"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!"
Fastenal throws away little. Cheapness reigns supreme; it probably always will. The company's penny-pinching has created more than a few millionaires in Winona. Stock prices, when adjusted for splits, have soared more than 6,800%. "Frugality has helped make us profitable," Kierlin says, "and profitability is what you need to continue to grow."
Even the king of cheap, however, has his limits. In the old days Kierlin used to shovel snow at corporate headquarters and sort mail himself. He no longer does so, he says, because he has more productive ways to spend his time. Still, he collects free pens given to him by suppliers and uses them at the office, lest he waste company resources.
"Bob Kierlin's built himself a wonderful company with a wonderful return to shareholders, himself, and his employees," says Brian Woolf, author of Shrinking the Corporate Waistline: Hundreds of Practical Cost-Cutting Ideas from America's Cost and Profit Leaders. "He's the walking epitome of cost consciousness, which makes good business sense."
Indeed, the cheapest CEO in America is the embodiment of lesson number one from Inc.'s nationwide search for no-frills management: The fount of cheapness is simple common sense.
Which helps explain the finding behind lesson number two: that cheapness is a geographically concentrated phenomenon. It most often takes root in the Midwest and the South, America's heartlands, where old-fashioned values survive. It is no coincidence that the headquarters of Wal-Mart, Food Lion, and Fastenal are located in Bentonville, Ark.; Salisbury, N.C.; and Winona, respectively. "There's not a lot of haughtiness here," Slaggie says of Winona. "It makes no difference to your friends or acquaintances if you have a lot of money or a little money. It's who you are that matters. That might not be the same elsewhere."
But if that's bad news for would-be cheap artists on either coast, the final lesson from the cheap hunt is worse: If your company doesn't work this way now, it probably never will. Older companies with ingrained bad habits will find it difficult, if not impossible, to slim down. Admire Fastenal if you will; not every business can emulate it.
So the advantage goes to the start-up. "It's easier to do this up front than to try to dismantle an organization halfway through its maturity cycle," says author Woolf. "When you ask an overweight man to run a four-minute mile, you're asking an awful lot."
Marc Ballon is a staff writer at Inc.
Cheap-Hunt Runners-Up
Tova Industries
Louisville; $8-million, privately held dry-food-mix maker
The bulk of Tova's savings--about $200,000 annually--comes from smart purchasing. Zacky and Yael Melzer, the husband-and-wife team heading Tova, routinely play suppliers against one another. "Our goal is to get the best possible deal," Zacky says. Other big savings come from buying used machinery and, on occasion, building equipment. Zacky, who has a master's degree in mechanical engineering from the University of Louisville, recently designed an assembly line to fill and seal 50-pound boxes and bags. Savings: $17,000.
Regal Cinemas
Knoxville, Tenn.; $270-million theater chain
Some companies count pennies. Regal Cinemas counts cups. The company pays hefty bonuses to theater managers with high concession sales. But God forbid that a few soft-drink cups or candy bars should vanish. "We charge managers the retail price of a Coke against their commission," CEO Michael Campbell says. "If a manager's missing 100 small cups at $1.50 apiece, that's $150 that comes off his bonus. As a result, we don't have a lot of shrinkage." Regal has become the industry's most profitable operator by doing things just a bit better than the rest. Theater listings, for instance, run from 6 to 8 column inches in newspapers, compared with an industry average of 10 to 12.
Keller Manufacturing Co.
Corydon, Ind.; $55-million solid-wood-furniture maker
At Keller, low-budget starts with cosmetics. Even in CEO Bob Byrd's office, mismatched chairs surround a scarred, 30-year-old desk. Nothing in the company goes to waste. Sawdust and scrap wood fuel the boiler. Drawer sides and backs are made in-house from wood that used to get thrown out. Savings: more than $1 million over three years.
