Robert Kierlin: Founder of Fastenal

1. 0:00 – 2:01

   Fastenal's Rise and Kierlin's Common-Goal Book

   1. DSDavid Senra0:00

      Since its founding in 1967, Fastenal has grown from a small fastener store in Winona, Minnesota into a multibillion-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 Fastenal's success to the company's high-quality employees and their commitment to a common goal. This is something he's gonna 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 Fastenal's 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 Fastenal's 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 that I'm gonna talk to you 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.

2. 2:01 – 7:31

   Acknowledgments, Preface, and Technology Changing the How, Not the Why

   1. DSDavid Senra2:01

      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 gonna put the book down briefly and give you an overview of th- this very unique company. So I wanna give you a little background first on Bob Kierlin. He was the founder. He's still alive. He's the-- He founded Fastenal in 1967 and served as the co-founder and CEO for thirty-five years. So Fastenal's gonna grow from one 1,000 square foot location in 1967 to over 3,400 stores by 2023. They are doing, like, seven and a half billion dollars a year in sales, and their market cap is almost forty billion dollars. Before founding the company, Bob got a degree in mechanical engineering and then also an MBA. And so in the acknowledgment section, he tells us exactly what... why he's writing the book and what, 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, a lot of Buffett and Munger-esque things in it, and that popped out at me from the very first page because he's, he's going through all the people he had to thank 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% with my 40-year-old typewriter. I did not have a ghostwriter. I wanted it in my own words." And so there's gonna be a lot of things that Bob believes in and the traits that he has, is-- they're-- he's gonna 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, 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, wrote this in 1997. This updated version is printed twenty-three years later, so think about all the technological change that has occurred in those-- that twenty-three 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? It's changed-- The technology 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's gonna change. Technology that influences your business may change the how of how you deliver your service, but it will not change the why. M- Michael Bloomberg in his autobiography said something that's 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 pe- 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 autobiographies. You know, he has almost half a century of experience. It's almost like having a... To, to, 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 u- no unique product and no unique process, but it has some ideas about people that are at least uncommon, if not unique."

3. 7:31 – 11:07

   Fastenal as 2,700 Small Businesses and the CEO Who Started as a Clerk

   1. DSDavid Senra7:31

      So I wanna put the book down briefly. Remember, the, what is the title of the book? The Power of People. The Power of Fastenal People. So I wanna 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 g- 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'll 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 you 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 2,700 small businesses. So keep in mind, this is, I'm r- what I'm reading from is about 10 years old, so now they have, you know, over 3,400. We are not one giant organization. We are 2,700 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, 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 wanna tell you about, which is this interview with the CEO that had succeeded Kierlin, Kierlin, or Bob, we'll call him Bob, uh, when he stepped down. His name is Will Oberton. Oberton started out at Fastenal as a store clerk, so he went all the way from... They, they mean business. He 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 'cause I'm like, it's just obvious. It's just like, I wonder if Buffett and Munger have ever talked about these, uh, about this company or, or the way they, or, or 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 wanna pull out just a couple 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 shout-out prompted Fastenal CEO Will Oberton

4. 11:07 – 13:39

   Buffett, Frugality, and the Virtuous Cycle

   1. DSDavid Senra11:07

      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. And for instance, in fact, this is something that Bob preaches throughout the book, so you know, you, uh, he'll jump in wherever is needed. And the, 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 a commercial, uh, truck driving license, so he could pitch in when drivers, truck, truck drivers are sick. And so there's another description of Fastenal that talks about the fact that y- when w- what Buffett realized, that it says the two cost-conscious bosses hit it off, and how having a low cost structure is s- 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's 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." By ke- this is the, the virtuous cycle I think that Buffett realized as well. By keeping operating costs very low, Fastenal is able to pay their employees increase- 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 ci- circle of sorts. And then one last thing before I pick back up the book. My friend Raem Adde and I were texting about this. So Raem is the one... He, he does the Rainmakers 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 Mungerisms 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." And so immediately, the book begins with an idea that's gonna sound a [chuckles] lot like one of Munger's famous fa- favorite founders,

