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Zoot suits entrepreneur – CEO Chris Nelson says technology has removed any hindrances of doing business in Montana.

Single dad abandoned 9-to-5 grind to invent high-tech method of gathering and analyzing credit data

By Stories JO DEE BLACK
Stories Tribune Staff Writer

http://www.greatfallstribune.com/news/stories/20040118/localnews/249485.html

Most days, the $18.2 million, 155,000-square-foot brick building west of Bozeman that belongs to Zoot Enterprises http://zootweb.com has the abandoned look of a college campus during spring break. The parking lot is bare except for a couple of vehicles and a stray pickup.

It’s a deceiving setting for a growing company with more than 100 employees and a computer system that processes 150,000 credit applications a day instantly for customers such as Bank of America and Wells Fargo.

"I just tell people I hire children and they don’t drive yet," said Zoot’s founder, Chris Nelson, 42.

He’s kidding, sort of.

Zoot employees park in a 95-stall indoor lot in the three-story building’s basement. They’re old enough to drive and the bulk are in their 20s, a different demographic from most other industries in the state. According to the last census, almost half of Montanans in the work force are baby boomers between 35 and 53 years old.

While some of its high-tech peers in the Gallatin Valley deflated during the tech bubble burst and recession of the early 2000s, Zoot grew. This year Nelson plans to expand by at least 10 workers.

Zoot’s growth spurt was not painless, but demand for the company’s core product — gathering and analyzing credit information in seconds using a program Nelson developed — is strong.

If the tech company’s sister business, Zoot Properties, can iron out a water-rights flap with neighbors in the rural Four Corners area, 160 acres surrounding the headquarters building — dubbed Galactic Park — may one day be filled with private homes, condominiums and other businesses. Electricity for those homes and businesses will come from a pair of environmentally friendly and highly efficient fuel cells.

Not a bad spread for a single dad from Billings who quit his day job 14 years ago because he wanted to be able to take his son to school in the mornings.

Montana grown

Nelson grew up in Billings, the son of an insurance salesman. He earned degrees in accounting and information systems from Montana State University-Billings, then went to work for a bank.

Nelson divorced when his son, Shawn, now 22, was 2 years old. The pair moved to Bozeman in 1988 when Nelson took a bank services job on the promise he could cast off suits and ties and have a flexible work schedule.

"When we moved to Bozeman it was 40 below zero. I had rented a basement apartment and we were stuck there," Nelson said. "My son was 8 and I just kept apologizing for getting us into this."

The weather warmed, but Nelson’s jeans and routine of coming to the office after 8 a.m. so he could drive his son to school received a cool reception from managers at his new job.

"I ended up hating working there, that’s what really got me started exploring ways to go into business for myself," he said.

That chance came when the Credit Union National Association hired Nelson to moonlight. They wanted a program to allow credit reports to be available via personal computers. At the time, most credit reports came over teletype machines.

Nelson wrote the program and incorporated data and logic tools, providing the ability to program rules and automate the credit decision-making process. Customers’ own credit criteria, such as income, history of past due accountants and debt load, can be inputted into Zoot’s program.

He kept the rights to the program and started peddling it to companies he’d met during his banking career.

The first taker was Valley National Bank of Arizona, which had a new "Loan by Phone" program. Using Nelson’s program, the bank could process applications by phone for products such as personal lines of credit and automobile loans in 15 minutes.

American Express took notice and hired Zoot. Credit card applications that once took eight weeks soon took eight seconds to process, Nelson said.

More products followed. Today it’s likely that when someone in Kentucky applies for an equity loan online or a shopper in Texas applies for a credit card at a department store, the yes or no on those applications is cranked out in a fraction of a second at Zoot.

More room

As such projects bolstered Zoot’s reputation, Nelson found himself outgrowing his status as a one-man show in his basement apartment.

He took on a partner from Arizona to market Zoot’s products and hired his son’s baby sitter, Warren Bauder, to help.

"I told him I’d pay a $1 an hour more than baby-sitting and teach him programming," Nelson said. "Two weeks after that I doubled his salary. Two weeks after that, I couldn’t run the company without him."

