Problem solver

Problem solver

by Liz Wolf   WHETHER IT'S DESIGNING a better bed to cure his insomnia or inventing a corn-burning stove to drastically reduce his heating bills, Twin Cities entrepreneur Bob Walker is at his best when he’s inventing new products and taking them to market.

Walker is  president and CEO of startup Bixby Energy Systems Inc., a Brooklyn Park-based manufacturer of a high-efficiency corn-burning stove. Sales in fiscal year 2006 were $8.3 million, and Walker says he expects revenue to reach $40 million in 2007.

The stoves are in such high demand that he can hardly keep them on dealers’ shelves. To ramp up production, Bixby moved to a new production facility in May that’s almost six times larger than its previous Rogers plant. And he wants to go much further.

In 2008, he plans to introduce a furnace that can heat homes, power water heaters and air conditioners, and provide electricity — all by burning biomass fuel pellets made from agricultural, animal and human waste.

Walker says he has the proprietary technology to do it, and his corn-burning stove is the first step in proving that his concept works. He’s confident that his biomass-fueled heating-and-energy system will drastically cut consumers’ fuel costs and lessen America’s dependency on foreign oil.

While most people would be content to retire at age 50, build their dream home and perfect their blackjack skills, this slower pace wasn’t cutting it for Twin Cities entrepreneur and inventor Bob Walker.

Walker is best known for inventing the Sleep Number bed in 1987 and founding Select Comfort Inc. a year later. He set out to design a better mattress to help cure his insomnia, resulting in the highly successful, adjustable comfort air mattress system.

Select Comfort’s sales in 2005 were nearly $700 million. Walker retired as chairman and CEO of Select Comfort in 1993, partially because running a company isn’t as much fun to him as starting one, and he and his wife, JoAnn, set out to build their 12,000-square-foot dream home.

“What gets boring is when you’re building a business and then all you’re really doing is adding zeros on the end of the sales figures,” he says. “That’s when it ceases to be fun. I like creating something, putting form to something, because not everybody can do it. It’s a real discovery thing.”

Walker’s retirement didn’t last very long. Walker was in search of a new product to develop and market. This time it would be a whole new industry — that of alternative fuel sources.

“I got into it quite by accident,” recalls Walker, who turns 64 in September. “We were in our new house, and in the first winter months our heating bills were running $1,675 a month! That was the surprise of our lives.

“I said, ‘What’s wrong with this furnace?’ I soon began to realize that there was nothing wrong with the furnace. It was the price of energy that was so high, and it’s going to go even higher. I said, ‘I need to do something.’

“I built this beautiful bed, but it’s a small consolation if I’m sleeping in my bed but I’m freezing to death. So I said, ‘I got another problem to solve.’ ”

With escalating energy costs, Walker believed other consumers also would be interested in cheaper fuel options. For three years, he researched alternative fuel sources and studied biomass technology.

Biomass is any plant-derived organic matter available on a renewable basis, including agricultural food, wood waste, aquatic plants, animal waste, municipal waste and other waste materials. He concluded that biomass as a renewable energy source had tremendous potential for cutting energy costs. He started with dry shelled corn, because it’s a cost-effective method of generating heat.

“We looked at what types of corn-burning furnaces were on the market,” he says. “We interviewed dealers and customers to find out what they liked about the existing products and what they didn’t — everything from their operation and how user-friendly they were to the delivery and installation process — to get a clear understanding of what the customers wanted,” Walker says. “In order to understand the business, you have to research and become an expert in the industry.”

Walker’s research and work with a team of engineers led to the design and development of a high-efficiency corn-burning stove that can heat an entire house. He raised $22 million from private investors and launched Bixby Energy Systems in June 2001.

The stove, called the 50,000-BTU MaxFire, retails for $3,995, and Bixby sells them through dealers around the country. His stove holds 106 pounds of corn — that’s about $5 worth — which Walker says heats a typical 2,500- to 3,000-square-foot home for more than three days.

“You can heat your home for $1.50 a day,” Walker says, adding that the stove is designed to be used with a conventional furnace’s central fan system to circulate the heat.

