#360 Robert Kierlin: Founder of Fastenal

**David Senra** (0:00)
Organizations succeed to the extent that all of their members pursue a common goal. Everything in this book goes back to that idea. It goes back to the idea of keeping the main thing, the main thing and how this is a very simple and powerful idea that's excessively hard to practice over a long time because it goes against human nature. It's in our nature to drift and complicate things. And the founder of Fastenal, Bob Kierlin, built his entire company building thesis around that idea. Keep everybody in your organization pursuing a common goal. And then Bob uses this book to defend his ideas, but it's laughable that his ideas even need to be defended. His numbers speak for themselves. How the hell does a company selling a commodity product? He says in the book, he had no advantage on products. Yet that same company was able to compound all the way to a $38 billion market cap and is one of the best performing stocks over the last quarter century. I'm friends with the co-founder and CEO of Ramp Eric and I was texting him about this book and this incredible company while I was reading and researching this episode. Because Eric is keeping everyone in his company pursuing a common goal that would make history's greatest founders proud. Ramp is building the world's best tool that gives you everything you need to control your spend, watch your costs and optimize your financial operations on a single platform. So this is what I texted to Eric. It describes why this obsession with cost control that Fastenal has turned into a massive advantage that fuels other things. So it says, anyone who claims that expense management frugality is not a competitive advantage should pull up a long-term chart of Fastenal's stock price and see how a company that sells nuts and bolts and keeps costs low, somehow has been able to eat their competitors' lunch for decades. This is this very virtuous flywheel that begins with keeping operating cost and watching costs very low. By keeping operating costs very low, Fastenal is able to pay their employees incrementally higher wages, and thus more effectively develop and retain talents and salespeople. The quality of service and depth of knowledge that the employees have eventually brings in more revenue, which grows the business and allows it to further lower operating expenses as a percentage of revenue, thus allowing for more hiring of top quality employees, which brings in more revenue. This creates a virtuous circle of sorts. I can read that paragraph, filter through the 360 biographies of history's greatest entrepreneurs I've read so far for the podcast, and summarize it even better. History's greatest founders knew that watching your cost was the foundation on which other competitive advantages can be built. That is why so many of the great founders made cost control an obsession. Ramp helps you do the same. Ramp gives you everything you need to control your spend, to watch your costs, and to optimize your financial operations on a single platform. Start building your competitive advantage by going to ramp.com and sign up. That is ramp.com.
Since its founding in 1967, Fastenal has grown from a small fastener store in Winona, Minnesota, into a multi-billion dollar global organization. The company is known for its exceptional leadership, innovation and success. Fastenal was the top performing stock in America during the quarter century that began with the market crash of 1987 How did a small town nuts and bolts shop become one of the world's most dynamic growth companies? Whenever asked, company founder Bob Kierlin attributes fast and all success to the company's high quality employees and their commitment to a common goal. This is something he's going to repeat. That is his main idea, the one he repeats most throughout the entire book. That your company should be organized and oriented around a commitment to a common goal. And this is their common goal. Growth through customer service. So whenever asked, company founder Bob Kierlin attributes fast and all success to the company's high quality employees and their commitment to a common goal. Growth through customer service. The company is organized in order to serve those four words, growth through customer service. Underlying that simple answer is an unshakable belief in people, that ordinary individuals can accomplish extraordinary things if given the opportunity. In 1997, Kierlin published this book in an effort to share the unconventional business practices that stem from this philosophy and fuel fastenals success. The ideas presented within these pages flew in the face of the prevailing business wisdom at the time, and they remain every bit as relevant and challenging today. The original idea was to provide a teaching tool for future generations of fastenal leaders, but to anyone with the courage to unleash the vast human potential within your business, organization, team or group, welcome. That is an excerpt from the back cover of the book I'm going to talk about today, which is The Power of Fastenal People and is written by the founder of Fastenal, Robert Kierlin. So the way I would describe this book is it's a cult classic, it's hard to find, and it's about a compounding machine. I'm going to read from the acknowledgments, preface and introduction, all of which are very short. What I love about Robert is he gets right to the point. And then I'm going to put the book down briefly and give you an overview of this very unique company. So I want to give you a little background first on Bob Kierlin. He was the founder. He's still alive. He founded Fastenal in 1967 and served as the co-founder and CEO for 35 years. So Fastenal is going to grow from one 1,000 square foot location in 1967 to over 3,400 stores by 2023 They are doing like $7.5 billion a year in sales, and their market cap is almost $40 billion. Before founding the company, Bob got a degree in mechanical engineering and then