When the door to competitive energy sales swung open in the most populous state in the union, there was every reason to believe that a company focused on selling electricity to consumers and businesses in the Golden State would succeed.
Commerce Energy Group Inc. was conceived and founded in 1997 following the passage of California’s energy deregulation plan, but the door of opportunity slammed shut following the energy crisis of 2000, the subsequent Enron debacle and when California’s energy deregulation policy was abruptly placed on hold.
Commerce Energy floundered for several years until Steven Boss joined the company in July 2005. As the new CEO, Boss was charged with repositioning the firm and finding the open windows to new business and new markets outside of California.
“The company was in a large state of disarray for a couple of years,” Boss says. “Without leadership, there was turmoil in the executive suite, and there was conflict between older and newer management in the firm. The employee base had become divided between the two management camps, and they were loyal to their hiring managers. The problem was really not hard to spot. Fortunately, there were many capable people on board they just suffered from a lack of direction.”
Unable to capitalize on the original opportunities afforded by the California marketplace, the firm was losing money. Boss would need to find new sources of revenue to produce a profit. However, increased sales alone would not fix all of Commerce Energy’s problems.
In order to get new business, he would need to make certain that in-house conditions would be conducive to attracting and nurturing customers and that he had a unified team behind him, ready to succeed with the challenges of building the business. While he worked on repositioning the firm’s sales and marketing efforts, Boss simultaneously worked on eliminating internal barriers to growth and replacing the current climate with a more open and customer-focused culture.
Achieving a unified culture
Getting his house in order didn’t require a lot of assessment as to what the root of the problem was.
“It was very clear to me that we had two individuals in control of the organization that were taking things in the wrong direction,” Boss says. “The problem was also acknowledged by the board. We needed to develop a new direction as an organization and a corporate culture designed around achieving maximum performance.”
Boss says that the employees were divided, and there was little communication or teamwork going on between the two groups. To alleviate the problem of divergent managerial direction in the organization, Boss says he terminated the two senior employees who represented the newer management camp.
“I prefer an environment where there’s a more open culture and a greater flow of information,” Boss says. “In order to achieve success, I think that you need to have more cooperation between the various functions. People had built silos around their functions, and as CEO, breaking down those barriers is very important because, otherwise, there’s no ownership, and people point fingers when something goes wrong.”
Boss says that the firm’s business was negatively impacted from management operating in silos. For example, at Commerce Energy, if the customer billing function runs in isolation without information supplied by the commercial sales unit, the knowledge transfer of customer-specific billing requirements won’t happen. That results in incorrect billing formats on customer invoices and late payments from large users.
For Commerce Energy, eliminating delayed customer payments is vital because under its business model, the firm purchases most of its energy 12 months in advance on the open market after a customer signs a contract for service. Then the customer is billed in monthly increments based upon their consumption. Because the firm finances the cost of the initial energy purchase, any delay in payment increases their finance costs and decreases margins.
Following the exit of the two senior managers, Boss says that his efforts to change the culture were actually enhanced by greater-than-anticipated staff turnover.
“In the year that followed, we had a considerable amount of staff turnover, around 50 percent, which was a positive thing in this case,” Boss says. “The people who stayed wanted a more open environment, greater cooperation and a free flow of information within the organization. Those that stayed were supportive of the environment we were trying to achieve.”
Setting the tone
As he continued his pursuit of a cultural shift, Boss says that he demonstrated the importance of making changes to the staff by setting the tone from the top of the organization and leading by example.
For instance, Boss initiated and maintains an open-door policy where anyone can offer feedback to him. While many CEOs give lip service to having an open door and an open ear to comments and new ideas, Boss says that he uses technology to open up the communication between himself and a wide array of constituents as a demonstration of his commitment to accessibility.
“We’ve developed an investor chat room that allows the investors to send e-mails to our board, and those communications are also shared with me, and it is monitored by the SEC, as well,” Boss says, “I can answer their questions, or they can also get feedback directly from the board.”
