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A Bright Idea!


The idea was too good. It couldn't wait until morning. At 2:30 a.m., Neal Verfuerth, a 45-year-old entrepreneur and CEO of Orion Energy Services, sped the 16 miles from his home in Random Lake, Wis., to his factory in Plymouth. There he spent the wee hours of the morning fiddling with broom handles and two-by-fours. By the time an engineer came in for work at a more reasonable hour, Verfuerth's vision was sketched out on the floor. Verfuerth practically shouted at the engineer. "I said, 'Make me one of these!"' recalls Verfuerth. His sketch became the Illuminator, a patented lighting fixture that lets standard fluorescent bulbs throw off twice the light using half the energy of standard fixtures.

Like many entrepreneurs, Verfuerth found that designing and manufacturing an innovative product was only the first step. It got tougher from there. At first, many customers simply didn't believe his pitch: twice the light, half the energy cost. Others couldn't afford to replace their lighting fixtures. Larger, more established companies, chief among them Houston-based Cooper Industries and Acuity Brands of Atlanta, already offered energy-efficient lighting. And Verfuerth wasn't ready to bankroll Orion's growth singlehandedly.

All Verfuerth needed, it turns out, was an astounding amount of creativity. Orion holds patents not only on the Illuminator but also on a key sales tool -- a meter installed with the lights that converts energy savings into dollar amounts. Verfuerth also designed an inventive financing scheme for his customers and has been no less ingenious in funding Orion.

Six years after Verfuerth's early-morning awakening, Orion counts PepsiCo, Quad/Graphics, R.R. Donnelley & Sons, and Toro as customers. Sales, at about $25 million, have doubled every year for four years. Orion employs 110 people, compared with 18 in 1999. Verfuerth, working in an industrial park surrounded by dairy farms and cornfields, is determined to keep up the pace: He recently purchased a new 260,000-square-foot manufacturing plant, as well as a plane to help him more easily visit customers.

Verfuerth is a big man with a serious mien who seems to have developed his inventive streak on his own. As a kid in Mequon, Wis., he would buy old lawn mowers, fix them up, and resell them in front of the house. He left high school to apprentice with a tuck-pointer, restoring old buildings and eventually starting his own company. But that was seasonal work, so in the early 1980s he bought two solar panel distributorships. Both failed, and Verfuerth says he lost about $50,000. But he was hooked on the energy industry. In 1983, he founded a lighting distributor and a manufacturers' representative for lighting companies, both of which were acquired by Walnut (Calif.)-based Lights of America in 1993. He left to start his own distributor, Orion, in 1996. Four years later, Orion started manufacturing its own lights.

Verfuerth's breakthrough product coincided with the beginning of a trend toward energy-conscious building design. Slapped by rising utility bills, manufacturers and other energy hogs were trying to cut costs, often installing new factory equipment and more efficient air conditioning. Many didn't realize they should be reconsidering their lighting, too. The high-intensity discharge lights used in industrial, retail, and institutional settings are serious energy wasters. Half the energy they consume is transformed into heat and vibration rather than light. Verfuerth tackled that problem by separating the ballast -- the device that regulates light flow -- from the lamp. He also put a frame around the lamp to keep it cool and made the fixture of aluminum rather than steel. The reflectors direct light exactly where it's needed. Because the lights replicate sunlight at noon, they reduce glare and fill in shadows, making them easier on the eyes of people working under them.

Yet offering twice the light with half the energy wasn't the no-brainer sales pitch Verfuerth had hoped. Even Verfuerth took some time to get used to the idea. "So much of the science says that what we're doing doesn't work," he says. "I think my blessing is that I'm not an engineer." He would visit his customers' plants at off-hours during installations, just to reassure himself that the lights were as energy-efficient as he had claimed.

MEASURE TWICE

Convincing prospects was tougher. He started installing fixtures in potential customers' facilities for free, then linking the lights to his patented meters. The meters "convert the energy savings into what I call the universal language -- dollars," says Verfuerth.