Sales are booming and Bixby has a backlog of orders. In 2004, the first year the stove was on the market, sales were $1.6 million. “Our goal for fiscal year 2006 was $3 million,” Walker says, about the year ending May 31. “We did $8.3 million. Our goal in 2007 is to do $40 million. We’re confident that we’re going to make that. I can tell you we have $23 million in orders right now.”

With rising energy prices, he says the timing is perfect.

“Consumers can cut their energy costs by 70 percent,” he says, adding that the stove burns corn at a more efficient rate than wood stoves or other biomass burners available on the market. It’s a pure corn burner, he says, and doesn’t require consumers to buy any special burn additives to help the stove burn the corn. And because it burns so efficiently, he says, there’s less ash to handle.

He says his “MaxYield” system incorporates high levels of oxygen for 99.7 percent combustion efficiency. “What this means is more heat per dollar, less ash and no burn enhancers.” It’s also a consumer-friendly stove that features an on-board computer for easy diagnostics.

To meet the growing demand for his stoves, Walker needed to ramp up production. He moved in May from a 16,000-square-foot facility in Rogers to a 91,000-square-foot plant in Brooklyn Park. The company has more than 70 employees and runs two shifts, but will run production 24/7 in the next couple of months.

 “Eventually we will produce 1,500 to 1,800 stoves a month,” Walker says. “This company is developing twice as fast as Select Comfort did.”

Of course, Bixby has plenty of challenges. One is the rising price of corn. Demand from ethanol plants is increasing corn consumption, reducing supplies and pushing up prices to some of the highest in a decade. (Corn is the primary ingredient used for ethanol, which is mixed with gasoline to produce motor fuel).

Corn prices have reached more than $3 a bushel on the Chicago Board of Trade. That’s more than double the price at some grain markets in fall 2005. According to the U.S. Department of Agriculture, by 2010 U.S. ethanol plants will use 2.6 billion bushels of corn per year; that’s 1.2 billion bushels more than 2005.

“The more corn that ethanol plants use, the more corn prices will go up and that reduces the value of our product,” Walker says. “That’s why we continue working toward our pelletization process,” which will allow Bixby to produce biomass pellets to use as sources of energy.

Walker also faces obstacles when it comes to his ambitious plans for a completely biomass-fueled, integrated home-heating system. He will have to convince consumers to convert to a new furnace system when homes’ entire utilities systems currently are set up to burn fossil fuels. Walker recognizes consumers are reluctant to change.

“That’s why our furnaces will also burn propane or natural gas so it bridges our plan,” he explains. “We call it a ‘fossil fuel crutch.’ Consumers want to save money, but they want to be sure we can get the fuel to them. They don’t want to burn the bridge until we prove that we can deliver, which we believe we will do in the next couple of years. Once we demonstrate that we can do it, we will remove the barrier to conversion and build their confidence level.

“Switching over sounds huge,” says Walker about changing furnace systems, but he adds that it won’t happen overnight. “It may take two years, five years, 10 years. Just because big ideas are ambitious, you still have to get started somewhere. We only have to build one furnace at a time, and as it gets bigger we’ll put together a licensing situation for other states that follows our plan.”

Paying for such a large venture is another issue. Walker plans to do an initial public offering, or IPO, to raise money to help take his company to the next level. (Walker won’t discuss the IPO, citing SEC restrictions). Meanwhile, Walker testified before Congress in June on the importance of public and private money to support fossil fuel independence through renewable sources such as biofuels.

While testifying, he said, “I can tell you from experience that the biggest impediment to any entrepreneur’s success is undercapitalization.” Walker urged the committee, Congress and the Bush administration to continue exploring new ways in which the private sector can form partnerships with the federal government to advance the nation’s goal of complete energy independence.

Despite challenges, Walker is confident in Bixby’s business plan and acknowledges that Select Comfort also faced obstacles before becoming successful. Every company, he says, goes through a learning process. Also, most would agree that there’s more to building a successful business than inventing a good product, such as quality control, manufacturing issues and marketing.

For example, Walker says Select Comfort initially sold mattresses through direct-response marketing on TV and in magazines and newspapers instead of retail stores. The company began to realize that “in the real world, only a certain amount of people respond to magazine ads,” he says. Execs recognized that shoppers needed to touch the mattresses and try them out before buying.

