The Cheapest CEO in America

For all its tightness, however, Fastenal is still a growing company. It invests wisely in equipment and technology. The company will shell out about $8 million over the next year and a half on a computer system to increase efficiencies. Fastenal's fleet of trucks is mostly new; it doesn't want to see vehicles break down and customers fail to receive deliveries.

Although they're tightfisted in their personal lives, Kierlin and Slaggie are anything but cheap with their Fastenal fortunes. Along with Fastenal's three other cofounders, in 1987 they established the Hiawatha Education Foundation, which has invested handsomely in Winona's private schools. Money from Hiawatha, now worth nearly $50 million, has gone toward upgrading computer systems and funding scholarships, among other things. At Cotter High School, a private Catholic school that four of the company directors attended, Hiawatha gives graduating seniors an average of $4,000 apiece for further education.

But Is Cheapness Good?
Is this obsession with saving dollars and cents really worth all the effort? The advocates of scrimping are unequivocal. Cheapness increases profitability, they say. It keeps companies slim. It puts cash in the bank for future growth. And it gives businesses an advantage over their spendthrift rivals.

While many cost-cutting ideas are obvious (flying coach instead of first-class, eliminating extravagant expense accounts), true cheapness, the argument goes, is more than that. It is a mind-set, a willingness to hunt for excess fat at every level of an organization. All the time. It requires constant vigilance and hard work. It is understanding that watching pennies and nickels will save dollars.

Of course, most successful start-up CEOs are to the ways of the cheapskate born. They have to be. With money scarce, they scrutinize every expenditure, no matter how small. But as companies grow so, too, does their appetite for amenities. CEOs often become greedy. After years of sacrifice, they may come to believe they deserve to stay in four-star hotels, earn big money, drive fancy company cars. Their quest for the good life spells the end of leanness and marks the onset of corporate bloat. Not surprisingly, most U.S. companies grow in girth as they age, just like the CEOs who run them.

Cheapness should not be confused with stinginess. Cheapness is smart. Stinginess is stupid. A cheap company spends money when it has to. A stingy one doesn't. "If you hack away at costs incessantly, quality can begin to suffer," says Professor Eric G. Flamholtz of the John E. Anderson Graduate School of Management at UCLA. "Maybe you don't have a quality-control program, and somebody drinks your product and gets sick. You can carry low cost too far." Nor is cheapness synonymous with downsizing. A cheap company would never become so obese that it had to shed workers. Cheapness is proactive. Downsizing is reactive.

On the other hand, foes of frugality argue that its value is overstated. According to them, too many companies temporarily drive up their quarterly earnings by failing to invest in people and technology. That, the anticheap contend, might placate Wall Street analysts--but in the long run, cheapness can render companies noncompetitive. A company cannot survive on cheapness alone. Without good products, marketing, and distribution, cheapness means little. It is but one of several ingredients needed for success. Some question even that.

"It's a good thing to strive for, but it isn't the source of a sustained competitive advantage," says Clayton M. Christensen, associate professor at Harvard Business School. "You can become more profitable by putting your corporate headquarters in a cinder-block building, staying in Motel 6s, and eating at fast-food restaurants. But other companies can do the same. And as soon as they do, what advantage do you have?"

Plenty, if Fastenal's record is any guide. And Kierlin is happy to let that record do the talking and to leave the management-style debates to others. Sages and fads don't interest him. Fastenal's ways, he likes to say, are just the product of good old-fashioned common sense. "We've never really cared how everybody else does things or tried to follow them," he says. "We've found that hard work and good thinking have led to the best possible results."

What Kierlin's modesty prevents him from saying is that cheapness is more powerful than its doubters imagine. Fastenal's obsession with costs promotes a kind of attentiveness to the mundane that inevitably improves quality and increases efficiency. What's more, it spreads accountability and responsibility everywhere. In a culture like Fastenal's, you don't call somebody else to fix a problem; you fix it yourself.

The Shack at the End of the Road
To the experienced cheap hunter, Fastenal's headquarters is gold. A functional two-story concrete building with blue trim, it is practical, austere, and solid, just like the men and women working inside. The clanging of metal and machinery reverberates through an adjacent warehouse, notable for its clashing orange, white, and tan shelving, which Fastenal purchased used for 25¢ on the dollar. Signs decorate managers' offices: "Expenses: Just Say No!"

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