The Cheapest CEO in America

Corporate Culture

It took a cross-country search, but we found him--plus some truths about frugality you might not expect

Captain Kirk searched for Mr. Spock. Monty Python searched for the Holy Grail. I searched for the cheapest company in America. It wasn't easy. I surfed the Net, perused business journals, called financial reporters across the nation, and harassed my colleagues for possible leads.

After nearly two months of running up Inc.'s phone bill, I had my shortlist--a handful of the most bone-tight business builders in the country. It was time for me to get on the road. "Have fun; enjoy yourself," advised editor-in-chief George Gendron, not without irony. My mission: six companies in five states in eight days.

In Louisville, I saw Tova Industries, a manufacturer of dry food mixes, whose used equipment and shrewd negotiations with suppliers keep operating costs minuscule. Tova impressed me. So did Keller Manufacturing Co., in Corydon, Ind. The solid-wood- furniture maker saves an estimated $75,000 a year by gluing together boards split by humidity. In Knoxville, Tenn., I found Regal Cinemas, the nation's fastest-growing theater chain. With its combination of cup-counting micromanagement and incentive programs, Regal wins the Academy Award for cheapness in the theater industry. Says president and CEO Michael Campbell, "We operate as if we're losing money every day."

But good as these companies are, and they're damn good, a midwestern nuts-and-bolts outfit is better. Fastenal Co., the pride and joy of Winona, Minn. (pop. 26,656), is to cheapness what Michael Jordan is to basketball: the best ever. This is the story of Fastenal and its leader, Bob Kierlin, winner of Inc.'s 1997 hunt for the cheapest CEO in America.

And You Thought You Were Cheap
Bob Kierlin loves a bargain. he's the type of guy who clips coupons from the Sunday paper and orders Extra Value Meals at McDonald's. He would never pay retail.

Frugality touches all aspects of his life. Kierlin, 58, eschews all small talk, speaking only when he has something to say. He drives an Oldsmobile and has taken home the same $120,000 yearly paycheck for the past decade, even though the Fastenal board has repeatedly authorized an increase for him. His office reflects his unpretentiousness: used furniture, a few photos of loved ones, and a PC, which he uses to type his own correspondence. He has no personal secretary.

And then there are his suits. At a discount store, they'd probably go for $200 apiece. But Kierlin didn't buy them there. He got them from the manager of a men's clothing store. Not from the manager's store. From the manager. The suits are used. "Luckily, we're the same size," says Kierlin, a triumphant smile crossing his face. "I picked up six of those suits for 60 bucks each."

Kierlin can afford new clothes. In fact, he can afford a fleet of BMWs, a Beverly Hills mansion, and maybe even his own professional baseball team. Kierlin, CEO of Fastenal Co., a hugely successful distributor and producer of nuts and bolts, is a very rich man. As Fastenal's largest individual shareholder--he owns nearly 12% of the stock--he is worth $248 million. That's a lot of suits.

The Fastenal Ethic
Is cheapness good? or is it just a quick fix, a touch of blush that rubs off in the morning? Either way, what we know for certain is that nobody does it better than the plainspoken, hardworking Kierlin.

In 30 years Kierlin's Fastenal has grown from a fragile start-up run out of a 20-foot-wide Winona storefront to a national powerhouse that operates 560 stores in 48 states, Canada, and Puerto Rico. The company sells and custom manufactures 49,000 types of nuts and bolts, as well as safety supplies, tools, and other industrial products. Fastenal's extensive product line, combined with its excellent customer service, has made it one of the hottest companies of the past decade. The $287-million company has posted a compound annual growth rate of more than 30% and an earnings growth rate of more than 35% since going public, in 1987. Net earnings in 1996 hit 11.3%, compared with 5.9% for industry heavyweight W.W. Grainger Inc., a distributor of maintenance, repair, and operating supplies based in Lincolnshire, Ill.

The company Kierlin runs--a place where scratch pads are fashioned from used paper and a little glue--very much embodies his values. Kierlin doesn't just worry about operating costs; he obsesses about them. "Being careful about your expenditures, whether large or small, requires a total commitment," he says. "Either you do a good job of cost control in all aspects of your business, or you start losing it."

Cost cutting comes naturally to him. The youngest of five children, he swept the floors of his father Edmund's auto- parts store at age 7 and worked behind the counter at 11. His folks never ate out; they couldn't afford to. Vacations consisted of afternoons in the local park. During his college years, he spent weekends with his family in Winona and returned to the University of Minnesota in Minneapolis with enough sandwiches and cookies to last him a couple of days. "Frugality is an attitude you develop," Kierlin says. "Once you have it, it sticks with you in everything in life. You don't have to think about it."

Cofounder Stephen Slaggie feels the same way. Working alongside his childhood pal Kierlin, Fastenal's corporate secretary has helped save the company millions through risk management, his area of expertise. Along the way, Slaggie has accumulated a nice chunk of stock. Not that the money has changed him.

"My college dream was to own a Corvette," says Slaggie as he drives by a row of the sporty cars. "I could buy one now if I wanted, but I just can't do it. It seems like a lot of money for a car." Slaggie's stock is worth $121 million.

How Fastenal Stays So Slim
Fastenal finds all sorts of ways to save money, both big and small. The company offers no 401(k) plan. ("I believe people should be paid all their rewards up front and make their own choices on how to spend their money," Kierlin says.) Fastenal also offers no stock options and no meal per diems for business travel. ("Hey, you're gonna eat anyway," says Slaggie.) It has never purchased an airline ticket for more than $400 and belongs to no trade associations. Money for the annual Christmas party comes from the "pop fund," profits generated by company vending machines. Some Fastenal furniture is secondhand, often purchased at government auctions. The company produces annual reports in-house for 40¢ a copy, a small fraction of what other companies spend. "There are always ways to save money," says Slaggie. "We're never satisfied."