Having made the Inc. 500 list for the fifth year, Bill Bathe shares his story.
Company: U.S. Energy Services
2010 Inc. 5000 Rank: 2833
Headquarters: Plymouth, MN
Year Founded: 1993
2009 Revenue: $17.7 million
3-Year Growth: 79%
When his employer relocated its headquarters from the Midwest to Texas, Bill Bathe decided to leave and to start his own company. That was in 1987. Today, Bathe is the president of U.S. Energy Service, a company that helps large organizations manage their energy spending. The Minneapolis-based business reached $439 million in revenue in 2008 and ranked No. 341 on this year's Inc. 500. It is the company's fifth appearance on the Inc. 500, which means U.S. Energy now joins the Inc. 500 hall of fame. In this interview, Bathe talks about his company's focus on customer retention, energy deregulation, and why many of his former colleagues wound up in prison.
I graduated college in 1979 with a degree in civil engineering, with an emphasis in construction. That was a real good year for engineers. There was a lot of electric and natural-gas pipeline infrastructure being built. All of my interviews had a construction bent to them. The energy company InterNorth gave me an offer, which ended up being the most interesting. That's how I got into the energy business.
I worked for InterNorth for seven years and then, in 1986, they acquired Houston Natural Gas. After the acquisition, they announced that they were moving the headquarters from Omaha, Nebraska, down to Houston. At that particular time, my wife and I had a young child and we really didn't want to leave the upper Midwest. I left the company in January of 1987 rather than face the move to Houston. The merged company eventually became known as Enron.
I was a corporate guy. I really didn't have any intentions of starting my own business. But whether it was luck or fate or what have you, it just kind of happened as we were discussing our alternatives. There was a group of us at InterNorth that decided that if there was ever going to be a time to try something new, this was it.
When we started our original business in 1987, we sold gas to natural-gas utilities. That was our only option because at that point natural-gas deregulation did not allow industrial or commercial accounts to buy gas on the open market from companies like us. However, in 1993, the federal deregulation process opened the interstate pipeline to industrial and commercial accounts. We thought at that time that we could reinvent our entire company. So we started U.S. Energy Services and closed the original business.
At that time, if you chose to sell to industrial customers, you were blacklisted. The utilities said, 'If you are going to sell gas to our industrial clients, that's fine. But forget me ever buying gas from you.'
Our thought was to go a totally different direction from the rest of the market. We were going to go pursue industrial customers—a steel plant or a brick manufacturer—and instead of selling them gas, we are going to ask them to retain us to act as their buyer because we knew all the suppliers. When I reflect back on my entire career, this was probably one of the smartest decisions I made. Sometimes you make some big decisions and when you reflect back on them you think, 'Boy, was I stupid.' But that was one of the ones that worked out well.
Under this arrangement, we became just like an employee of a client company. We acted as their agent, making them aware of their options and helping them to get the best price on energy. By being fee-based, we don't care if they buy it from the utility or if they buy it from a third party.
We know that for us to be successful, we have to grow. For us, it is a grow-or-die strategy. Our clients expect us to continually get better. They want us to be smarter and provide the same services or more services at the same or lower price. The only way you do that is to get bigger and be more efficient. We started in the Midwest, but now we have clients in 44 states. So, there's this constant push where you need to be better and have a wider scope of knowledge about rules and regulations and about global issues.
Our clients are now asking, Do you have people dedicated to sustainability plans so that you can measure and monitor my carbon and be ready for the changes that are coming down from the federal government? Well, if you only have a few customers, that activity is fairly expensive to explore and implement. But if you have thousands of customers, that cost per customer is quite low.
Customer retention drives our business. Net income is a measure of how you've done, but client retention is a measure of how you're doing not only historically but what the customers think of you going forward. When you lose a client there's something wrong. That is a hot button around here.
Right now, we're looking at some acquisitions because I think I have learned how to make that work. We recently completed our third one in the past year-and-a-half. So we'll see how it goes. Our value goes up because we expand our geographic reach and our client base, plus we usually pick up some good ideas along the way too. There are a lot of smart people out there.
You are always building your business to sell. This isn't a family business where I want the family name on it and it's never going to be for sale. It's always for sale. But you would only sell if someone offered you a price and gave you a business proposition you thought was better than what you could do on your own.
Looking back to when we started this business in 1993, I worked for nine months without pay when my peers in Houston were making a lot of money. Enron's culture was like ancient Rome. Good people went haywire. Several of the folks I worked with, and even one of the guys who worked for me, were in Fortune magazine making millions of dollars. And, there I was, working for no pay at all. I'd scratch my head and say, 'Some people are just a lot smarter and luckier than I am.' Some of those people ended up doing some jail time. I wouldn't trade places with them now.