Frugality is often used as a pejorative in the business world. Fastenal CEO Daniel Florness wears it as a badge of honor, pointing to his plain office and explaining that too many people confuse frugal with cheap.
He also considers frugality key for Fastenal, which puts an emphasis on getting closer to customers and prioritizes its spending accordingly.
“Frugal is the further we get from our customer, the less willing we are to spend money. Because we really have to understand how that dollar spent helps our customer,” Florness tells The CEO Magazine. “Our motto as an organization for the last 50-some years has been ‘growth through customer service’.”
Our motto as an organization for the last 50-some years has been ‘growth through customer service’.
Fastenal’s famed frugality hasn’t slowed the company’s growth since its founding in 1967. It also hasn’t impeded its expansion since Florness became CEO in 2015, with sales doubling and its international presence mushrooming despite the COVID-19 pandemic.
Minnesota-based Fastenal is a United States leader in the wholesale distribution of industrial and construction supplies. Traded on the Nasdaq exchange, the company has evolved from a small-town shop selling fasteners to operating around the world.
Founder Bob Kierlin started the business with US$30,000 cobbled together from his savings and four friends. He originally envisioned custom vending machines dispensing nuts and bolts but encountered technological limitations.
Today, Fastenal operates around 1,500 branch locations. That’s 40 percent fewer than a decade ago, according to Florness, who has turned the focus toward opening on-site locations. Such operations allow Fastenal experts to work on-site with customers – rather than another location off-site – quickly replenishing inventories as needed and optimizing supply chains.
“It really has transformed our business over the last seven-to-10 years and put us in a position to find deeper success in the marketplace,” Florness says.
Fastenal has rolled out the vending machines envisaged by its founder back in the 60s. Its FASTVend solutions help organizations with inventory management, improve access to merchandise and reduce unnecessary consumption.
When we solve problems it isn’t this group of people at some faraway corporate office that’s solving problems.
Its international business broke the US$1 billion barrier in revenue last year. And the company has pushed ahead with digitalization. Some 50 percent of its business is now digital, a figure Florness expects to continue growing rapidly.
“It’s really about how you engage and communicate with your customer and finding ways to pull more of their needs through our network rather than push it through,” he says. “Because it’s a much leaner concept and it allows us to be operationally more efficient.
“You can offer better prices in the marketplace to your customers. You can also reward your employees more in the process and grow the business faster. And our shareholders win when those three things happen.”
The Fastenal culture of corporate frugality started with its founder. Inc. Magazine named Kierlin the cheapest CEO in America, noting that he owned six suits, which he purchased used from a men’s store manager.
“Frugality is an attitude you develop. Once you have it, it sticks with you in everything in life. You don’t have to think about it,” Kierlin told the magazine.
“Kierlin had a genuine distaste for taking on debt, so we learned to be very frugal from day one,” Florness says.
Florness started with Fastenal in 1996 as CFO after 10 years as a public accountant with KPMG.
He was tapped as CEO in 2015 – reflecting the preference in Fastenal for promoting from within as well as the company’s commitment to developing leaders through an in-house corporate university.
“It’s all about, develop yourself, develop others and then create that direction. Next, align the resources and people and provide commitment to that end. That’s what a leader does,” Florness says.
“If I look at leaders throughout the organization, our senior leadership, the average of the group is 20-plus years’ experience in the organization.”
We’re challenging each other to provide the greatest supply chain to that end customer.
Florness explains that it’s a hallmark of the organization that there is nothing too sacred to talk about and work through. “There’s genuine trust through the organization that I think carries us through in that type of period,” he says.
Fastenal has also fomented a culture of decentralization.
“It empowers people to make decisions, and that means you can make mistakes. That’s an expected part of learning,” he says. “When we solve problems, it isn’t this group of people at some faraway corporate office that’s doing it. We’re solving problems at the point of engagement with our customer.”
Securing Supply Chains
The COVID-19 pandemic offered a rude reminder of the importance of securing supply chains, a concept Florness is promoting among his customers and suppliers.
“When chaos is going on, where do you have to spend your energy and where can you not afford to spend your energy?” Florness asks.
“What we try to do is bring together that group of products that our customer doesn’t have to worry about when things are chaotic, so they can focus their energy in other places.
“That’s the concept of securing.”
Fastenal courts close relationships with suppliers – just as it does with customers such as Fluke Corporation, which is renowned for its test, diagnostic and measurement tools.
“We’re open and honest,” Florness says. “I would expect a supplier to challenge us to help them find success, just as we would challenge them to help us find success.
“Both of us, in that challenging conversation, should ultimately be looking at the customer that’s ending up with that product, that widget. And we’re challenging each other to provide the greatest supply chain to that end customer.”