Today Bauder, who graduated six months early from high school but didn’t attend college, serves as Zoot’s chief technologist. It’s his job to chart the future for technology developed at Zoot.

Zoot hired other workers as well, doubling its work force every 18 months during its first decade. By 2000, employees were working out of five separate locations in Bozeman.

"It was one thing when we went from six to 12 employees, but it was a problem when we started going from 30 to 60," Nelson said.

Invincible building

Space limitations inside Bozeman’s boundaries prompted Nelson to look to the country. He bought 160 acres at Four Corners, east of Highway 191 just behind Valley Ice Garden, the home of Bozeman’s Ice Dogs hockey team.

"I never want to run out of room again," he said. "It’s too much stress and too expensive to keep moving the computer system."

Today that computer system is coddled behind terrorist-proof glass in an ultra-secure, temperature-controlled room. An exclusive group of Zoot’s workers have access.

Electricity from one of the company’s two fuel cells is dedicated to keeping the computer running and properly cooled. If that cell goes down, electricity from the other cell that runs things such as lights and employees’ desk top computers, will divert to keep the main computer running.

Zoot’s system is hooked up to NorthWestern Energy’s electricity grid just in case the fuel cells go down. There are also diesel generators and a battery back up.

If the Gallatin Valley is rocked by earthquake, Zoot’s employees will be pretty safe on the job. The building includes two seismic joints to allow it to rock and roll without crumbling to pieces.

Those features are included in Zoot’s sales pitch to be able to keep on running through blackouts, natural disasters and more.

Nelson’s cousin, Bruce Nelson, came on board to manage the building’s construction. Originally from Fort Benton, Bruce Nelson had been the head of the U.S. Department of Agriculture’s Farm Service Agency in Bozeman. The post is a federal appointment, so Bruce Nelson was out of a job after Democrat Bill Clinton left office in 2000.

The outside of Zoot’s building is modeled after Montana State University-Bozeman’s Roberts Engineering Hall. Behind the enormous glass front doors lies a marble and oak lobby, with an open-glass staircase leading to a balcony on the third floor.

Zoot’s fireplace-accented boardroom sports a spectacular view of the Gallatin and Madison mountain ranges.

The craftsmanship is impressive

"We built a shop and milled seven miles of oak trim on site," said Bruce Nelson, running his hand over the woodwork.

Hitting a snag

Zoot’s new building consolidated employees under one roof and provides plenty of room for any expansion. But the project hasn’t been trouble free.

Protests to Zoot Properties’ application for water wells have held up that process for two and a half years. Until the matter is resolved, Zoot can’t subdivide or sell any of its land.

The company is trying to negotiate with the protesters now, but if that fails a hearing on the matter will be held by the Montana Department of Natural Resources. No date is set.

Ultimately, if the application is denied, Zoot will be able to run with a smaller domestic well.

However the company’s preferred plan is to sell lots for residential homes, with Zoot employees getting first dibs. They’d also like to build condominiums and sell lots to other businesses.

That snag and a strained relationship with the credit bureau hired to sell Zoot’s products, Equifax, created a financial crunch in late 2002. About a dozen employees were laid off.

Zoot ended its deal with Equifax in December — a partnership marked by lawsuits and countersuits over marketing issues and program rights. Those matters are settled and Zoot’s own salespeople are now selling the company’s products.

Style of its own

The subdivision issue continues to be a nagging distraction, but inside Zoot’s walls the mood is upbeat.

"We’ve been through hard times, to say the least, but morale is better and things are definitely turning around," said Penni Terry, who joined Zoot three years ago. She administers the security system and other networks.

Zoot is also a little weird, which isn’t surprising considering the name originated when Chris Nelson was a college student.

"I used to play computer pranks and sign them Zoot, but everyone knew it was me," he said. "Then I did some work for a credit union and they needed to make their check out to a business. I used Zoot and the bank cashed the check, so I kept the name."