So Select Comfort launched plans for rapid growth and rolled out lots of stores. And while sales did increase, they weren’t even close enough to offset the expenses of the expansion, and Select Comfort lost money.

Business experts say Select Comfort had not designed an effective advertising campaign to create interest in the unusual air-filled bed mattresses, which would bring shoppers to the stores. While the company quickly opened new stores, most of the advertising budget continued to go toward direct-marketing sales.

Also, ads targeted people suffering from back pain rather than the much broader audience of people who just wanted to have a better night’s sleep.

Under CEO Bill McLaughlin, who joined Select Comfort in 2000, the company developed a new advertising program — the “Sleep Number” campaign — which effectively drew customers to its stores, and sales began to boom.

“Every company goes through challenges and the key is to have the guts and fortitude to ride through it,” Walker says.

“I’d been doing research on alternative energy sources myself,” Musich says. “I have a big house, too, and am tired of paying high energy bills. Someone convinced me to go up and see what Bixby was doing. They said, ‘you gotta see this.’”

He says Walker has done a “phenomenal job” with the company. “I was familiar with Bob at Select Comfort, and this company is going to drown Select Comfort. Bob spent two years researching alternative energy sources. That’s all he did.

“He flew all over the world. He has found all the answers. When we’re done with the process, Bixby will own 63 patents. When you look at what others are doing in this field, they’re ancient and Bob is space age. His furnaces burn at a 99.7 percent combustion ratio and others are at 50 percent. When I met Bob he was heating his entire Rogers plant with three stoves for $4.50 a day. This is one of the best products I’ve seen in a private company in many years.” Musich says Walker plans to do a self-directed IPO and expects it to be completed some time between October and next February.

Rep. Gil Gutknecht (R-Minn.) also recognizes Bixby’s potential. He sits on the nation’s House Committee on Agriculture and chairs a subcommittee with responsibilities for renewable energy programs.

“Bob Walker walked into my office two years ago and what impressed me most was that he’s a distinguished guy," Gutknecht recalls. “He was in a nice suit and said, ‘I’m here to talk about renewable energy.’ Not to be condescending, but most people who come to my office to talk about renewable energy are ‘save the planet people.’ Bob was clearly a business guy.

“When he told me that he started Select Comfort, he had my undivided attention,” Gutknecht says. “I sleep on a Sleep Number bed in both Minnesota and Washington, and I’m a 40. He started to talk and what I loved about his story is that he had a serious business plan, he did the market research and was interested in the costs. He understood renewable energy from a business perspective better than anyone I’d ever talked with, and I’ve talked with people around the country and around the world. He also understands branding, imaging and marketing, which this industry really hasn’t seen before. He’s adding a whole new value to the industry. And if you look at the numbers on just his corn stoves, it blows your mind.”

Gutknecht believes biomass as a viable renewable energy source has enormous potential. “Last year, Americans spent $500 billion on fuel. If even just 5 percent of that was for home-heating, that’s a $25 billion business. OPEC actually has done us a favor, because rising gas prices have forced us to look at energy in a different light. The beauty is that people like Bob Walker are working on technology that will make us totally independent of OPEC.”

Meanwhile, Walker is very comfortable in his role as inventor. He’s never much enjoyed running the day-to-day operations of an established company.

“I’m a wheel builder, not a spinner. I can build the best race car out there, but there are a lot of people who can drive it better than I can. I think you get your juices rolling more in the creative side, because you’re putting some life into something.”

Alan Doering, Agricultural Utilization Research Institute: 507.835.8990;  ad******@**ri.org; www.auri.org. Rep. Gil Gutknecht (R-Minn.): (202) 225-2472; jo********@********se.gov; www.gil.house.gov (Jon Yarian is his press secretary). Ron Musich, Blue Marlin Capital: 763.235.3201; mu******@*ol.com.

[contact] J. Christopher Perdue, UtiliPoint International Inc.: 850.837.4015; cp*****@********nt.com; www.utilipoint.com. Bob Walker, Bixby Energy Systems Inc.: 763.428.1806; ro**********@*********gy.com; bixbyenergy.com.