5. 13:39 – 17:11

   Replenishing Leaders and Keeping the Organization Simple

   1. DSDavid Senra13:39

      which is Jim Sinegal of Costco, of Costco. Leadership must constantly be replenished. Every leader knows that a big part of leadership is training other people to be good leaders. So let's pause right there. Every leader knows that a big part of leadership is training other people to lead good leaders. That's the way Bob says it. You know, the way that Jim Sinegal says it? He says, as a, the leader of your company, "If you're not spending 90% of your time teaching, you're not doing your job." The business organization achieves long-term success by continuously replenishing leaders inside the organization. The word inside is important. You can bring in a leader from the outside of the organization, but it's much more efficient to develop those you already have. And then immediately Bob pushes back on this idea that the person that starts the company can't be the person that leads the company. The belief that entrepreneurs must eventually be replaced or supplanted by skilled management is false. Entrepreneurs are oftentimes perceived to be eccentric. Yeah, [laughs] definitely. This can lead to a belief that a more systematic planner is needed to, quote-unquote, "manage the organization." Entrepreneurs can learn leadership just as well as anybody else. An entrepreneur's success is as much due to his leadership skills as his work ethic. Walmart's Sam Walton was a leader when the company he started was small, and he remained a leader throughout its remarkable growth. So we're already into, you know, I'm on page six of the book, for God's sake, and there's already been at least three examples of people that Munger and Buffett admire, Sam Walton, Jim Sinegal, Les Schwab. The commonality between how they all ran their businesses just jumps out at you. In fact, the two pages later, he's gonna come up with an idea, or actually the next page, that sounds a hell of a lot like what Munger would repeat as well. And so he starts out with saying, "Hey, keeping your organization simple is not simple, but it is very important." And so his idea is, like, the way to keep your organization simple is orient everything around this commitment to a common goal. Our society places too much importance on organizations. We tend to hold up the structure as important rather than the people who make it up. Our first step is to show organizations for what they really are, groups of people who come together for a common purpose. The business organization combines the talents of many in the pursuit of a common purpose. All of his ideas, okay, this entire book, all of his ideas serve that idea, that you need to commit your entire organization to a common goal, and then you have to look out for things that distract from that common goal. That is why he's saying keeping the organization simple isn't so simple. Human nature goes against it. Successful organizations will achieve their success because they find better ways to involve their members in the purpose of the organization. So that is what I meant about sounds a hell of a lot like Munger. Well, Munger says that the most elusive of all human goals is keeping things simple and remembering what you set out to do. I really think this book and Bob's main thesis, this, which he calls, "Hey, we need to keep everybody in, uh, your organization, you know, in co- concentrated in pursuit of that common purpose, of that common goalol," is the way Munger would, would summarize that for us, is that you have to keep things simple and then remember what you set out to do, and that's very difficult 'cause, especially over a long period of time, 'cause it goes against your human nature. That's why he says it's the most elusive of human goals. And so Bob, like many of the great founders, they do a great job of distilling down to the essence the principles upon which their business is built into maxims and aphorisms that you can remember, you can repeat, and you can take with you.

6. 17:11 – 18:43

   The Uncommon Pursuit of the Common Goal

   1. DSDavid Senra17:11

      So he says, "Hey, keeping the organization simple isn't so simple." What's the next one? The uncommon pursuit of the common goal. I almost feel like when I'm reading this book, he's saying, "Hey, guys, this isn't rocket science. This is a simple idea that's not easy to do over the long term." And so what is the uncommon pursuit of the common goal? Organizations succeed to the extent that all of their members pursue a common goal. This is one of those simple ideas that are so difficult to practice. The greatest danger to the success of the organization is that it starts developing unnecessary subgroups, and these subgroups start pursuing their own goals rather than the common goal of the organization. That is bureaucracy, is what he's describing. Listen to what Napoleon said. "Nothing..." This is a direct quote from Napoleon, "Nothing is more important than unity of command. You should have one army acting on one line and led by one commander." Bob says organizations succeed to the extent that all of their members pursue a common goal. And what I love about the simple language and the simple examples he gives in the book, it immediately makes you stop. It made me stop. It's like, "Okay, what is my common goal that I am pursuing?" And then once you identify that, then you start auditing how you're spending your time. And so obviously, my common goal is very simple. It's to help you learn from history's greatest entrepreneurs, and to do that better than anybody else can in the entire world. And so the second step with that was like, "Okay, well, let me audit how I'm actually spending my time." Because anything that's not in service of that common goal is a distraction and should be eliminated.