also an MBA. And so in the acknowledgment section, and he tells us exactly why he's writing the book and what this is all about. The content of this book derives from what people have taught me, sometimes in classes, but more often through their example. My parents were my first teachers. Those that followed in grade school, high school, and college added to my knowledge. I was privileged to observe good leaders in my early business career. Perhaps I was also privileged to observe some bad ones too. I learned from them all. And the need to write this book derives out of these two sentences. I am aware that Fastenal is a unique organization. Fastenal succeeds because its people succeed. And so, it's very obvious as you start to read this book, there's a lot of Buffett and Munger-esque things in it. And that popped out of me from the very first page because he's going through all the people he had to think to write the book, but then he says something like this. No need to thank any typist, however. Every little character was entered by one of my fingers into a computer at home. One of Charlie Munger and Warren Buffett's favorite founders is this guy Les Schwab, who I've done two episodes on. Les Schwab writes this incredible autobiography, which again is short and to the point, and Les starts that book with this sentence. I did write this 100 percent with my 40-year-old typewriter. I did not have a ghostwriter. I wanted it in my own words. And so there's going to be a lot of things that Bob believes in and the traits that he has, is there he's going to share in common with a lot of Buffett and Munger's favorite founders. He talks about the fact that, hey, you know, this is the updated version. And so he's like, I wrote this book 20 years ago. Since then, our sales have actually grown by a factor of 12 And I think it's even higher now. But he says it all comes from this basic belief that has provided the fuel for this growth. And it's Bob's heartfelt belief in people and their ability to do great things if given the opportunity. Now think about how crazy this is. So he first wrote this in 1997 This updated version is printed 23 years later. So think about all the technological change that has occurred in that 23 year period, although the applications of new technology such as the internet, smartphones, barcodes, vending, and automated stocking have changed the how of industrial distribution, which is their business, okay? The technology has changed the how. They have not changed the why of a distributor's success. Success still stems from the ingenuity, risk-taking, and hard work of people working together as a team. And he goes back to his... Really, he has one idea, is the way I would say this. We continue to pursue our common goal, and we continue to find ways to bring out and use the potential of our people. I'm not sure why, but when I got to that sentence, or that paragraph rather, where he's talking about, listen, the technology is going to change. Technology that influences your business may change the how of how you deliver your service, but it will not change the why. Michael Bloomberg in his autobiography said something that is very interesting. He says, a lot of companies mistake their product for the device that delivers it. Listen to this. This is from Bloomberg's autobiography. The technology that we pioneered in the early 1980s has long since been ancient history, but we never made the error that so many others have, mistaking their product for the device that delivers it. Kodak thought that they were in the camera and film business instead of the photography business. The digital photography revolution passed them by, and after more than a century as one of the most innovative companies in the world, they filed for bankruptcy. At Bloomberg, we got out of the business of building physical computers as soon as PCs began taking off. We knew our core product was data and analytics, not hardware. Do not make the mistake of confusing your product for the device that delivers it. And then he ends the preface with repeating this main idea. The first requirement to have a successful organization, the need to have every member of the organization pursuing a common goal. He already said what his common goal on the very back cover, growth through customer service. And then he continues about the fact that he was a reluctant author, that he had to be pushed to write this book. And the reason he did, I love, he says, I became more aware that the people principles we practice at Fastenal are uncommon and they're in need of defense. This book has only one purpose, to support ideas that don't seem either common or accepted. These ideas come from my experiences in life and are offered to younger people with the hope that by understanding them here, they can avoid needing years to learn from their own experience. These examples come mostly from my 47 years with the Fastenal Company. So this is what I love about autobographies. You know, he has almost half a century of experience. It's almost like having to read this book or to listen to the podcast. It's almost like having a one-sided conversation with somebody who has 50 years of entrepreneurial experience. Fastenal is a people-centered company. Fastenal has no unique product and no unique process, but it has some ideas about people that are at least uncommon, and if not unique. So I want to put the book down briefly. Remember, what is the title of the book? The Power of People, The Power of Fastenal People. So I'm going to give you this company overview and a story about the CEO that succeeded Kierlin and Warren Buffett that I think, just knowing all this at the very beginning, I think will make the ideas that he repeats over and over again, that Bob repeats over and over again in the book very important. What's the most important part of Fastenal's success? That outsiders discovering the company for the first time don't understand. The number one thing is the people