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Russ: This is the BusinessMakers Show, heard here and seen online at theBusinessMakers. Com. It's guest time on the show, and I'm very pleased to have with me Scott Fordham, president and CEO of Champion Energy Services. Scott, welcome the BusinessMakers Show.
Scott: Hi. I'm excited to be here. Thanks for having me.
Russ: All right. You bet. It's great to have you here. Businessman, consolidator, and entrepreneur?
Scott: [Laughs]
Russ: Why don't we start here? You tell us about Champion Energy Services.
Scott: Yeah. Russ, Champion Energy is in the retail electricity business. We're based here in Texas. For those in your audience who may or may not know, the state Texas has had a deregulated electricity market since 2002. Champion has been around for those of that period of time. And it was purchased by a gentleman named Jim Crane in June of 2008, so we've just crossed out two-year anniversary of Mr. Crane owning this business.
Russ: Okay. And how long have you been here in this position?
Scott: I've been here about a year. I've been here about a year as CEO and president. Jim and I have known each other 20-plus years. I was actually a customer of his back in the early '90s, so I've known Jim a long time. And he asked me about this time last year to come help him grow this business.
Russ: All right. Now you mentioned Texas. I understand you have a vision that goes beyond Texas, too.
Scott: Yeah. I shouldn't short ourselves. Texas, obviously, because of the climate here and the population is a very big user of electricity. But we also currently serve in Illinois, Pennsylvania, and Ohio, and are licensed in New Jersey and New York, and about to be California. So this - Champion is truly a kind of a national player.
Russ: Okay. Now I know quite a bit about you, and I know a little bit about the energy services business. And, man, I think that it could be an extraordinary challenge to differentiate yourself in that business. It almost seems like it's commoditized.
Scott: Well, I think at first blush, it looks that way, that it is a commodity. We're selling electricity. But we think there's three or four ways we differentiate ourselves to the end user customer. And it really starts with whether we're talking about a residential customer or a business customer or something.
Russ: And you handle both of those.
Scott: And we handle both of 'em, so it's really a little bit different sell to the mass market, the homeowners and apartment, versus the business customers. And, obviously, people think you start with price. If you're the cheapest that that's gonna get everybody's attention. I think being transparent and having a repeatable economic formula is probably one way we look at it. You can't just have a cheap rate one time around. It takes a lot of time and energy and money to acquire customers. If all you wanna do is get them for the first go around and then you lose 'em, that's probably not a good long-term business model. So we're very transparent. We're educational. There's a lot of mystery or a lot of others have tried to make mystery about this business. We're trying to just make it more transparent and educate people. And our belief is, and one our mottos here is, "An educated customer, given all the facts, will end up choosing Champion."
Russ: So this transparency, I mean, what are you transparent about?
Scott: There's a lotta terms, quite frankly, and there's just a lot of nuances to this business, just down to the rate. What are you paying per kilowatt-hour? What is your price? Is there other things that go along with that price, or is it an all-inclusive price? So most of our products are once you see the price, that includes all the other things that we may pass through. So it's a bundle-type product that we really offer people. A lot of other folks that we compete with will segregate it and you'll have multiple different lines on your bill.
Russ: Making it difficult to figure out exactly what you're paying
Scott: Making it difficult to really figure out, yeah, what you're paying, okay?
Russ: Right. Now my personal experience is, too, they will sometimes get you to commit for a period of time, which okay if it's a good deal. Do you have contractual periods as well?
Scott: Yeah. We have everything from a month-to-month, to a 3-month, 6-month, 12-month, 18, and 24-month. Our average is a 12-month on the homeowner side is 12 months. I think people are comfortable with that. I think in this kinda price environment, people are looking at longer-term products. The prices are some of the lowest that we've seen in the last seven or eight years since deregulation. And I think the smart consumer is betting that they're not gonna go down any further and there's more of a likelihood they're gonna go up than down. And so they're starting to lock into longer-term products, 18-24 months.
Russ: Sounds like what some of the airlines do on fuel hedging and prices on it and stuff. But so when you're transparent, let's say that I signed a three-month one and I just wanted to watch it. Are you gonna tell me when the three months is up?
Scott: Yeah.