7. 18:43 – 23:12

   Treating Everyone Equally: Schwab, Walton, and Chung Ju-Yung

   1. DSDavid Senra18:43

      And so then Bob says, "Well, how do you keep everybody focused on a common goal?" Remember, he says, "We sell commodity products for God's sake. The only p- the only competitive advantage is, we have is our people." So it says f- uh, how do you keep everyone focused on a common goal? First, you start treating everybody equally. The organization cannot have some people who are put in a different status than the rest. You don't have executive dining areas and assigned parking spots, or stock options for only the highest paid people, or even dress codes for only some of the people. If the engineers can take off to watch their kids in a softball game, so can the lathe operators and the data entry people. So pause right there. Immediately what pops to mind when I get to that section, that sounds a hell of a lot like the stuff that Les Schwab and Sam Walton would preach as they built their business. This is from Les Schwab's autobiography. "We have had over the years some people in the office that sometimes think that they are more important than the stores. The office serves only one purpose, and that is to serve the stores. Some of our office people sometimes wonder about this, but I've warned them, 'Don't bitch to me, because this is the way I want it. If you wanna go out and start at the bottom changing tires and work into a manager's job, then hop right to it. If it weren't for those men in the stores working their asses off in all kinds of weather, missing meals and working God-awful hours, you wouldn't even have a job.'" So if you're working for Les Schwab, is he not easy to interface with? He's very easy to understand. There's no-- Those, that's like five sentences there. At the end of the five sentences [chuckles] , you know exactly what Les believes and how he runs his b- wants to run his business. Sam Walton said it very similar. He says, "If you're not supporting the customers or supporting the people that support the customers, then we don't have need for you in Walmart." Kept it very, very simple. The reason that's so important, because if it's not simple, it won't scale. Bob continues, "Make sure that everybody can enter your building through the same door." So his whole point is like, listen, these like special stock options, these assigned parking spots, these executive dining areas, these separate entrances, over time, it just, you just, you're telling people with your actions, "These are the special people. You guys aren't the special people." So let me go back to Chung Ju-Yung. Chung Ju-Yung wrote the most inspiring autobiography I have ever read. I gotta redo, do another episode on it, 'cause I think it was like episode 117 or something like that. Chung Ju-Yung, right, is the founder of Hyundai. He starts off so poor as the son of a p- he's a peasant, son of a peasant farmer, that he has to eat tree bark in the winter to survive, and winds up dying as the richest person in South Korea. This is what he says from his autobiography, and he's writing his autobiography when he's like 90. And it's gonna sound a hell of a lot like what Les Schwab says, what Sam Walton was saying, and what Bob is saying in this book. "Some time ago, someone proposed installing a separate elevator for executives at the company headquarters. I rejected the idea right on the spot. I truly despise the inflated sense of ser- superiority held by executives who expect different treatment from their workers. Why on earth would anyone need a separate elevator?" He continues, "When I dropped by a construction site one day, the workers were busy laying a new carpet, believing that this was a formality that they should observe for a, their boss." So literally like a red carpet, so that their, when their boss has a site visit, he c- he can walk on it. This was Chung's response: "Such formality is meaningless. With our company motto," their company mott- motto was diligence, frugality, and affection, "hanging right there on the wall, should they have a s- spared a second to think about the workers laying carpet. Is laying this carpet practicing frugality? A carpet was a luxury that I despised. After luxury comes corruption. I have never seen a country prosper with a leader who enjoys luxury. I have never come across a company that thrives under a luxury-loving, wasteful owner." And so we go back to Bob. Why is it so important to have everybody working as a single cohesive team? To have everybody thinking that their role that they're playing is just as important as the person next to them. "At Fastenal, we believe that you can be the best salesperson in the world, but if the order picker doesn't pick it right, or the truck driver doesn't get it there on time, or the billing clerk doesn't bill it correctly, you end up with an unhappy customer. Everyone is key. You are better off working to make everyone equal so they stay focused..." And goes back. What do you think he's about to say? I bet you can already finish his sentence for him. "You are better off working to make everybody equal so they stay focused on the common goal of pleasing the customer." He's gonna give us more advice on how to do that.

8. 23:12 – 25:04

   Incentives Aligned with the Common Goal

   1. DSDavid Senra23:12

      "You need to install a reward system that keeps everyone focused on the common goal." He's talking about incentives. "If you have Fastenal's common goal of growing our company through customer service, you will avoid any rewards that don't fit that goal." And so when I got to this part of the book, I thought about Munger, uh, Charlie Munger's, like, three rules for incentives. And so this is what he said. Number one, everyone underestimates the power of incentives. Number two, never, ever think about anything else before thinking about the power of incentives. And number three, which Bob is nailing, the most important rule in management, get the incentives right. And again, you have to be careful of these subgroups that are going to naturally develop in your company, because his whole point is like, listen, your incentives have to, they have to fit your overall common goal, right? Right? The common goal of pleasing the customer. And so he gives an example. If you do these incentives based on, like, separate groups, they can optimize for things that go against your common goal. So he gives an example that this is a really smart idea. "We do not reward production people for minimizing scrap if some of that scrap you eliminate comes from the extra parts that guarantee you have a full order quantity ready when the customer wants it." The incentive superpower that Munger talks about, you s- clearly see by picking up the book. We're like a quarter into the book. That Bob clearly has thought a lot about this, of course he has. He had 35 years of experience, I think, by the time he wrote the book, and I think 47 years b- by the time it was published again, or something like that. Just a, a, a ton, decades of thinking about this and experience with a single company. Another piece of advice. If you wanna use a financial reward to motivate, pay it right away. Do not wait until the end of the year or pay a special bonus for, to, to, to pay a special bonet- bonus or profit sharing. At, pay it at the end of each month if you can, so right, you know, right after the, to reinforce that good behavior that you want, or at least, at the very least, quarterly. Do not wait to the end of the year.