aspect. The goal is to unleash entrepreneurial passion, a commitment that I will be self driven to do better than what you can expect. It is a mindset. This is what they're telling their employees. Run your business like you own it. When you trust people to solve problems and make decisions, you let them go and you let them go. That's where magic happens. That is the story of this company. Fastenal embraces a spirit of radical decentralization and autonomy. Each of its 2,700 stores operates as a standalone business with a clear leader and full P&L responsibility. We grow from the ground up based on the actions and decisions of thousands of people who run their businesses like they own it. I want those people to stay with us forever. They will never have to stop at a certain level. You may have to move. You may have to learn a new market category, but there will always be opportunities here. We call ourselves a blue collar sales company. When our folks in the stores are doing it right, customers say, this guy knows my business better than I do. We don't care where we went to school. We care what they can't teach in school. Wisdom, savvy, entrepreneurial spirit. We want to know our customers' businesses so well. What they spend, how they could be more efficient, that they can't imagine doing business with someone else. We are not one giant organization. We are 2700 small businesses. So keep in mind, this is what I'm reading from is about 10 years old. So now they have over 3400 We are not one giant organization. We are 2700 small businesses wrapped up into one big company. Society tells us, you're a big company. Act like it. We say no. You don't get to define us. We define ourselves. We go against the grain in almost everything that we do. And so there's just crazy stats about the company that more than 95% of our current batch of general managers have been promoted from within. For nearly all of our senior leaders have worked their way up from entry level positions. So that leads into the second thing I want to tell you about, which is this interview with the CEO that had succeeded Kierlin, Kierlin or Bob, we'll call him Bob, when he stepped down. His name is Will Obertin. Obertin started out at Fastenal as a store clerk. So he went all the way from, they mean business. They went all the way from store clerk to CEO. And so what I'm reading from, I found this out after I finished the book, because I'm like, it's just obvious. I wonder if Buffett and Munger have ever talked about this company or the way they are about the founder or anything like this. And it turns out when you search, it's like, oh yeah, Buffett would bring up this company in interviews. And so I just want to pull out a couple of things from this interview with the CEO. So it talks about what Fastenal is. It's North America's largest wholesale and retail distributor of nuts, bolts, hand tools and other supplies to the construction and manufacturing markets. It has built a loyal following among customers through quality and service and won countless fans on Wall Street for its thrifty, no-nonsense ways. Warren Buffett is an admirer, having praised Fastenal in an interview. He loved its robust financial performance and its straightforward business plan. This is their business plan. Boosting sales by adding customers and increasing its interaction with them. The unexpected shoutout prompted Fastenal CEO Will Oberton to trek to Omaha to have lunch with Warren Buffett. The two cost-conscious bosses hit it off. We talked about the importance of sticking to the basics. And one thing they talk about is that the CEO is not afraid to get his hands dirty. In fact, this is something that Bob preaches throughout the book. So you know, he'll jump in wherever is needed and the commitment that he has. So let's say they're behind, he'll go help with deliveries, he'll help with sales, he'll help with customer service calls. He actually, the CEO actually earned, went through the process of getting a CDL, which is the commercial truck driving license. So he could pitch in when truck drivers are sick. And so there's another description of Fastenal that talks about the fact that, when Buffett realized that, it says the two cost conscious bosses hit it off and how having a low cost structure is actually a major competitive advantage because all the other things that it fuels. And so it says anybody who claims that expense management and frugality is not a competitive advantage should pull up the long-term chart of Fastenal stock price and see how a company that sells nuts and bolts and keeps costs low somehow has been able to eat their competitor's lunch for decades. This is the virtuous cycle I think that Buffett realized as well. By keeping operating costs very low, Fastenal is able to pay their employees increased incrementally higher wages and thus more effectively develop and retain talented salespeople. The quality of service and depth of knowledge that the employees have eventually brings in more revenue, which grows the business and allows it to further lower operating expenses as a percentage of revenue, thus allowing for more hiring of top quality employees, which brings in more revenue. This is an overlooked virtuous circle of sorts. And then one last thing before I pick back up the book, my friend Ray Matty and I were texting about this. So Raym is the one, he does the Raymakers podcast, he's a phenomenal researcher. He's also the one, this book is really hard to find, so he's actually sent me this book. And after reading it, he came to the same conclusion that I did. And he says, I realized how much Bob embodied the mongerisms on incentives and how he only focused on how he can make Fastenal the best company to work for. The results speak for themselves. $38 billion market cap for a company selling commodity products. And then he picks up on something that Bob says himself, it's crazy to me how stuff like this is kind of common knowledge, but people don't really apply it.