Dan Florness, CEO of Fastenal, Real Leadership

Good morning.

People think about about us a lot of times in the products that we sell and we started with fasteners and that's hence our name fast and all but uh we're a supply chain partner. We we we we solve problems for our customers. If if I'm speaking to an audience that gets this reference, I'll say we're kind of like Radar and Mash. We we we we source stuff. We find that nobody else can get. And uh and and as time's gone by, we've we've just done that for more and more customers that more more more and more businesses out there because we're primarily B2B and we we solve problems. But as we've gotten better at it and and our scale has improved, we find we can source a wider and wider range of things and be special to our customer. But we're just solving their supply chain problems and bringing some sanity to sometimes a chaotic world because a lot of the things that we sell, you don't source a lot of them, but it's a lot of different things and so it's really noisy. And early on, what was a what was a light bulb moment for me is the number of times I'd be talking to a customer that spends 3 to 5,000 a month in the type of stuff we sell and they spend more in labor to manage that spend.

And they spend in the actual spend. And when that see the light bulb kind of comes on as it's it's it's there's a huge cost here that we can help simplify and it's a and it's a great market to play in and most of our competitors focus they tend to be very narrow in their in their product focus. They tend to be very regional and so the the the the scale of what they can do is is smaller and they can do it for one facility in Wisconsin or Minnesota, but they can't do it for a facility in Arizona because they're not there.

And if you have six facilities in the United States, if one of my facilities down in Birmingham, I can't help you, but Fast can.

Yeah. Yeah. And so it's really a case of we we solve supply chain problems for customers and have have some really weird stories of stuff that was going on, you know, during COVID when you can just imagine the things that weren't happening. But we're also proximitywise very close to our customers.

93% of the manufacturing base in the United States is within 30 minutes of one of our locations. So we can be inside your facility. And sometimes the art of supply chain isn't just getting you what you need. It's understanding what you need and understanding optionality. Cuz if I'm in your facility, I can see what you're doing. So it isn't a case of you're calling me or you're hopping on an internet site and ordering part A. You might be

ordering part A in the past, but you could actually use part A, B, or C. And what's the best solution for your need there? And sometimes the best solution is cheaper.

Sometimes the best solution lasts longer. Sometimes the best solution is something I can get you right now versus I can get you in 3 days.

And it's understanding that and but that's really what we do.

And we do it for 250,000 different unique customer locations on the planet in a 12-month period. But in a given month,

it's about 100,000 unique customers that are buying from us.

Yep.

So, I'm in college at University of Wisconsin, River Falls, not too far from, we were talking about Oaklair earlier.

I was an agricultural business major. I grew up on a farm in Western Wisconsin and River Falls, a great agricultural school. So, I went to River Falls and and started my sophomore year. I was I was kind of tired of being in school and I was going to I was going to quit. And fortunately, I had a I had a professor at college talked me into doing an internship. And I spent a spring and summer on an internship in of all places Wisconsin Dells Wisconsin working for Senex, an agricultural co-op. And I found that the business side was a lot more interesting to me than the agricultural side. So I got back and I deepened my egg business major and I took a lot of accounting courses because it's the language of business.

And then uh fall of my senior year, I stumbled upon a careerfare. I literally stumbled because I I wasn't planning on going, but I figed, hey, I'm a senior. I better start fig I grow up.

And there was a CPA firm that was there and they were recruiting on campus and and and I was tired of some of the folks I talked to. I got talking to this fellow. He used to play hockey at River Falls and I knew the name. Um he had graduated before I got there, but I just knew the name. So I was chatting with him. By the end of the conversation, he invited me in for an interview for an internship. So I went up to downtown Minneapolis and they interviewed and they offered me an internship. So I added accounting as a second major.