He also wants to hear comments from his customers. Boss says that at one time during an extended power outage in his own neighborhood, he attempted to phone the electric company to relay his frustrations over the situation to the utility’s management. To his amazement, he was advised that it wasn’t possible to get a message about service concerns to the company’s CEO. Now that he’s the CEO of an energy supplier, Boss develops his philosophies about CEO responsiveness from his own experiences as a customer.
“We’ve included a link on our Web site that allows anyone to send me a comment whether it’s a complaint or an ‘atta boy,’ and I read all of those,” Boss says.
As further validation that he has been successful in achieving a cultural shift within the organization, Boss says that a receptionist in the Dallas office recently identified a problem with an outsourced sales channel and brought the issue to the attention of the sales and marketing department. The situation was addressed, and, according to Boss, that’s exactly the way it should be.
“It’s important that individuals at any level in the organization can express a concern to management or to the CEO, so you need to be accessible,” Boss says. “I always think that a person can learn something from everyone, and you can’t learn unless you are listening.”
Boss says that when he arrived, the firm was still struggling to finish digesting a recent acquisition. But despite that recent influx of new business, the firm still had excess capacity that would allow for new customer acquisition without increasing infrastructure and costs.
His financial analysis further showed that Commerce Energy was close to breaking even, given the current overhead and revenue, so rather than reducing head count, which would leave the firm unable to handle additional organic and acquisition-based growth, he decided to focus on adding new customers.
In keeping with his open culture, he launched sales and marketing efforts to entice new business based on customer input, and then he developed superior customer service that would entice new customers to stay once they became users of the service.
“Our excess capacity makes it feasible for acquisitions, but inorganic growth is somewhat serendipitous, and you have to be careful not to overpay when you acquire new customers, especially when you are brokering a commodity,” Boss says. “When I do the analysis on some deals, I find that I could add a comparable number of new customers organically within six months, so doing that analysis is part of the litmus test when it comes to deciding if the acquisition makes sense.”
Boss uses demographic feedback for each marketing campaign to validate his build-or-buy decisions and to achieve cost-effectiveness with organic growth. He also uses the data to further hone his customer acquisition messages, tailoring radio campaigns to each individual market based upon customer feedback.
“One of the metrics that we monitor is our new customer acquisition cost, and we further break down the costs by each marketing campaign we run,” Boss says. “We constantly take surveys within our tele-sales group to see who’s paying attention to our ads. As a result of customer feedback, we decided to offer a line of green energy. At the end of the day, customers vote with their pocketbooks, and our survey information indicated that customers were open to paying more for green. We want to listen to our customers and give them as many choices as possible because that’s what differentiates us in the marketplace.”
Boss says that retaining customers is more cost-effective than constantly seeking new ones and customer churn is too expensive for a firm struggling to get their total customer count up to a level that will make Commerce Energy profitable.
He has also instituted new customer service metrics and processes to reduce customer loss. He measures service metrics such as the wait time before customers are able to speak with an agent, and he also believes in investing in customer service training for his agents. Boss says that agent responsiveness often dictates whether the customer will continue to purchase the service from Commerce Energy or move to a competitor, which is always a possibility, now that consumers have a choice about where they can buy their gas or electricity.
“We billed 164,000 customers last year, and we become profitable when we bill around 200,000 customers,” Boss says. “So it’s important that we strive to keep customer churn down as low as we can. We’ve invested in a new phone system for customer service as well as training for all of our agents, and we monitor all of our service metrics so we can be more responsive. Every organization I’ve ever been associated with has been customer-centric, and so for me, it’s just intuitive that it should be that way.”
The firm added 100,000 new customers last year, with a 10 percent increase in new customers coming during the fourth quarter. Fiscal 2006 net revenue for Commerce Energy was $247 million, and although the company’s bottom line for the full year was in the red, the firm earned a profit in the fourth quarter showing that things were headed in the right direction.
Boss says that effectively managing growth is still a challenge some days, and despite the improvements in the company, Commerce Energy is still a work in progress.
“It’s impossible for one individual in the organization to have complete control of everything,” Boss says. “You have to develop a culture and an ethic in the organization where the employees believe in the mission and want to accomplish it for you. As the CEO, you have to be a leader first and remember that every individual in the organization helps you in achieving your goals.”
HOW TO REACH: Commerce Energy, www.commerceenergy.com