Joe Muehlbach, director of facilities for Quad/Graphics in Pewaukee, Wis., was among the doubters. Even after Verfuerth installed sample lights in 3,200-square-feet of one of the company's factories in 2002, Muehlbach called in his internal energy experts to verify the savings. Once he found that Orion's calculations were correct, he ended up ordering lights for 11 million square feet of factory space. Quad/Graphics had been looking for energy-savings, but "lighting was not on the list," Muehlbach admits. "Orion made us aware of the potential."

Unfortunately, many smaller companies couldn't afford to swap out all their lights at once. So Verfuerth would install the fixtures at no initial charge, accepting payments calculated from the savings in the customer's energy bills. At the end of the contract, the customer would own the lights outright. It sounds simple enough, but it took Verfuerth 18 months of research to ensure that customers wouldn't have to mention the arrangement in their financial statements.

That solved a problem for customers, but it left a big one for Orion: How could it afford to install lights without being fully paid, sometimes for as long as five years? Verfuerth wanted to securitize each deal, but more than a dozen banks turned him down. "They asked, 'What happens if the customer doesn't pay? What if the savings don't materialize?"' he says. Eventually he found a financing company, which, for a fee, pays Orion its up-front installation costs, then collects the monthly payments directly from customers.

Verfuerth didn't stop there. When Toro, the Bloomington (Minn.)-based maker of landscaping equipment, needed to provide two years' worth of data to get an energy efficiency rebate from the state of Wisconsin, "Orion submitted the paperwork to get us enrolled," says Jon D. Scott, an operations manager. "All we had to do was cash the check." That kind of administrative assistance now comes standard with Orion lights.

Verfuerth's twin sons, Joshua and Zachary, 27, who work in business development for Orion, don't always share their dad's approach to winning over customers, but say that somehow, it seems to work. "Where we might be inclined to give out a good price to close a deal, he'll find another way to do it," Josh says. Verfuerth's wife, Pat, also works at Orion, as vice-president of operations.

COUNTING ANGELS

Orion has been equally creative in funding its own expansion. In addition to bank loans, Verfuerth has raised money from the Small Business Administration's 504 program, which provides loans for expanding companies. He has also received money from the U.S. Agriculture Dept.'s rural development loan program.

But it is angel investors who have really given Orion its wings. Using Wisconsin's Issuer Exemption, Orion is able to sell shares to "nonaccredited" investors -- those with a net worth of less than $1 million. Orion is one of the very few companies to take advantage of this rule. It could have sold shares to these investors under a federal rule known as Regulation D, but then it wouldn't be able to advertise its stock. Orion first offered its shares at $2.75 each in late 2000, and has since raised "in the high seven figures from 300 shareholders," says Chief Financial Officer Dan Waibel. "We called it bootstrap equity raising."

Verfuerth's willingness to think creatively extends to his attitudes toward employees, too. Everyone at Orion gets stock options. Workers can participate in a Blue Cross health-insurance plan without making premium contributions. In return, Verfuerth asks that they work out for a half hour, three times a week, in the company's state-of-the-art gym. Free chair massages for the staff are provided by Verfuerth's daughter, Leah, a licensed massage therapist. Says Ron Ernst, who joined Orion in 2004 as an aluminum punch press operator: "It's more employee-oriented here. You respect employees, they respect you, and you get a better product."

Orion will need such loyalty to meet its ambitious $200 million sales goal by 2008. To get there, Verfuerth is trying to break into new markets such as military and government buildings -- his son Josh just brought in Orion's first contract for a military base. Verfuerth hopes to add 50 employees this year, mostly in manufacturing and sales. And he's wooing hedge funds, among others, for another round of financing.

Then, of course, there's Orion's creative edge. Engineers are working to allow customers to control their lights remotely via the Internet and to control energy use by signaling power lines. "We're inputting intelligence into lights," says Verfuerth. After putting so much smart thinking into his company, it makes perfect sense.

By Arlene Weintraub and Michael Arndt


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