Russ: And are you gonna tell me what the best price is at that time as well?
Scott: Yeah. Russ, there's a couple things. We enroll most of our customers online, so we get their e-mail address. And so we stay in constant contact with our customers. And we try to act as an advisor, okay?
Russ: Okay.
Scott: We try to not let people get past their contract renewal date. So we're always reminding them, "Your contract is about to expire. You may wanna look at this one or that one." And we offer many choices that fit different people, depending on size of house, depending on how long you're gonna be in the house, etcetera.
Russ: Okay. Now I know here in Texas, there's a public utility commission that I believe manages a site, a Web site even, that allows you to compare rates. Do you guys sort of participate in that as well?
Scott: Yes, Russ. We're very active. It's called Power to Choose. It's a state-funded Web site. It allows customers to go on an shop or electricity rates. So you can shop different vendors, providers, different terms of services, etcetera. So we do participate in that on a daily basis. We also have our own rate sheet and product set on our own Web site, championenergyservices.com.
Russ: Okay. Now our listeners here are always looking at businesspeople and how they operate the business and what they do. The question is, has this sort of transparency thing been working for you, and is your user base growing?
Scott: Russ, I'm happy to report in the two years that Mr. Crane's owned this thing, our customer base has grown seven-fold. I think we're a breath of air to people because we are just kinda open and transparent and trying to educate them. And I think respect that. And one of the things I'm really proud of is that we get a lotta business from referrals of our existing customers. So they're telling their friends and neighbors and business associates. This seems to be a type of service that people like to talk about. A lot of 'em are emotional about it, good, bad, or indifferent. And once they find a good one that they feel comfortable with, they like to tell their people about it.
Russ: Okay. Maybe they like to because it's a fairly significant expense for all of us these days.
Scott: I would say at either a business or your home, it's gotta be one of the top two or three expenses you deal with.
Russ: Absolutely. All right. We're talking with Scott Fordham, the president and CEO of Champion Energy Services. And we'll be back with more with Scott after this. You're listening to the BusinessMakers Show, heard here and seen online at theBusinessMakers.com.
[Aflac Commercial]
Russ: This is the BusinessMakers Show, heard here and seen online at thebussinessmakers.com. And continuing on with Scott Fordham, president and CEO of Champion Energy Services. Now, Scott, you mentioned residential and commercial. Are you extra strong in one of those categories and extra focused on one, or are they equally important?
Scott: Really, they're equal focused today. Depending on if you look at number of customers, we have more residential customer than we have commercial/industrial. But volumes, as you can imagine, the volumes that we use in kilowatt-hours on the commercial/industrial side far outweigh the homeowner side. So it depends on if you're looking at number of bills I send out or number of volumes of electricity used.
Russ: Right. Now when you got here, was that the case, too?
Scott: No. It's - fortunately, both sides have grown. We've had a focus to try to marry the two together. Typically, when you're dealing with an organization, the employees of that organization have homes and apartments they live in, also. So you can go get both of 'em. But the history of the company has been really more of a commercial and industrial-focused business, and we brought residential to it over the last two years.
Russ: Okay. Now a commercial establishment certainly would be paying a significantly lower per-kilowatt-hour charge, right?
Scott: That's correct, just based on its volume and buying power and aggregation, etcetera. They're able to enjoy a lower rate per kilowatt.
Russ: Right. Is there ever room or a whole bunch of residents to come together and put a package together and -?
Scott: Well, it's funny you should say that. I've seen subdivisions or homeowners associations try to do that, and we're not close-minded to those kinda things.
Russ: All right, cool. Well, I would hope not that. That's pretty cool.
Scott: Yeah.
Russ: All right. So, clearly, you're very well established here in Texas, and you mentioned several other states that you were headed in that direction or already doing business there?
Scott: Yeah. We're doing business currently in Illinois, Pennsylvania, and Ohio. And here in the fourth quarter of 2010, we'll be in both New Jersey and New York.
Russ: Okay. But it's a very state-regulated business, isn't it?
Scott: That's correct.
Russ: So that adds a pretty significant degree of complexity to operating Champion Energy Services?