To get credit for the internship. I was very

And so so I worked there that winter and uh they offered me a job and I so then I had to fess up and I said, 'Well, I'm kind of an accounting major. I I'm close to graduating, but I won't be able to graduate in May. I'll be able to graduate in the fall if I if I keep my accounting major. I'd go to summer and, you know, school in the fall, but I wouldn't be able to start till the end of the year.' And they said, 'That's great. we'd rather you start in January. So, I started January with KPMG.

But, but it it happened because I stumbled upon an interview and I ended up spending 10 years at KPMG, most of it in Minneapolis. I spent a couple years out on the East Coast, just outside New York City and Northern New Jersey, and I was teaching for two years, but my client base just happened to be a lot of manufacturers and contractors and distributors.

And so, I really had an affinity for that. So when I moved back to Minneapolis from from the east coast, uh about a year after I moved back, Fastenol became one of my clients.

And and this was pre-sarbain days. This is when you could actually hire your auditor. I mean my story doesn't happen 10 or 15 years later.

Right. Right. Right. And so, uh, and because I was a farm kid, a lot of the outstate jobs, I I slowly inherited, you know, jobs in southern Minnesota, northern Minnesota, over in Wisconsin, southeastern Minnesota. So, Fastol became one of my clients and and after Fast became a client, I was telling my dad about it and he started rambling off all these facts about Fast and All and and about the founders and the stuff they had done from a philanthropic perspective for the community. M and I I looked at my dad and I said, 'How do you know all this?' He said, 'It's called reading and you should try it sometime.'

And you'll learn a lot. So I came down here and I knew more about Fastol because of talking to my dad about it.

And what I liked about Faston and when I first met the folks at Fastenol, Fastol is pretty was a little over 100 million in revenue but rapidly growing. But nobody in Fast had ever gotten the memo that there's things you can't do.

But but going back to your your premise of your question, yeah, I happened to just get a lot of uh clients throughout Minnesota and Wisconsin that were in similar industries because I didn't enjoy working on banking. So I didn't I didn't do any of that. I didn't enjoy working on insurance because there was a lot of options to do that. I needed to touch the product.

Because then it became more real to me. You can't touch a bank account. you can't touch an insurance policy. And that wasn't fun to me because I'm not really an accountant. I was kind of playing an accountant.

And so I like the business that Fast No was. And uh and I got to know the founder real well. And a couple years later, he called me up one day and offered me a job and and so my my wife is from grew up in Nina, Wisconsin. And and she had moved to uh Minnesota to go to school. She was living in Minneapolis. I met her when I moved back from East Coast. And when we were dating, I I I said to her, you know, even though I grew up on a farm, I like the energy of a larger city. And I planned on going to Chicago next. But I made this off-hand remark to her. I said, 'But there's this company I do business with called Fastenol down in Winona, Minnesota that if the opportunity ever came up to join them, I think I'd jump at it because I really like the people I meet. I like what they're about.' And her only reply was, 'Well, I'm in technology. I can I could be anywhere.' Then she paused. She said, 'Where's Winona, Minnesota?' and and I said, 'Oh, it's down near Lacrosse, Wisconsin.' And that was kind of the end of it. And then we get married and six months later, we end up down here. But but again, to your question, I was just working on companies that I enjoyed working on. But I but what I liked about a lot of the companies that I worked on, I was they were small enough that I was able to get to know the owners of the business because I wasn't working on the multi-billion dollar organizations. I was working on the hundred to $300 million organizations.

Bob and I had a lot of conversations in the two years before I came when I when I'd be down for quarter end because Bob was the CEO at the time and I was curious because there was a lot of things that I saw at Fast Now I'd never seen at other organizations and I asked a lot of questions about them because they were kind of confusing to me and partly they were confusing because they were sometimes organizations don't do common sense things. Sure. They do bureaucratic things. Mhm. fast did common sense things and I asked him for lack of a better description I asked him why you know and because I said this is this is what I see at other places and we had a lot of those kind of conversations and I think he found it refreshing now I'm reading into it he might have just thought hey this kid looks smart enough that I could you know we can invite him to join and he's willing to move to Winona Minnesota

when I first started working with Fast Now it was a little over I think it was 110 million when I joined and and Fastel was growing rapidly 30 plus% a year. Mhm. And so when I jo the the run rate when I joined was about 250 million. That's a big company. But shoot, compared to what you guys are now, I mean, you've been uh what an interesting 30 years this must must have been. So, uh, put it in context. Um, last month we did $37 million a day in revenue. So, at that run rate, that's about it takes us about seven days to equal what we did in the fast zone that I joined.