9. 25:04 – 31:50

   Against Central Planning: Decentralized Decision-Making

   1. DSDavid Senra25:04

      Another main theme of the book is the fact that he's got this radical belief in encouraging and using everybody's creativity throughout your entire organization, and he really goes against... Remember, he's got an MBA, and this is what, uh, one of the things that also reminded, that I think Bob had in common with Munger and Buffett, when you read the shareholder letters, you listen to them, what they said at their AGM. You just repeat over and over again, like, like business school, they're teaching you the bad things. And so his whole point is, like, this command and control structure was not something that Bob believed in. He thought it was actually would limit the growth of the company. And so he said... And he gives an example of w- the idea that, like, one person or, like, a group of leaders at the very top should, should, should do everything is actually harmful and is eventually going to lead to the decrease of growth in your company. And he learned this, one of the ways he learned this is when he was a Boy Scout when he was a young boy. One of my first lessons in how not to promote creativity came from the Boy Scouts. The troop that I joined when I was 10 had a leader who did not challenge the kids. He arranged everything for us. So they'd go on camping trips, and instead of teaching them, you know, and they're... Obviously, when you teach somebody, when you let them do something they've never done before, they're gonna make mistakes. And so the troop leader's like, "Oh, you know, I'll set up the, the, the tent. I will do all the cooking. I will start the fire." They're essentially just sitting around useless. And he says, "We watched other troops cooking stew, making fires, setting up teepees and rope bridges while we sat around. At the end of a few years, nobody was above the rank of Second Class Scout in our troop. Today, I probably couldn't survive in the woods for more than a few hours." And he immediately translates that lesson to what he observed in his, you know, multi-decade career. Too many business organizations practice central planning to the extent that the creativity of their people is effectively 95% curtailed. And he rails against this because he was taught that this is better management, and he clearly does not agree with this. Businesses that become large and, quote-unquote, better managed saw their markets and profits eaten up by nimble startup firms with great ideas and efficient es- execution. Many large companies resemble small socialist states. Ideas and plans all come from the top. The majority of the workers are treated differently than the top planners, and most of the workers receive little or no self-fulfillment in their jobs. And so this is when he starts repeating another one of his ideas, like you have to learn to delegate. He was afraid to delegate. It's a common f- he calls delegate, uh, the fear of, uh, delegation common, but he thinks it's a terrible, bad habit. Why do companies develop such bad habits? Simply because the people at the top of the organization start focusing on how smart they are rather than focusing on how little they know. If 95% of the people in your company do not participate in the creation of ideas, they will spend their time thinking and talking about cars, sports, and office politics. To add insult to this loss of creativity, most of the people who are ignored are on the front lines. To go back to what Les said, Les Schwab said and Sam Walton said, right? You're either serving the customer or serving the people that serve the customer, or we don't need you. The founder of UPS, Jim Casey, same thing. He didn't wanna sit and talk to his executives all day, right? I've told this story a million times 'cause it's just very memorable and hilarious, right? Not even hilarious, just, like, very informative. It's the fact that every t- he, he had a driver, and he, he instructed his driver, "Every time that we pass a big brown UPS truck, pull over." And Jim would spend all his time, as much time as possible, talking to the people on the front lines, the people actually delivering the service to his customers. So let's go back to this. To add insult to this loss of creativity, most of the people who are ignored are on the front lines, running the machines or talking to the customers, while the people doing the thinking and the planning are isolated from both. Which group do you think receives the best stimulus to foster creativity? Decentralized decision-making. Decentralized decision-making. Decentralized decision-making. He wrote, wrote that three times. I'm not, you know, [chuckles] I'm not repeating that on my own. Say it a few times so it becomes a mantra. He feels decentralized, this extreme decentralized decision-making is one of the most valuable things that they have in their company culture. With over 2,600 stores around the world, the decisions about which items to stock in each store are left to the people in the store. Computers help to pick a basic starting inventory, but items are added as, uh, as store personnel gather information about customers in their local market. The people in our stores are able to special order items that their customers request that are usually unavailable within our warehouse system. That idea of allowing them, right? You have a, a one-off special request from a customer that then you can fill. You have the complete autonomy and trust from your organization to fulfill that request. What's gonna ha- like, and, and you obviously inform the customer. It's like, "Hey, this is special. We have to do this for you." And then you do it to their satisfaction, you have a customer for life. This is something that, uh, uh, one of my favorite biographies I've ever read. I think it's episode 316. It's on the founder of Bugatti. And the reason I even found this book is because I became obsessed with Enzo Ferrari, and I did a bunch of episodes on him. And in Ferrari's biographies, it talks about, hey, his blueprint, he was just copying what Bugatti did. And so I find this, like, crazy, uh, biography of Bugatti written by his daughter, I think in, like, the 1960s. And there's a story in there that I never forgot, that Bugatti receives a letter from one of his customers, okay? About a car that's still operational, a Bugatti car, uh, that the guy bought 30 years ago, and he, something broke on it, and he needed it fixed And Bugatti reads his letter and then writes him back, and the, the, the, the, the punchline is the, the incredible level of customer service and, and just love for the work, uh, his work that Bugatti had was Bugatti offered to custom make. They didn't stock that part. They didn't even have it anymore. He's like, "Hey, I'm gonna custom make this replacement par- part for that car that's almost 30 years old, and I'm gonna give it to you at cost." That long-term view, okay? Not trying to make a couple dollars on this ca- [chuckles] first of all, even doing it's remarkable, right? And then selling it at cost is actually genius because how many people is that satisfied customer gonna tell? A lot more than whatever markup you would make on that one-off part. And so Bob then tells us why is this so important? Because it's this virtuous cycle it leads to. "Consider where your new product ideas come from. We encourage people in each store to come up with products to add to our general lines. If a customer asks for a product that we don't currently sell, we encourage our people to find a possible source to satisfy this customer's request. If successful, the store may then start selling the same product to other customers, or nearby stores may then also start offering the item. Eventually, it becomes a company-wide product."

