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When Daniel Florness departs Fastenal later this year after three decades with the industrial and construction supplies distributor, and the last 11 as CEO, he will leave behind a very different business to the one he joined all those years ago.
Back then, the industrial supply company was generating around US$250 million a year, employed a mere 2,000 people and operated primarily across the United States and parts of Canada. Whereas today, its reach, scale and business model have entirely transformed.
“We’ve enjoyed incredible success from a growth perspective,” Florness tells The CEO Magazine.
“I think as an organization, as a group of people, we’re a pretty ethical group and we care about each other.”
“We’ve created careers for a lot of people. We’ve created great supply chains for a lot of customers. I think as our investors go, they’ve been well served by the Fastenal organization over the last 30 years.”
Now employing around 25,000 people, Fastenal generated US$8.2 billion in revenue last year and Florness expects it to reach around US$9 billion this year. Much of that transformation during his 11 years at the helm has come from fundamentally rethinking how Fastenal serves its customers.
A decade ago, around 90 percent of revenue flowed through its traditional branch network, while just 10 percent came through Fastenal’s onsite model of establishing operations within its larger customers’ facilities. Swiftly recognizing the potential of the latter set-up, the company gradually closed around half its North American locations, opening multiple onsites in their place.
“We basically said to our employees, ‘We think this is a better way to serve the market,’” Florness explains. “And we did it gradually because we didn’t want to disrupt the business and lose some employees. And so we really challenged people to learn a new business model.”
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Technology has been another major achievement of Florness’ tenure. Fastenal now uses vending machines, RFID-enabled Kanban systems and other point-of-use technologies to monitor inventory and replenish products precisely when customers need them.
“So it’s like having a gas gauge,” Florness explains. “We often use the example, there’s a bin out there that’s hungry and needs to be fed. And we don’t have to go and look at it to see it’s empty.”
Today, 33 percent of Fastenal’s revenue flows through vending machines and almost half through Fastenal Managed Inventory devices. Digital footprint sales have also increased, and Florness believes they could reach up to 64 percent by the end of the year.
“If you want to be a great leader to your team, you have to know something tomorrow you didn’t know today.”
Fastenal’s geographic footprint has expanded too. Since Florness joined, the company has pushed into Mexico and Latin America, South-East Asia, China and Europe, maintaining its focus on local excellence amid this international growth.
“There’s no monopoly on talent in any culture,” he stresses. “There’s always great people that you can find.”
The desire to harness local talent is a major driver of Fastenal’s decentralized culture. Rather than imposing decision-making from head office, the company encourages its regional leaders to exercise judgment, take risks and learn from their mistakes.
“You learn over time what works really well,” Florness says. “And you also learn to be really resilient when you’re making a lot of decisions.”
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For him, creating the right culture boils down to a deceptively simple principle.
“Go out and find great people,” he says. “Ask them to join the organization and then give them a reason to stay.”
That is true both of the talent within the organization, but also the companies Fastenal chooses to work with. After all, partnerships, such as that with Anchor Construction which is part of Weaver Companies, are pivotal to its success.
Understanding what that reason is, and how that evolves throughout each person’s career is a crucial tenet of Florness’ approach to leadership. In fact, shortly after becoming CEO, he helped develop an internal leadership course based on the characteristics of Fastenal’s most successful leaders. It focused on five broad areas: developing yourself, developing others, direction, alignment and commitment.
“If you want to be a great leader to your team, you have to know something tomorrow you didn’t know today,” he explains.
“We’ve created careers for a lot of people. We’ve created great supply chains for a lot of customers.”
Equally important is giving people a picture of where the company is heading. When Florness became CEO, Fastenal was generating a little over US$3.9 billion. He began talking to employees about what an US$8 billion Fastenal would look like. When it reached US$5 billion, the target then crept up to US$10 billion.
“Now the mantra is, ‘Here’s what we will look like when we’re US$15 billion. Here’s how many countries we will be in,’” he says. “You’re still painting a picture.”
Now, as Florness prepares to pass the baton to longtime colleague Jeff Watts, he believes that his legacy can be measured in billions of dollars of growth, an international footprint and a dramatically transformed supply chain model. But the impact of which he is most proud is considerably more human.
“I think as an organization, as a group of people, we’re a pretty ethical group and we care about each other,” he says. “And that’s a pretty important part of the whole thing.”
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He believes Watts, who has spent decades expanding Fastenal internationally, is well placed to take the company into its next phase.
“Jeff’s really good at surrounding himself with talent and trusting them to perform,” Florness says. “And so, under Jeff, a big part of our future will be our foreign expansion.”
But equally important to the company’s next phase are the opportunities it will create for its people – something his own career exemplifies.
“If somebody would tell me when I was 18 or 20 years old what I’d be doing 40 years later, I don’t know that I’d have believed it,” he admits.
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