Scott: You've gotta certainly understand the regulatory rules, the consumer choice rules by state, and there' some nuances between the states , both from a contractual term standpoint, from a disclosure, notification of terms of service, those kind of things. So we've got a staff, quite frankly, that helps me govern our way through all those areas.
Russ: Okay. So is the charge per kilowatt-hour different in certain states?
Scott: It certainly is.
Russ: What controls that other than taxes, maybe?
Scott: I would say supply and demand and competition.
Russ: Okay. Wow.
Scott: So I mean, some of the markets we're in, you still have the incumbent utility involved, and so you're competing against the incumbent utility. Texas, you have more of an open access. Some of the old utilities are competing, but it's much more on an open type basis. They don't have an embedded customer base. They have to compete openly.
Russ: Okay. So I'm still real curious about success in a commoditized market. It's very challenging and exciting and difficult at the same time. So what is the long-term vision for Champion Energy Service?
Scott: Well, Russ, we intend to grow. We're fortunate enough to have an owner who has built businesses and likes to grow businesses organically. I've been involved in several situations along that same nature, so he and are of a like mind to grow this business, both organically, and potentially through acquisition over the long haul. We think we can really create a national retail electricity company that can take the benefits that we're able to offer our customers today on a more national scope.
Russ: That's interesting, real interesting. Now, let's move onto that other topic. You mentioned your background. Why don't you share that with our audience?
Scott: I'm a CPA, by background. I went to school in Austin. I got an accounting degree. Spent ten years at Arthur Andersen in the '80s. Got exposure to what I look back on finally as some of the best entrepreneurs that Houston had to offer, one of which as Frank Lorenzo. Some of the folks who - a lot of oil and gas folks who did entrepreneurial venture, the Cisco Foods Folks, so just wonderful back in training I go t to see who spectrum different entrepreneurial-type things. It really gave me a good background.
Russ: All right. Well, I also understand you know quite well that one of our favorite guests there on the show, Tom Fat Joe, Jr., the -
Scott: I know him well, and both at Andersen and beyond. I've admired him, obviously, a long time. But when I was at Andersen, I got to actually do some work for him when I was a Arthur Andersen. It's just a joy to watch him build something.
Russ: Great. Well, now we're sorta talking about these guys that some of 'em did roll-up IPOs, consolidation. Now I wonder sometimes if the younger listeners even know what that world is all about, both consolidation and roll-up IPOs. Why don't you share that?
Scott: Most of my background is in what I call the buy-and-build strategy of consolidation where you get a base and you just on acquisition at a time, build out a company. I did that over a ten-year stint in the printing business, between 1991 and 2000. I did it a little bit in the IT services business. I've got a lotta background in that. Obviously, in the '90s in particular, there was a trend for what they call poof IPOs, which is immediately aggregating a group of business together, going to the public market immediately and creating a literally overnight public company. Some of those worked out very, very well. Unfortunately, a lot of 'em didn't work out as well. And so I think the whole consolidation strategy has got a lot of merit. There's a lot of great companies based right here in Houston that have executed that business plan.
Russ: Well, it seems like these days, particularly in the technology sector in the Silicon Valley based when - it's a little bit different. It takes a giant, a Google or a Yahoo or somebody like that, and they go out and start buying these things and just bringing 'em in. The version that you described has a much smaller basis in the beginning, right? And really it's -
Scott: No. Correct. I take you back to my printing company experience. We were buying. $5 million dollar-type companies. We happened to buy 85 of them over a period of time and integrate them, assimilate them into a common culture and a common set of business practices, etcetera. Those are challenging, but I think very rewarding over a long haul.
Russ: Yeah. And so back to Champion Energy Services. And when you talked about the long-term vision there, you said growth, both organically and through acquisition. So this just might be another one of those grow consolidation -
Scott: I think - I mean, it's been organic growth so far. But I think this particular space is right for consolidation. So I think we'll have an opportunity here in the not too distant future to potentially acquire something of a reasonable size to add onto Champion.
Russ: Okay. Have you even gotten to the point of looking at any yet?
