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COVER STORY
Problem solver
Spurred by giant heating bills,
`Sleep Number' bed inventor creates again
WHETHER IT'S DESIGNING a bener bed to cure
his insomnia or inventing acorn-buming stove to drastically
reduce his hearing bills, Twin Cities entrepreneur Bob Walk-
er is at his best when he's inventing new products and taking
them to market
Walkeris presidentandCEOofstarmpBixbyEnergySys-
tems Inc., a Brooklyn Park-based manufacturer of ahigh-effi-
ciency com-buming stove. Sales in fiscal year 2006 were $8.3
million, and Walker says he expects revenue to reach $40 mil-
lion 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
rimes larger Chan 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 hearers and air conditioners, and provide
electricity - a]] 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-buming stove is the first step in proving that his con-
cept 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.
BY LIZ WOLF
photographs by john noltner
"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 1
said, `I got another problem to solve; "
says Bob Walker, CEO of Bixby Energy
Systems.
z7 ,;
cover
hile 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 co
design a better mattress to help cure his insomnia, resulting in the
highly successful, adjustable comfort air mattress system.
Select Comfods sales in 2005 were nearly $700 million. Walk-
er retired as chairman and CEO of Select Comfort in 1993, par-
tially because running a company isn't as much fun to him as
starting one, and he and his wife, JuAnn, set out to build their
12,000-square-foot dream home.
"What gets boring is when you're building a business and then
al] you're really doing is adding zeros on the end of the sales fig-
ures," he says. "Thais when it ceases to be fun. I like creating
something, putting form to something, because not everybody
can do is It's a real discovery thing."
Walker's retirement didn't last very long. Walker was in search
of a new product co 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 4~alker, who turns 64 in
September. "We were in our new house, and in the first winrer
months our heating bills were running $1,675 a month! That was
the surprise of our lives.
"I said, `Wha~s wrong with this furnace?' I soon began to real-
ize 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 plane-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 acost-effective method of generat-
ingheat.
"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," Walk-
ersays. "In order to understand the business, you have ro 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 ahigh-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 ofcom-that's about $5 worth-which
Walker says heats a rypica12,500- 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 millioq" 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 marker. 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 "MaxYeld" system incorporates high levels of oxy-
gen 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
shiks, 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."
f 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 tip prices to some of the highest in a decade.
(Corn is the primary ingredient used For ethanol, which is mixed
with gasoline to produce moror fuel).
Corn prices have reached more than $3 a bushel on the Chica-
go Board of Trade. That's more than double the price at some
grain markets in fall 2005. According to the US. 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
38 UVSIZE SEPTEMBER 2006 www.upsizemag.com
use as sources of energy.
Walker also faces obstacles when it comes to his ambitious
plans for a completely biomass-fueled, inregrated 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'fossi] fuel crutch.'
Consumers want to save money, but they want to be sure we can
get the fuel to them. They dolt want to burn the bridge until we
prove chat we can deliver, which we believe we will do in the next
couple of years. Once we demonstrate that we can do ic, we will
remove the barrier to conversion and build their confidence level.
"Switching over sounds huge," says Walker about changing fur-
nace 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 siruation for other states that follows our
plan."
Paying for such a large venture is another issue. Walker plans
co do an initial public offering, or IPO, to raise money co help take
his company to the next level. (Walker won't discuss the IPQ, cit-
ing SEC restrictions). Meanwhile, Walker testified before Con-
gress 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 under-
capita]izadon." 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 gnat of complete energy independence.
Despite challenges, Walker is confident in Bixb}''s business plan
and acknowledges that Select Comfort also faced obstacles before
becoming successful. Every compan}; 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 mat-
tresses through direct-response marketing on TV and in maga-
zines and newspapers instead of retail stores. The company began
co realize that "in the real world, only a certain amount of people
respond to magazine ads," he says. Execs recognized that shop-
persneeded to roach the mattresses and try them out before buy-
ing.
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 Selett Comfort had not designed an effec-
tive 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 scores, most of the
advertising budget continued to go toward direct-marketing sales.
Also, ads targeted people suffering from back pain rather Chan
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 advemsing program -the
"Sleep Number" campaign -which effectively drew customers
co its stores, and sales began to boom.
"Every company goes through challenges and the key is to have
the gars and fortitude to ride through it," Walker says.
Walker details his plan for Bixby to became more
than a manufacturer of corn-burning stoves. He's working on
plans ro construct an integrated home-hearing system fearuring a
furnace that can burn biomass`fue] pellets made from agricultur-
al, animal and human waste, and these pellets would be delivered
directly to consumers' homes.
"We intend to come out with a furnace in two years chat can
heat your home, heat your hot water, air condition your house
and generate electricity - al] using biomass pellets," he says.
"Our corn-burning stove is a stepping stone.lt allows us co prove
our concept works."
