's best to grow companies organically,” says Ross, “but we can't do it by selling services alone. It's hard to land many $1 million accounts, so our strategy is to grow by acquisitions.”
Craig Jr., 30, joined the company full-time after graduating from college this year; while in school, he worked part-time in the company's last-mile delivery service. Art's son-in-law David Butterly runs operations in one of the company's warehouses. The door is open to the other fourth-generation family members and spouses should they want to work in the business. Meanwhile, Fidelity Logistics has been turning to top-tier non-family executives to expand their business development team. In 2009 alone, it hired four from Fortune 500 firms.
‘The sky's the limit'
Non-family executive Mike Schoenfeld says he was attracted to Fidelity Logistics' entrepreneurial culture. Schoenfeld, 39, has worked in the supply chain management field since graduating from college. Now the company's executive vice president of business development, he came to Fidelitone Logistics in 2008 from an $80 billion contract logistics company. “I wanted the experience of working in a large conglomerate to see how it works,” says Schoenfeld, “but it's a lot more fun to ride a company on the way up. There's a huge untapped market of small and mid-tier-sized companies that the big guys in the industry don't bother with. We're a perfect-sized company for them to do business with because we're big enough to matter in the marketplace and small enough to listen to our customers. The sky's the limit for this company because there's not much it isn't willing to try to be the best at what it does.”
“This is a family business that knows how to get the right people on the bus,” says consultant Ellen Frankenberg. “It welcomes family members but selects leaders on the basis of exceptional competency and initiative. It says a lot about Fidelitone Logistics that top non-family executives from major companies see exciting opportunities in joining a family business.”
Douglas Hudson Sr. used to tell his family, “Be good to Mama Fidelitone, and it will be good to you,” advice they took to heart. The company's transformation and growth are testament to the family's entrepreneurship and a business culture geared to problem solving. The entire workforce is encouraged to show initiative and take pride in their work. As Josh Johnson reminds employees, “There's no resting on what happened yesterday.”
For all of the company's emphasis on excellence, the work it does takes place behind the scenes. In fact, Fidelitone Logistics used to describe itself as the best company you've never heard of. Craig compares third-party logistics to the invisible hand moving big-brand products around the world, and that's just fine with him. “We want our customers to feel that we're their partner, but we don't have to take all the credit for finding solutions to their problems,” Craig says. “We're satisfied doing our job well and keeping our customers happy.”
Deanne Stone is a business writer based in Berkeley, Calif.