10. 31:50 – 40:04

    Rules, Training, and Leaders vs. Managers

    1. DSDavid Senra31:50

       So a lot of people are like, "Okay, well, how are you gonna manage?" You know, you got, at the time, 2,700 of these little stores, you know, they're all run independently. And he's like, "Listen," Bob's like, "Of course you need some rules, but you don't need these thick manuals that nobody's reading. You need, you need a handful of principles all oriented, oriented around the goal of the organization." This is why it's so genius, this idea of just organizing my entire company on this commitment to a common goal, and then regularly checking, like, is the action, is the way we're spending time, is this idea in service of that common goal, yes or no? Uh, so he says, "You need rules, but you can probably put them on three sheets of paper and give them to each new employee. These rules will state the common goal for the organization. These rules should instill a good understanding of the common goal of the organization." He's repeating it again, and he says what his common goal is, "Growing our corp- our company through customer service. Eliminate all those three-ring binders filled with standard management practices. Another suggestion to develop the potential of your people is to emphasize training. Most of the people who join us come out of school with little expertise in our product line. We see their potential and give them an opportunity to achieve. Most of our executive officers started in entry-level positions in Fastenal stores." So he's gonna use this, this importance of constantly training over and over again. I actually think there's a better word for that. Sol Price, who is the most influential retailer to ever live, Sam Walton took more ideas from him, Jim Costco... Or Jim Costco. [laughs] Jim Sinegal of Costco was Sol Price's, uh, mentee, and he started working for Sol Price when he was, like, 19. He gives this interview when he's, like, 70. He's like... People are like, "Oh, you must have learned a lot from Sol Price." He's like, "No, I didn't learn a lot. I learned everything I know." The amount of successful retailers that built, you know, in ca- in some cases, many cases, hundreds of billions of dollars of retail companies, Costco, Home Depot, Walmart, that talked about and learned from Sol Price is, is just absolutely incredible. But I think Sol has a better... He has this, this mantra, this, this maxim that he would repeat, and he says, "You train an animal, you teach a person." And so when Bob uses the word training, I automatically substitute that for the word teaching. That's why... Think about why Jim Sinegal, who was obviously the mentee, uh, of Sol Price, he's like, "If you're not spending 90% of your time teaching, you're not doing your job." You're teaching or training all of the people in your organization the standards and expectations of this common goal that your entire business is oriented around. And so the way Bob would describe this is he wants leaders. He doesn't want managers. And if you're a leader, it's much more like a coach than it is... And he gives this baseball, he gives this sports analogy, right? And so he talks about the difference between a coach in basketball and a manager. Remember, he wants leaders, not managers. And a manager in baseball. "Have you ever considered," and this, this will basically illustrate his entire idea around this, uh, chapter. "Have you ever considered the top supervisor on a baseball team is called a manager, while the top supervisor on a basketball team is called a coach? Look at the control each one has." His whole point is like you gotta get over this fear of relinquishing control. "The baseball manager is controlling each move of the player, waving the shortstop over a little, or signaling when the runner should s- steal, uh, the base, or ordering the pitcher to walk a runner. In the baseball game, the manager is in complete control and fits the old-style idea of a manager." What he means by old-style idea of a manager is what they teach in business school, which he feels is useless. "In the basketball game, the coach is relying on each player to make quick decisions about passes and shots." This is much more Bob's, uh, philosophy, okay? "The coach may send in a play after a timeout, but control swiftly passes back to the players on the court. In business, the manager controls what each person does, assigning tasks and communicating the results upward." Bob does not like that. "The leader, however, tells the team members what the group has to accomplish and challenges them to find the best way to do so." So now that we know that he wants leaders and not