The Cheapest CEO in America

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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."

A former insurance agent, Slaggie knows when insurance isn't needed. Fastenal carries no collision protection on its 1,100 pickup trucks. According to Slaggie's calculations, it doesn't have to. "Collision premiums would run us more than $300,000 a year, or $273 a truck," he says. "We can lose 20 trucks this year, complete losses, and we'd break even. We're guessing that's not going to happen." Similarly, Fastenal carries a $75,000 deductible on each of its stores. Risky? Perhaps. But a $75,000 deductible costs significantly less than a $1,000 deductible. "We'd have to have a total loss in two stores in the same year to say we'd made a bad decision," Slaggie says. "We're better than that." Last year Fastenal saved $300,000 through self-insurance.

Fastenal expects to earn $400,000 this year from a new freight-for-hire program--transporting other companies' goods in Fastenal trucks. The company now saves up to $100,000 each month in delivery costs by picking up products itself from vendors, mostly in and around Chicago. Fastenal trucks on the road are rarely empty.

Costs are slashed everywhere. In May, Kierlin and chief financial officer Dan Florness could easily have taken a flight to a conference in Chicago, a little more than an hour away by plane. Instead, they drove five and a half hours in a van, saving Fastenal hundreds of dollars. They lunched at A&W, feasting on burgers and root beers. (Cost: $5 a person.) They spent the night at a motel in Rockford, a Chicago suburb, to avoid the high city prices. The pair even shared a room. "This sends a message that cost control is important to everybody in the organization," Kierlin says. "By being attentive to all expenditures, you can really set the example at the top."

Employees at some companies might dislike a guy like Kierlin. They would consider him a killjoy and call him Scrooge. At Fastenal they respect him. "He never talks down to people, and he treats everyone with equal respect, whether they're a janitor or vice-president," Fastenal vice-president Will Oberton says. "Bob comes to work at 6 a.m., which shows he still cares. It would be real easy for him to put his feet up on a desk and let everyone else do the work, but he'd never do that."

The team Kierlin has assembled shares his values. Fastenal workers realize that cheapness helps the bottom line, which fattens paychecks. Coming from the same kind of modest background as the CEO, they are frugal both on and off the job. Like Kierlin, employees appreciate the value of a buck. "I wouldn't know what to do if I walked into one of those pricey hotels and someone offered to take my bag," says marketing manager Bob Strauss, a 20-year Fastenal veteran. "I can carry my own bag and park my own car."

Kierlin's frugality and employees' attitudes only partially explain the Fastenal cult of cheap. The management enjoys no special privileges. Not even Kierlin has a private parking space. That social leveling has created a bond between workers and executives. Borrowing a page from Adam Smith, Fastenal motivates workers by appealing to their pocketbooks. Every full-time employee participates in a profit-sharing plan that rewards cost cutting.

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