Down to earth: it's the "started-in-a-garage" success story of Fort Wayne's WaterFurnace International, a pioneer and leader in geothermal heating and cooling systems.

THE COMPANY'S beginning was both modest and magical. In the late 1970s, two geothermal pioneers, Dan Ellis in Fort Wayne and Dave Hatherton in Toronto, Canada, were independently creating geothermal systems by altering existing HVAC products. Then a mutual supplier suggested they combine forces.

It seemed like a good idea, and they approached Jim Shields to borrow $70,000 in capital to begin the venture. In 1980, WaterFurnace International Inc., a manufacturer of geothermal products for the residential market, began operation in a Fort Wayne garage owned by Shields.

By 1990, the company was coming into its own. It went public that year, and it moved to its current Fort Wayne headquarters, a 115,000-square-foot facility designed with Plexiglas plates in parts of the ceiling and the equipment room to showcase the company's products. It operates on less than half the utility cost of typical buildings its size heated and cooled by conventional equipment.

HEAT PUMP INNOVATION

1990 was also the year the company enjoyed its first big breakthrough. It premiered the first variable-speed, two-stage compressor unit and the most efficient water source heat pump on the market at that time. WFI was the first company in the HVAC industry to use the variable-speed motor--a product developed by General Electric in Fort Wayne. Today the variable-speed motor is standard for all high-end products industry wide.

"With the introduction of that product, the company just exploded," says CEO Bruce Ritchey. "It went from about $5 million in sales a year to $25 million in a five-year period, taking the company from a regional company to an industry-wide phenomenon."

In 2001 the company introduced the first water source unit to use non-ozone-depleting refrigerant. It was a "big green breakthrough," recalls Ritchey, who joined the company in 1998 as CEO. "The next competitor didn't accomplish that until three years later, giving us a big head start on everybody. It was very well accepted, and our sales increased 39 percent."

In 2006 the company's second-generation non-ozone-depleting refrigerant unit debuted. Called Envision, it represented another leap forward in efficiencies. That same year, the product was named one of the "Top Ten Green Building Products" by the editors of Sustainable Industries Journal.

Ritchey believes the key to the company's success is its focus on geothermal products. "Our company is much smaller than our competitors, but all we do is geothermal," he says. "When we get up in the morning, if we don't sell geothermal, we don't eat. Our company focuses every day on geothermal, and therefore we have a broader product line and we tend to come out with innovations more quickly. We are more responsive to the geothermal customer and we have our finger on that pulse better than our competition does."

Another component of the company's success is its workforce. Ritchey credits the Fort Wayne employees with having a strong work ethic and knowing how to work well with mechanical devices. "Our best inventors are the people who work in our maintenance department," he says. "Our new ideas come from hands-on people who love equipment and love to tinker with products and make them better."

COMPANY HEATS UP

One of the company's challenges was transitioning from a small company to one with more than 250 employees--and learning how to do it profitably. Many of WFI's competitors are large billion-dollar companies and their purchasing power meant they could buy materials at less cost than WFI.

The company alternated between profitable and unprofitable for years. But by 1999 it began showing a profit each year. Commercial products were added in 1996 as a "logical extension" of the business, although WFI's core business still revolves around products for the residential sector.

Tony Cooper, president of the WFI's Global Division, says the company began a "push" into international markets about four years ago in response to increased demand for green, energy-efficient products. "We have product sold in over 30 countries," he says. "We have active distribution in more than 15 countries, with strong sales in Europe and Asia and growing sales in South America and the Middle East."

Cooper, who is in charge of the strategy used in each international market, works with most accounts directly, and offers assistance to all accounts working on closing large deals. WaterFurnace products are currently in use at Buckingham Palace and will be used in the 2008 Olympics in Beijing.

While keeping an eye out for potential acquisitions is part of the company's strategic plan, so far WFI has found partnering and collaborating with other companies often generates great rewards. It is the manufacturing arm for several independent companies and works with a network of independent dealers.

END USERS HAPPY

Todd Zeplin, co-owner of Collier's Heating & Air Conditioning in Fort Wayne, an installer of geothermal products for residential and Commercial use, worked at WFI before opening his own business. Initially Collier's sold WaterFurnace products along with other less expensive brands.

"We have lots of WaterFurnace competitors," he says. "We did try to differentiate ourselves from them by selling different products. It just didn't pay off for us."

Today he sells WaterFurnace brands exclusively, and is the single largest dealer of WaterFurnace products. "WaterFurnace is easy to do business with," Zeplin says. "Their products are reliable. Their warranty failures are very low compared to the industry And they offer more technical support and training for all my employees. Once we sell the product, we know we are going to have happy, satisfied end-users and customers that promote us and give our name out to friends and family"

Zeplin believes WFI's success is a result of remaining steadfast to the qualities that got them where they are today "To me that is a sign of loyalty to their customers. They've got a commitment to their customers to always improve the product and be the best product out there."

Gary Holt, co-owner of Westfield-based Precision Comfort Systems Inc., an installation contractor, has been installing WaterFurnace products since the company was founded. "The whole geothermal technology caught my eye back during the Carter administration when we had the oil embargo," he explains. "I felt there was an opportunity there, and just dove into it."

He says geothermal is really "catching on." "Seven or eight years ago, a good year meant selling 30 to 40 [geothermal] furnaces. We are up to 175 per year now."

Holt has continued to sell WFI products over the years because of the quality. He also likes the fact that the products are "made right here in Indiana." He credits WaterFurnace's marketing strategy for the company's success. "I think their approach on the marketing side has just been phenomenal," he says. "The big-buck companies ... are eliminating salespeople and increasing the territories of the remaining salespeople. WaterFurnace has maintained local representation, so our sales reps are dialed in to what's going on in our area. Everybody in the WaterFurnace dealership network is well-trained, and has a lot of marketing support."

GROWING AWARENESS

The company's tagline--"Smarter from the ground up"--was developed by Fort Wayne-based advertising firm LaBov & Beyond in response to a survey given to WaterFurnace customers and employees. The top reasons cited for purchasing WFI products were: they are more efficient, quieter, safer (no gas used), last longer, require less maintenance and are better for the environment.

"When they did the research, the environment was generally ranked as No. 3 or No. 4," Ritchey says. "But in the last year it has jumped to the No. 1 reason. Homegrown energy is what people are interested in now."

That goes for investors as well. The company, which is currently growing at 20 percent or more per year, attracts investors who want a "green portfolio." Eight-and-a-half years ago the stock, traded on the Toronto Stock Exchange, was trading at 48 cents per share. In July the value was $26.65 per share--a 50-fold increase. It pays dividends of 16 cents per quarter.

WFI has been one of the top 10 stocks on the Toronto Stock Exchange for the last five years. It is also listed on the Ardour Global Index, the index of top-performing green stocks worldwide.

"When people are aware that fossil fuels are in short supply, or when they become expensive...we do well," says Ritchey. "Lots of attention being paid to the environment also helps. Right now these are good times for us because there is so much attention to global warming and greenhouse gases, and we are one of the solutions to that."

How it Works

DURING THE HEATING CYCLE, a geothermal system uses an "earth loop" of small diameter underground pipes to extract heat from the ground. As the system pulls heat from the loop it distributes it through a conventional duct system as warm air. The same heat energy can also be used for a radiant floor system or for hot water heating.

In the cooling mode, a geothermal system reverses the process. Heat is extracted and either moved into the earth loop, or used to heat water. Once the heat is removed, air is distributed through the duct system.