managers, let's get to his definition of a leader. "A leader is somewhat like that of the master learner among apprentice learners of all different levels, with the intention of developing more master learners to allow the organization to grow." Goes back to that, his stated goal on the back cover, our commitment to a common goal, which is growth through customer service. And then he tells a story to illustrate what this would look like inside of an organization. "I worked one summer in quality control department of a metal products manufacturer. There were two people who managed the department. The first was a general manager who had a separate office. The other was an assistant who had a desk out with the rest of us. Whenever we had a question or a problem arose, nobody went to the general manager," who's hiding in his cave, right? "We all went to the assistant, who was accessible. The assistant was growing in stature with the overall plant managers because the assistant knew so much more about everything else that was going on." So over time, the assistant leapfrogged the manager within the organization. The assistant was the true leader. Stay out there on the front lines where the action takes place. You learn more when you see everything up close. And then he repeats, "Do not deviate from the common goal." And the way he would say this is, "The team's pursuit of its common goal must be defended by outside attempts to weaken it." And then spread throughout the book are this simple, but I would say very valuable pieces of advice. Here's one of them. "Pay attention to the silent people when you are leading. If half of the people are not asked for their new ideas, you only have a 50% chance of finding the best solution. Pay attention to the silent people when you are leading." This reminded me of, uh, Brad Jacobs. Uh, one of the most popular episodes I've done recently was episode 335. It's How to Make a Few Billion Dollars by Brad Jacobs. Excellent book, also written by a person that loves founders. Brad sent me a great message that he said he was addicted to these founder book reviews. But in that book that he wrote, I thought it was actually genius. So, you know, he buys a bunch of, uh, new companies all the time, and he was shocked that how many people never solicit advice from the people working in the company. This is very similar to what Bob's telling us here. And so he's got two questions that he would ask every single employee, and I think there's genius in the simplicity of this idea. Number one, what's the single best idea to improve our company? Or what's your single best idea to improve our company, rather? And number two, what is the stupidest thing that we're doing as a company? And he makes the point in the book, like, you would be shocked at how much valuable information that you get just from asking those two simple questions. It sounds very similar to what Bob is saying here. If half the people are not asked for their ideas, you only have a 50% chance of finding the best solution. And then something Bob also talks about is just how much he learned just by the example that other people... Examples good and bad from other people he worked with and worked for over the years. And this is really, uh, like we're halfway through, more than halfway through the book, and it really clicked for me the first time I was going through. 'Cause you obviously, you know, before I sit down to talk to you, I, I not only read the book, but I reread it, the highlights and notes over and over again. I'll, I'll read what I wrote on the note in one second. He says, "While I attended college, I worked for a manufacturing company that employed about 300 people. I spent a lot of hours in the office on Saturdays. Sometimes other people came in on Saturdays, but only one person was certain to show up, the president and founder of the firm. At the time, he was 72 years old. He had an obvious interest and pride in what was going on. He knew each employee and appreciated his or her contribution. I count him as one of the three people who was most influenced, who has most influenced my understanding of leadership." And so I got to that part, and I reread it. I was like, wait a minute. He knew each employee and appreciated his or her contribution, and this is when it started to click. If his goal... We're talking about Bob now, okay? This is my note to myself. If his goal, if Bob's goal is growth through customer service, he has to fully develop every single employee that delivers that service. His constant repeating that Fastenal's advantage is people serves his main goal. All of his ideas work together. It's that virtuous cycle, that virtuous flywheel.