Employees wear everything from knit caps and T-shirts to Carhartt vests typically worn by ranchers. Dogs and kids are welcome. Many clear out the lunchroom tables at noon to play volleyball. Most are under 30.

"This is a great bunch of people to be in a health insurance pool with," quipped Bruce Nelson, who is in his early 50s.

"It’s a blast, it’s such a diverse, unique culture," said Terry, 40. She worked in retail for 15 years before getting a computer degree. "Zoot is way outside the norm, the spirit of the employees is unique," she said. "We work with corporate America, but things here aren’t as stringent. This is like nothing I’ve ever encountered before."

Chris Nelson said Zoot’s culture is by design, intended to foster good ideas in supportive, casual atmosphere.

"I wanted the building to be like a college campus where people talk and exchange ideas," he said. "I don’t care when people work or what they wear, as long as they do great work."

Only in Montana

Zoot doesn’t have any customers in Montana, but there’s no chance of the company being uprooted, Chris Nelson said.

**************

Zoot Enterprises, Inc.

555 Zoot Enterprises Lane

Bozeman, MT 59718

Phone: (406) 586-5050

Fax: (406) 586-8005

http://zootweb.com/

**************

"You could never build this type of place in an urban setting," he said.

First, land is too expensive. And the miles and miles of telecommunications lines needed would mean miles and miles of paved city streets would have to be torn up.

Besides, being a big fish in a small pond means Zoot’s enjoyed help getting federal grants for its fuel cells and backing from the Montana Board of Investments for part of the loan it took out for its new building.

"I don’t know if we’d get the attention of the political infrastructure in a larger state," he said.

Having all out-of-state customers means some Zoot employees do a fair share of traveling.

"But a lot of our customers love to come here, too," Nelson said. "That’s why I want to build a bed and breakfast out here."

Nelson said technology has removed any hindrances of doing business in Montana.

"I couldn’t imagine living anywhere else," he said.

****************

Zoot sold on cells; innovative on-site source of power ‘wave of future’

http://www.greatfallstribune.com/news/stories/20040118/localnews/249487.html

There isn’t much to compare between what goes on at Zoot Enterprise’s stately $20 million digs east of Bozeman and King County’s South Wastewater Treatment Plan in Renton, Wash.

Zoot processes 150,000 credit applications a day. The treatment plant processes 30 million gallons of waste.

But each process is juiced the same way.

Zoot’s computer systems and lights run on electricity from on-site fuel cells — an alternative energy source touted by U.S. government officials and others as ultra clean and the wave of the future.

A new fuel cell at King County’s treatment plant will fire up next month.

Zoot and King County are both taking part in separate energy demonstration projects using fuel cells made by Fuel Cell Energy, a Connecticut-based company traded on the NASDAQ exchange under the symbol FCEL.

Zoot signed up because the company needs a reliable backup plan to keep its computer system running all the time – despite potential power failures. Zoot officials got the idea after looking at the fuel cell used by a customer in Omaha.

King County had a reputation for being involved in a number of demonstration projects using new technology in practical applications and was approached by a fuel cell manufacturer.

Zoot’s is the only fuel cell project in the state right now. Montana’s congressional delegation secured $1.5 million for the $2.2 million project in a 2001 water and energy spending bill.

The project has the attention of many Montana officials, including Great Falls Mayor Randy Gray, a college classmate of Bruce Nelson, Zoot’s development projects manager.

Gray toured the plant in December and was impressed. He said he hopes to investigate funding for a fuel-cell project.

In theory, Great Falls could tap methane gas from its solid waste treatment plant for a fuel cell and generate electricity.

Fuel cells generate electricity from an internal chemical reaction resulting when hydrogen gas is injected. The reaction is similar to what happens in a battery, but is constant since gas is continually put in.

Right now, fuel cells are expensive and almost all projects are underwritten with federal grants or other resources. Several companies, including Fuel Cell Energy, manufacture fuel cells in the United States.

"We don’t see government underwriting happening forever," said Fuel Cell Energy’s Steve Eschbach. "We have aggressive cost out plans and are always evaluating ways to make the units more cost effective. Clearly the focus is on making them affordable."

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