Ideology First, Sales Second
By Bill Sendelback
Photos: 2014© Jeffrey Frey Photography. www.freyphoto.com.
When most of us graduated from college, we were still sowing our wild oats while looking for a job. But 35 years ago, John Bergstrom and his then-girlfriend Nancy Hanson graduated in March, 1978, got married in April, rented and remodeled a retail space in May and, in July, opened an Energy Shed store – later renamed Energy Plus – in Duluth, Minnesota.
Just 22 and 21 years old, respectively, neither expected those humble beginnings in a rented space to someday become the largest fireplace shop in northern Minnesota, reaching $2.5 million in sales of hearth products, patio furniture, stone, solar equipment, hot tubs and saunas.
Both of the Bergstroms were raised in Minnesota’s Twin Cities of Minneapolis and St. Paul, went to college in Duluth, and had a desire to remain there. With area population shrinking due to the closure of an Air Force base and a few area mines, there were not many job opportunities in the late ’70s. But there was a new organization of retailers who were selling energy products, called Energy Shed.
John Bergstrom saw an opportunity, and it fit right into his ideology.
“I let my own personal ideology dictate more than most people do,” he admits. “It’s all about the basic premise of our hearth industry – energy efficiency. Right or wrong, we have steered our product selections and sales presentations away from things that are not energy efficient.” Bergstrom saw solid fuel, then and now, as the answer to energy efficiency and resource conservation.
“In the ’60s and ’70s, the whole carbon issue was not really on anyone’s radar, but we were – and still are – trying to save resources and at least minimize the use of fossil fuels.”
In addition to energy efficiency and resource conservation, Bergstrom’s business model includes providing the quality of customer service he would want if he were shopping.
“That always directs me,” he says. “You want to go where people really know their stuff. The price isn’t important. If you’re going to get no service, then you want the cheapest price. This is a business that pursues an ideology. Business as just business is not very compelling to me. If that was all there was, I would probably just close it down.”
Bergstrom admits that, 35 years ago, hearth products were a real stretch for his new wife. Nancy was actually trained in psychology and criminology and was slated to head up a “Victims of Violent Crime” program. When the funding for that program fell through, she decided to help John on weekends. That lasted for 18 years.
Even at 22, however, Bergstrom already had a background in fireplaces. His father, a metallurgical engineer at 3M Corp., had developed the Thermograte, an add-on tubular heat-exchanger for wood-burning fireplaces. From his junior high school years on, Bergstrom helped test, build and ship this wood-burning accessory.
Although invented and patented in 1913, John’s father improved the design so that it really worked. “It actually worked quite well,” he says, “so my dad got a design patent on it. But within five years, anybody with a tube bender was making a copy, so we soon had about 80 competitors.”
Bergstrom’s degree was in business, but he found the things that really matter in business can’t be measured.
“For example,” he says, “when your warehouse guy is leaving to go home, greets a customer walking in the front door and holds that door open for him. That may be what makes the sale. Every person who contacts a customer is a key. We want every person in the store to be happy to be there and feel they are at least being treated fairly.
“This is a really good business model for us – just making a good impression on the people who walk in our door. It’s just very important to the culture of our store.”
Energy Plus services a market of about 300,000 people including Duluth and nearby Superior, Wisconsin, an area within a radius of 125 miles. Bergstrom explains that it’s still a very rural area, and 60 percent of the gas appliances he sells use propane. While Energy Plus also sells pellet stoves, its focus is on wood burning, the company’s main product category.
“We really believe wood is a great way to go,” he says. “For a whole bunch of reasons, conventional stick burning is a huge category for us, and I support that wholeheartedly.”
Gas- and wood-burning hearth products represent about two-thirds of Energy Plus’ annual sales. The other third of the company’s offerings includes patio furniture, hot tubs, saunas, unique household accessories, stone (such as pavers) and residential solar or photovoltaics. Barbecues have not been a big category for Energy Plus, but the company does offer the Saffire charcoal grill, and it’s used in everyday demonstrations.
“Our employees were cooking their lunches on wood stoves,” says Bergstrom, “and we had one going every Saturday to bake cookies for customers. Now the guys have a really neat grill to cook lunch on, and if we sell some as a result, we sell some. It’s more of a lifestyle thing with us than a product category that would add to our bottom line.”
Hot tubs as a category have come and gone over the years, but Bergstrom has high hopes that solar will grow into a giant category for Energy Plus. A friend of Bergstrom’s has been “off the grid” for almost 30 years and is considered a national expert on solar power, according to Bergstrom. Seeing the opportunity in something that fit with his lifestyle, Bergstrom purchased his friend’s company, Conservation Technology, in mid-2012.
|A background of hearth products complements a spa display.|
“We went from trying to learn the solar business to having a national expert in our office every day, and we installed a dozen solar systems that year and again in 2013.” He says the dramatic reduction in the price of solar panels, plus state and utility incentives, has made photovoltaics much more economically attractive since he installed his own personal system in 2006; the price of solar panels has fallen by 80 percent since then.