11. 40:04 – 44:15

    Planning for the Future and Fastenal's Vending Machines

    1. DSDavid Senra40:04

       There's another advantage of decentralized, this extreme decentralized decision-making, and that's the flexibility to respond to changes in the future. The future is not just next week or next month, but years out. Fastenal has been growing at a rate where it doubles in size every two and a half years. That means that in five years, we are four times the size. So our people have to think that in five years, we will haul four times as much product around the country. I love this sentence. Good ideas start by simple approaches to what lies ahead. A proactive leader understands that unless one attends to the future, you get locked into the past. The main reason Fastenal doesn't grow much through acquisition is that we would buy too much old baggage with acquired companies. We want our leaders to do what is best for what lies ahead rather than repeating what brought success in the past. Any time you stop thinking about the future, some people with better ideas will come along to eat your lunch. Any time you stop thinking about the future, some people with better ideas will come along to eat your lunch. And if you have the flexibility and the empowerment of all and the decentralized decision-making and th- this complete autonomy that Fastenal does, sometimes you're the one that is inventing the future. So let me go back. I'm gonna put the book down for one second, and I wanna go back to that story of the CEO that was meeting with Buffett, the CEO that succeeded Kierlin. So this giant part of Fastenal's business now, after, this was invented after this book was written, okay? The fir- the first, the first, uh, version in 1997, was the fact that they have these vending machines. And the way I think about the vending machines is like, you know, think of every, any time you've been in like a hardware store, right? You go to Ace Hardware or Home Depot or anywhere else, and think about how all the equipment and supplies are presented. You're like kinda like searching through. It's kinda like a chaotic mess. So Will Overton, which was the, the C- the former CEO, but he, he's no longer CEO now, but he's the one that was CEO after Bob, okay? Overton also developed an industrial vending machine system. There's a video on YouTube that's fascinating about this. It's from Fastenal. Fastenal has their own YouTube channel. You can see the vending machine if you just type in Fastenal vending machine if you're interested in this. I thought it was actually cool. Uh, Overton developed an industrial vending machine, and I searched for it after I read this 'cause like I gotta see what this looks like. Overton had developed an industrial vending machine s- system, helping Bob realize a lifelong goal. In 1951, as a 12-year-old working in his father's auto parts store, Bob was bothered by the fact that his dad had to send customers searching for nuts and bolts to someone else's store. He imagined that a vending machine installed at his father's place might pop out fasteners like gumballs. Once on his own, he tried to convert a cigarette vending machine to this purpose. He couldn't get it to work, so he started selling fasteners over the counter, thus Fastenal was born. 40 years later, working with a snack machine manufacturer and off-the-shelf software, Will Overton got the job done. Fastenal's vending machines have been a big hit with customers, so their vending machines are actually installed in their customers' locations. It cannot get simpler for this. You gotta watch the video, I'm telling you. Overton got the job done. Fastenal's ve- vending machines had been hit, been a hit with customers, generally helping them save 30% on supplies. The machines have cut down on theft and enabled automated reordering. That four-year-old business, which I think now is, like, 15 years old, th- with- within four years old, they, this new idea already started contributing to 36% of the overall sales of Fastenal. Who know... I think it's, like, over 40% now. Think about that. Go back. So now I'm picking back up the book. Think about the vending machine idea, which was not invented when Bob wrote these words. This makes these words hit s- so hard. "We want our leaders to do what is best for what lies ahead rather than re- repeating what brought success in the past. Any time you stop thinking about the future, some people with better ideas will come along to eat your lunch." Thank God, due to their unique enabling of this and this super belief in the power of people, they were the ones that came up with the better idea. They were the ones that invented the future, thus avoiding somebody else coming along and eating their lunch.

