Which was the best-performing stock in the US in the 25 years, following the Black Monday crash of October 1987? When Bloomberg-Businessweek went searching for the answer, it did not end up in Apple (Silicon Valley), or Microsoft (Redmond) or Berkshire Hathaway (Nebraska). It ended up at Fastenal, based in the quiet town near Winona (Minnesota) which has a population 28,000. (Actress Winona Ryder, who was born in nearby Olmsted County, was named after the town.)
Fastenal’s shares rose 38,565% in the 25 years after Black Monday. In contrast, Microsoft was up 10,000% and Apple was up 5,542%. An investor who bought and held $10,000 worth of Fastenal stock in October 1987 would have had $3 million by October 2015. At the time of its IPO in August 1987, Fastenal had 250 employees and $20 million of revenue. By 2015, it had more than 18,500 employees and $3.7 billion of revenue. To understand this incredible story, Williams travelled to Fastenal’s headquarters, as he did for all the other fascinating organisations in this book.
Fastenal is into one of the most mundane businesses; it sells industrial products such as nuts and bolts, cutting tools, safety equipment, lighting and all sorts of specialty parts that are needed in factories, mills and construction sites. “It has 11 factories worldwide that can manufacture anything, from fasteners to specialty parts for Arctic energy exploration, mining, and manufacturing, for all kinds of technically demanding endeavors,” writes William C Taylor, the author of Simply Brilliant. Fastenal likes to say about itself: “We make the unavailable part available.” Fastenal employs more than 18,500 people who work in nearly 2,700 stores, with locations that stretch from the country’s biggest cities and industrial centres to remote, rural communities. Its online catalogue offers hundreds of thousands of different items. It has installed more than 60,000 “fully customized and automated, vending machines stores at factories, warehouses, construction sites.”
What makes Fastenal tick? The company’s goal is to make its staff, entrepreneurial, self-driven—work like you own the business it. “When you trust people to solve problems and make decisions, and then let them go, that’s when the magic happens,” writes Williams. Each of its 2,700 stores operates as a stand-alone business, with a clear leader, profit & loss account and “grassroots zeal for growth and service.” Its human resources approach is old-school: “it recruits many employees while they're still attending college, starts a majority of them in part-time jobs, prizes lifetime careers, and drills everyone on the timeless basics of sales and service.”
Gary Polipnick, a senior executive, told Williams, “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 about what they can't teach in school—wisdom, savvy, entrepreneurial spirit.” To codify and formalise its knowledge base, actually, Fastenal has created a school of its own, to teach the business skills, sales techniques and service mentality around which its bottom-up culture is built. The Fastenal School of Business, launched in 1999, has 39 instructors, 20 campus locations, and more than 300 different courses, from 10-minute e-learning modules to one-week and two-week programmes.
Fastenal designs and develops all the course material itself. It even offers introductory courses in welding and metalworking, to help salespeople relate to their customers. “Nearly 9,000 employees spent time in the classroom in 2014, and the workforce as a whole completed nearly 280,000 online courses. It also publishes a widely read paperback, The Little Blue Book of Customer Service, which has become a bible of sorts for parables on how to treat customers,” writes Williams.
From this small town in Minnesota, travel to another less-known location in the US—Kingsport, Tennessee—to Pal’s Sudden Service, which sells standard fast-food like hamburgers, hot dogs, chicken sandwiches, fries and shakes from 28 locations in northeast Tennessee and southwest Virginia, all within an 80-mile radius of its home base. What is so great about this company? Pal’s does not offer sit-down service. Customers pull up to a window, place their orders with an employee, pull around to the other side of the facility, take their orders and drive off. Other fast-food companies offer the same but here is what happens at Pal’s:
- It takes an average of 18 seconds at the drive-up window to place an order. That's four times faster than the second-fastest quick-serve restaurant in the country which requires more than a minute on average to take an order.
- It takes an average of 12 seconds to get the order. Hence, the firm’s name. When Fred ‘Pal’ Barger founded the company, he asked: what is faster than fast? Sudden service. The company’s slogan: “Great food in a flash.”
- But what about errors, when you try to serve so fast? Pal’s makes a mistake only once in every 3,600 orders. That’s 10 times better than the average fast-food joint. Speed and accuracy are interlinked. One reason customers pull away from the handout window in 12 seconds is that almost none of them bothers to check their orders before they drive off.
- Pal’s customers visit its restaurants an average of three times per week. McDonald’s customers visit its restaurants an average of three times per month.
- An individual Pal’s location requires only 1,100 square feet of space and generates $2 million of annual revenue, a sales-per-square-foot performance $1,800. The typical McDonald’s location generates less than $650 of annual sales per square foot.
Pal’s knows that its customers are in a hurry and that its job is to help them get on with their lives. And its treats them like adults. It does not ‘helpfully’ suggest ‘Would you like a drink with that?’ It gives back their time. Plus, the confidence that the bag has what they asked for. How does Pal’s manage to pull off such incredible efficiency? The key is hiring, training, sharing ideas with its employees. But here is a breathtaking fact: 90% of Pal’s over 1,000 employees are part-time, 40% between 16-18 years, a demographic slice that is notoriously taxing to manage.
Pal’s screens its new hires through a 60-point psychometric survey drawn from attributes of star performers. The selected candidates are put through massive amounts of training and retraining, certification and recertification. “New employees get 120 hours of training before they are allowed to work on their own, and must be certified in each of the jobs they do: grilling burgers, making fries, mixing shakes, taking orders. (Most employees are certified in as many as eight different jobs, although some specialise in just one or two.)”
Then, every day, on every shift, in every restaurant, a computer randomly generates the names of 2-4 employees to be recertified in one of their jobs—pop quizzes, if you will. They take a quick test; see whether they pass; and, if they fail, they get retrained for that job before they can do it again. (The average employee gets two or three pop quizzes per month.) The goal is for everyone at the company to be so good at what he or she does, to stay at the top of their game throughout their tenure at Pal’s, that the company operates at what it calls the ‘Triple 100’ –100% execution, 100% of the time, even when restaurants are operating at 100% of capacity.
These are just two stories, of the many that Williams narrates. They range from Metro Bank, which is challenging how banking is done in UK (which was dominated by five banks, who often work against customers’ interests), to an organisation that gave permanent homes to thousands, to a unique healthcare system for the local population in Alaska, to the John Lewis Partnership of UK and so on. This is a fascinating book that will open your eyes to how unique and successful some organisations have been by being dedicated to the interests of customers and employees simultaneously.