Walker received a grant from the nonprofit Agriculrural Uti-
lization Research Institute (AURI) in Waseca, which helped
Bixby identify and test a wide variety of agricultural products
chat could be pelleted as fuel. AURI commends Bixby's efforts.
"AURI supports the idea ofusing agricultural commodioes and
co-products as fuel sources as a way to add value to Minnesota
products," says Alan Doering, AURI associate scientist "The way
Bixby is doing that is by building a furnace that can efficiently
burn biomass produtts. Plus, if the company continues co grow, it
will add jobs to the community, providing economic develop-
ment" These factors, Doering says, were aaractive to AURI.
With AURI's help, Walker says he has figured out how ro mix
different biomass materials, each with different burn characteris-
tics -such as almond shells, cranberry husks, grape leaves and
tobacco waste- into a single pellet that burns consistently at the
same temperature. That had always been a huge obstacle, Walk-
er says, adding that while some materials may burn at 300
degrees, others burn at 700 degrees. He has figured out how to
change the burn rate.
"That was our eureka moment," Walker says, adding that there
are 10,000 different biomass materials in the Unfired States alone.
"We can take all 10,000, and with our technology we have the
ability to harness biomass into a single pellet We've taken the
stuff that everybody in this country wants m get rid of and figured
out a way to replace oil."
The next big challenge was figuring out how Bixby would
deliver the petlers to customers. `Any rime you have a new prod-
uct, there are three questions to ask," Walker says. "Who is my
customer? Why do they want to buy my product, and how do I
get my product to them? And [hats the most important
"At first, we though[ we'd have to build trucks that would run
all over the state and lose money like mad until we got enough
customers to support the delivery system." he says.
www.upsizemag.com
SEPTEMBER 2006 UPSIZE 39
40 UPSIZE SEPTEMBER 2006 www.upsizemag.com
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However, Walker came up with a better idea. He acquired an
existing salt delivery system that he believes will complement his
furore pellet business. In 2004, Walker purchased Redwood Falls-
based StepSaver Inc., a company that delivers salt tablets used in
water-softeners to thousands of Minnesota customers.
It pumps salt through the foundation of a customer's home into
a water sofrener's storage tank Walker believes a similar system
can be used to deliver his biomass fuel pellets to furnaces and
plans to retrofit the StepSaver trucks. The trucks will deliver pel-
lets to furnaces through hoses and also can suck up pellet ashes
left afrer burning and pump them into a storage unit.
"The salt business is already profitable and we're continuing to
operate it, and it will just add profit to the bottom line when we
begin delivering the pellets," Walker says. "We took a big negative
hurdle in the delivery process and solved it."
Bixby's products and technology are gaining national attention.
The company was invited last November to present its business
plan at a conference focusing on energy technologies. It was
sponsored in part by t116uquerque, New Mexico-based Utili-
Point International Inc., which provides research-based consult-
ingservices to the utility/energy industry. Bixby was named one
of the five "most promising" companies out of the 75 invited.
"The company's plans, products and the technology associated
with it are relatively easy to understand, and the company has a
vision to expand past just offering furnaces and heaters;' says J.
Christopher Perdue, UtiliPoint's senior director, market research.
"The fact that energy prices are escalating, and expected by most
to continue to rise, also makes Bixby's products attractive to ven-
ture capitalists."
In general, Perdue says, the energy technology sector lacks
proven entrepreneurs. In some business secrors, its not uncom-
mon for a CEO of a company seeking venture capital to have
successfully done the same for two or three companies in the past.
"Such serial entrepreneurs in the energy technology sector are
rare," he says. "I think the fatt that Mc Walker has demonstrated
proven entrepreneurial experience, albeit not in the energy sec-
tor, makes the company quite attractive. Uenmre capitalists tend
to look for companies led byYridividuals with vision, passion, a
quality team and good judgment"
One Bixby investor who understands Walker's
vision is Ron Musich, chairman of Blue Marlin Capital, an
he was hearing 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 com-
pany in many years." Nlusich says Walker plans to do a self-
directed IPO and expects it to be completed some time between
Oaober and next February.
Rep. Gi] Gutknecht (R-Minn.) also recognizes Bixby's poten-
tial. He sits on the nation's House Committee on Agriculture and
chairs a subcommittee with responsibiliries 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 calk about
renewable energy' Not to be condescending, but most people
who come co 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 Selec~x Comfort, he had my
undivided attendoq° Gutknecht says. "I sleep on a Sleep Num-
ber 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 inter-
esred in the costs. He understood renewable energy from a busi-
ness 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 $~00
billion on fuel. If even just i percent of chat was for home-heat-
ing, 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 crearive side,
because you're putvng some life into something."
42 UPSIZE SEPTEMBER 2006 www.upsizema9.com