12. 44:15 – 49:13

    Fear of Delegating and Suppressing Ego

    1. DSDavid Senra44:15

       And so that relates to this idea of Bob's that you have to overcome the common fear of delegating, and he has a really interesting way to illustrate this idea that was rather unexpected to me, and I don't think I've heard it described like this way, this way anywhere else. "The death of a family member or a close friend gives us a sense of great loss, a feeling some- that something will now be missing in our life. What we are missing is the uniqueness of the person who has died, a uniqueness that we were privileged to know and understand. That same uniqueness is present in everybody. We just don't come around to seeing it and to understanding it. Our first step to becoming a better leader is to start valuing everybody for their unique humanness. When I was a young man, I learned that everyone did better at tasks than I thought they would before starting them. I recognized this as a bias within me and adjusted my willingness to delegate accordingly. I delegated more than I used to, and I saw even better outcomes. My bias was a common fear of delegating. This came from not appreciating what talents lie hidden in other people." And he talks about people that started just picking out orders are now CEOs or, or very valuable executives. People who started picking orders or answering phones at Fastenal have grown to lead hundreds and thousands of new team members. And so some of this fear of delegating comes from, you know, this, the, the giant egos that a lot of people in entrepreneurship have and a lot of leaders and executives definitely have. And so he's got a piece of advice, and he's got four ways to do that. He's like, "You have to learn to suppress your ego." Sam Walton said the exact same thing. He said, "Listen, you don't have to have a small ego to work at Walmart, but you have to be, you know, very adept at hiding it, at su- uh, essentially suppressing your ego," is the way Sam Walton, uh, that is the way Bob describes Sam Walton's idea. So Bob says, "Learn to suppress your ego. The first place to start if you want to suppress your ego is to admit that you have one. We all have one, and nobody likes theirs to be insulted. And in a work environment, egos in a typical work environment, especially at a successful company, egos are in full bloom. So how do you work at suppressing your ego? I can give you four suggestions that I observed over the years. Number one, treat everyone as equals. Number two, learn to stay silent sometimes. Number three, be willing to get dirty." That goes back to the CEO, you know, who's answering customer calls, and he's driving trucks. He's not like, "I'm the CEO of this, you know, public company. How, how can I be a truck driver?" He's like, "Well, what's my goal? Our common goal, our commitment is to, to this common goal of growing through customer service. Is not driving a truck because we're short-handed in that department, and therefore our customer delivery comes late, later than it would if I get behind the wheel, is that serving our customer? Is that me being committed to this common goal? No, it is not." So number three, be willing to get dirty. Number four, do good things anonymously. And then he feels the need to offer what he calls a few words of caution. There's some things that you're going to have to watch out for. It goes back to this. Number one, keep the team goal consistent with that of the main organization. So, you know, you're gonna have subgroups. He calls them subgroups, teams. They will naturally develop their own goals, and in many cases, those goals will be in conflict with that of the main organization. One department can develop such great spirit and cohesiveness that it loses sight of its role in the larger organization. Keep that team goal consistent. Make sure all your team goals are consistent with that of the main organization. And another way to keep on the path, keep reminding yourself how little you know. Pardon me if I keep telling you how to forget how smart you are. Even if you are smart, you're better off forgetting about it. Start thinking instead about how little you know compared to the vast amount of knowledge in the world. Consider that everything that I have written here about leadership is something I learned from someone else. They either taught me or I learned from their example, good or bad. Nothing here stands out as a brilliant breakthrough. Everything is a passage of information through the lens of my observations, and I have no way of knowing how much is still out there to learn. And so he talked about early in the book, let me go back to that real quick, that even as an elderly gentleman, he's still constantly learning. "At my senior citizen age, I am still improving, perhaps at a faster rate than I was several decades ago. With the experience of a lifetime, you're able to find the final pieces to complete the puzzle." And then if you think about what he's saying here, he's like, "You know, there's nothing here stands out as a brilliant breakthrough. Everything that I wrote, everything that I've learned, I learned from other people, either through their example or otherwise." It... That's another form of suppressing his ego, of keeping your ego in check. And a good way to keep your ego in check is just to keep reminding yourself how little that you know. Thomas Edison has a great quote about this, and he says, "We don't know one one-thousandth percent of anything." And I think it's important to point out the reason he keeps talking about pride and ego is because that gets in the way of your organization's commitment to the common goal.

13. 49:13 – 51:29

    Ten Leadership Rules and Closing Message

    1. DSDavid Senra49:13

       So he's going to summarize this 'cause he loves maxims, and he, he ta- he makes this 10 basic rules about leadership, and he says, "The simplicity of each rule must overcome the thick walls of pride that prevent its implementation. One can only dream of a world where these rules are universally practiced." And we know because human nature doesn't change, they, they'll never be universally practiced. And so our ability to actually learn and change our behavior will always be at odds with the larger human nature. That's why I think it's so valuable. It's not because the ideas are, are so hard to understand. They're so hard to apply, and especially apply them over, you know, since 1967 like Fastenal has. Number one, challenge rather than control. Number two, treat everyone as your equal. Number three, stay out of the spotlight. Number four, share the rewards. Number five, listen rather than speak. Number six, see the unique humanness in all persons. Number seven, develop empathy. Number eight, suppress your ego. Number nine, let people learn. Number 10, remember how little you know. Follow these rules and provide leadership to your world. And then what I love is he ties this all together to serve a mission that is bigger than any one person, any one company, any one industry, any one lifetime. He says, "The example that we set in the workplace will live on after us. Your life is an example for all to imitate. What parts of it others will imitate depends on the respect they have for you. If you have earned respect through your leadership, others will imitate your actions, and you will influence people beyond your generation. The exceptional leadership of a Thomas Jefferson or an Abraham Lincoln or a Martin Luther King or a Helen Keller or Alexander the Great lives on for centuries and makes the world a better place for all of us. Become a leader at home and in your work. Make the world a better place because of what you do." And that is where I'll leave it. For the full story, highly recommend reading the book. If you wanna buy the book using the link that's in the show notes on the podcast player or available at founderspodcast.com, you'll be supporting the podcast at the same time. That is 360 books down, 1,000 to go, and I'll talk to you again soon.

Episode duration: 51:29