Scott: I've looked at handful of them. What we've determined so far is just it's easier for us to grow given our goals just organically than it is by acquisition these days. A lot of it's just the climate we're in right now, the finance markets, the valuation expectations that a seller may have. We're just in kind of a down cycle right now, both from the lenders, just the whole finance market, etcetera. That'll - those things cycle up and down and we'll be in a different cycle here hopefully not too distant future.
Russ: Okay. Sounds exciting, for sure. Talking with Scott Fordham, president and CEO of Champion Energy Services. And we'll be back with more with Scott after this. You're listening to the BusinessMakers Show, heard here and seen online at theBusinessMakers.com.
[Aflac Commercial]
Russ: This is the BusinessMakers Show, heard here and seen online at thebussinessmakers.com, and continuing on with Scott Fordham, president and CEO of Champion Energy Services. Now, Scott, you mentioned already that since you've been here in this year, you've gone from 40 people to 130 people.
Scott: Yep.
Russ: That's pretty fast people growth, 'cause I imagine they're fairly important to you.
Scott: Russ, there's no question. Part of - you asked me earlier about differentiation, and we have a lot of interaction with our customers, whether they're calling about the bill or how to make a payment or - so we have a lot of touch points with our customer. And the whole customer care experience is really one of the things I focused on over the past year, to make sure that our customers feel very special and important and know that they get a hold of somebody. So people - a lotta of the growth that you've suggested has come , both from the sales side, so they're touching customers, and the customer care side. So a lot of touch points.
Russ: Do you try to get people that are experienced in the energy services business, or try to avoid that?
Scott: Some of both, candidly. Obviously, we need to have industry knowledge. But I err on people who are energetic and like dealing with people. I've got people from the airline business. I've got people from banks. People are just - they're used to dealing and serving customers. It's really been one of the things I've looked for, not necessarily that somebody worked at a particular company.
Russ: Right. Might be pretty good economic times to go out there and try to find good people.
Scott: I would say we've taken advantage of that, both from an experienced workforce and from the college campus, quite frankly.
Russ: Right.
Scott: I started a year ago, a program I call the leadership development program, so I've gone on campus in Austin, A&M, U of H. There's a lotta bright folks out there that are coming off campus that add energy to a company like mine, and I can teach them a business and not have to erase maybe habits they've learned somewhere else. I can teach 'em the way they want to be taught. And they've really provided a great addition to workforce.
Russ: Are you sort of transparent in running the company, tool? Do you let mow when you've had a good month and when you've not ad good month?
Scott: I do. Without getting down to the specifics, all the employees participate in an incentive comp plan, all the way down - from me, all the way down to the receptionist. So everybody is pulling the wagon in the same direction, and so I let them know how we're doing against the budget. We don't necessarily get down to - at all levels down to specific dollars, but they know exactly where we stand relative to the budget and how they can impact that.
Russ: That's cool. All right. Before I let you go, Scott, I wanna ask you this sort of standard question from the BusinessMakers Show. And let's say that we have an aspiring businessperson out there, aspiring in that they're just getting ready to dive into the business world, and they recognize all of your experience with Arthur Andersen, with consolidation, with building these think companies, and then operating this one today. And so what advice would you give them to prepare for their life, their future career?
Scott: Do we have 30-40 minutes to go or whatever? No.
Russ: [Laughs] Yeah.
Scott: In a quick snapshot, I think, obviously, it deals with people. I've been fortunate to have been mentored by some very good people. You need to be open minded to let people mentor you and criticize you, etcetera, or help you, advise you, etcetera, or whatever. And I've learned a lot that over the last 30 years. To be well capitalized I think is another. I see a lot of folks with great ideas and they're under-capitalized and so they can't really reach their potential without being properly capitalized. I'm very fortunate to have an owner of this business that I've known for 20-plus years, so there's a very good trust level there. We're very a well-capitalized business. So we're able to execute on the business plan that he and I envision the growth. It requires money. So I'm very fortunate to be here.
Russ: That sounds great. Scott, I really appreciate you sharing your story with us.
Scott: Russ, thank you very much.
Russ: You bet.
Scott: Okay, all right. Thank you.
Russ: That's Scott Fordham, president and CEO of Champion Energy Services. And you're listening to the BusinessMakers Show, heard here and seen online at theBusinessMakers.com.