“Our movement into solar was not just a business opportunity,” he says. “It’s an ideology of energy efficiency and energy conservation first, and I hope it’s also a business opportunity. That’s what drives my decision-making.”
Now that Energy Plus is running smoothly, Bergstrom is less involved in its daily operations.
“This has grown far bigger than I ever envisioned or dreamed that it would,” he says. “When I started this store I was on the way to moving to the woods and eating roots and berries. I wasn’t really thinking about building an empire.”
Bergstrom has turned the day-to-day operations over to Damian Pennings, general manager, and Chris Lindberg, Operations manager.
“These two people really make the thing work,” he says. “With 14 people, it requires attention just to keep that many people informed and working together. Damian and Chris do a fabulous job. They take my ideology and principles and bring them to reality in our daily operations.”
Bergstrom much prefers the technical and installation side of the business.
“I just love do-it-yourself,” he says. “Putting in a stove is still my favorite thing to do. Give me a dozen installations instead of a meeting and I’ll always choose to do the installations.”
When he started Energy Plus, the company was hiring out its installations. Bergstrom soon realized he was spending time coaching the installers, and found that “these people really messed things up so badly – just crazy levels of incompetence.” In-house personnel now do all installations and service work.
“I’m just unwilling to expose ourselves and our customers to the poor level of workmanship and the potential liabilities that come with so many subcontractors,” he says.
|Muted tones have a calming and elegant effect in this area of stove displays.|
With almost no spec home construction in his market area, Bergstrom works with homebuilders but does not pursue them.
“We don’t attract them or any customer because of low prices,” he says. “Our business model drives the way we treat all customers, and we never focus on getting the price-point down. So that excludes some contractors if price is their primary concern. If it comes down to, ‘What’s the discount,’ we’re not the guys to go to. If anything, we probably have a reputation for not having the lowest prices in town, and I’m not worried about that.”
That attitude seems ironic considering that Energy Plus is right next door to a huge Menards Big Box home improvement store. In fact, the two operations just about share a parking lot.
Bergstrom purchased his property in the Hermantown suburb of Duluth in 1983 on what is now the busiest highway outside of Minnesota’s Twin Cities metro area. Three years later Menards built its store, and now Bergstrom looks at his big neighbor as a blessing.
“There are 1,200 homeowners a day driving into Menards parking lot right next to us,” he says. “What a fabulous traffic builder! No, I won’t sell them all, but if I treat them like family and provide real value and service, that will resonate with people. If I can’t provide value to these people, then I won’t get them as a customer.”
Bergstrom doesn’t concern himself with his competition, even if it’s the Menards next door.
“We don’t look at our competition,” he says. “We’re driving our own bus, just following our ideology and the market we serve. We offer products we would like to have in our own home, provide information and give service. They’re doing their own thing, and we’re doing our own thing.”
Energy Plus has come a long way from its first tiny, rented store in 1978. The store Bergstrom built in 1983 has grown and morphed as the business grew and changed. Bergstrom first designed a two-story structure with wood burning on the lower level and gas appliances on the upper level. He had hired an architect, but the initial sketches were too commercial in appearance, just the opposite of what John and Nancy envisioned.
“We wanted it more homey,” he says. “I had designed and built our house, a guest house and a boat house, and knew I could design the store.”
Years later Bergstrom again put his junior high school drafting education to work. Starting with a 56-by-68 ft. building, it required two years to include more than 6,000 sq. ft. of showroom and office space on, now, three floors.
“We don’t have an elevator,” he says, “and that’s been a bit of a problem. Over the years we’ve carried quite a few wheelchairs up the stairs so people could look around.” Bergstrom uses his patio furniture for sitting areas among his hearth products.
Product displays were designed by Bergstrom and built by himself and his staff, including at least 40 burning models of wood and gas products.
“There’s a lot of holes in our roof and walls,” he says. “But since our philosophy and product offering is all high-efficiency stuff, anything we operate ends up contributing to heating the building. We don’t even have a conventional heating plant, and today it’s five degrees below zero outside!”
Bergstrom doesn’t use advertising to bring in new customers. Instead, for new business he relies on word-of-mouth and treating customers properly.
“If we have to advertise, it means we’re not doing our customer service as well as we should,” he says. “If we’re really doing a fabulous job, there will be enough people who refer customers to us.”
Bergstrom is happy if he can keep his advertising expenses below two percent of gross annual sales. His advertising is very limited; he foresakes Yellow Pages and print advertising for sponsorship of public radio and occasional television ads. His biggest challenge is leveling out his business throughout the full year.
“I just shake my head at the number of dealers who have promotions in the fall,” he says. “We can’t handle all the business at that time of the year, so to actually give money away then just doesn’t make sense. The challenge for us has always been to flatten out our sales from the absolute sales insanity we have for the two or three months of the hearth season.”
He still doesn’t have a good answer to that dilemma, but the non-hearth product categories he offers have done a reasonable job of leveling out the sales demand curve, although “it’s still lopsided toward the fall and winter hearth season.
“I’m sure I could have been far, far more successful if my focus had just been on a business model to build an empire,” says Bergstrom, “but it wasn’t. I have a different set of priorities that drive me, but our doors are still open.”