You it was more organic. You know, you one thing for me I because of my background and and because of the nature of our business, I found it really interesting to travel a lot and go out to Faststone locations, meet with customers. I wanted to really understand what we were doing. I mean, the first six months I locked myself in a room and figured out the cash flows of a distribution business and fast and all because um our founder was born in the his his parents had lived through the the Great Depression. Yeah. Yeah. So he he he he had an aversion to debt. Mhm. And we had figured out how to cash flow a business growing 30 plus% a year. And it's not an easy thing to do. But then we had to keep doing it because as we were going beyond the US and we were expanding and we're adding distribution capabilities. There's a lot of fixed capital you're spending and you really need to plan for that. So I really thought about fastel not in the traditional accounting debits and credit sense but purely in a cash flow sense. What can we cash flow? And I thought about the business as a checkbook. And and the nice thing about doing that, it makes it much easier to tell the story to non-accountants. So when I'm talking to fast employees, I'm talking to customers about how we fund things and how we could support your business with inventory. You can talk about it from the standpoint, well, here's how our checkbook works and here's what we can afford to do. And that's why we could make this commitment to you and know that we can honor the commitment because the math works and if the if the math works, you can do anything if the math works. cuz life is just a a continuous exercise in math. It's not accounting, it's math. I had the opportunity to do a lot of those kind of discussions and then over time facts o it was organic things would occur and all of a sudden we did this small acquisition and I'm helping run it initially. Mhm. We uh we had one acquisition we had done where we had kind of ignored it for a few years and the venue and our CEO at the time was frustrated with our manufacturing group that he called me up one day and I'm traveling. He says, 'Hey, Dan, would would you be willing to run the manufacturing division down in Illinois down in Rockford?' And I said, 'Yeah, sure.' I was I was I I wasn't sure if he was frustrated venting or if he was serious. And so I did that for a few years with the intention of turning it back to the manufacturing group, but we tuned it we tuned it up. because we didn't I didn't know enough about manufacturing to know what you couldn't do to fix it and so you try some things.

But then over over time it translated into there was some stuff going on with supply chain. So I got involved with product development and supply chain. Um our our national group was a little dysfunctional for a couple years and it was bad enough they had an accountant come in to get involved. And I'm embellishing a little bit because Bill Drescowski who leads national accounts today. Yeah. He was the person I tapped on the shoulder to actually do it dayto-day. I was supporting Bill. Sure. Sure. Sure. Bill was really doing it cuz I know enough about sales to get myself in trouble in conversations. But but Bill also knew when to use me to talk to customers. Yeah. In my CFO role, if if I'm engaging directly with customers, they see that as a positive, especially if I if I am fascinated about their business and asking a lot of questions about their business. Because the the best thing about being in my role today or my role of the last 30 years of Faststone, I got to ask questions about hundreds and thousands of different businesses and see how they operate inside the four walls cuz most people drive by buildings and you never know what's going on inside. Most businesses are fascinating cuz they're solving a problem in society. That's that problem might be food production. That problem might be, you know, energy production, but they're solving a need of society, a problem. And it's interesting learning the story of that business, how it even came to be, and why it's in Lincoln, Nebraska.

You know, a goal without a without a plan. And and math is just vetting your plan. But a goal without a plan, it's called a wish. I wish when I'm a kid. As an adult, you have to have a plan for what you want to accomplish. If it matters, if it's important and in and critical in that, and maybe this is my accounting and finance background, you have the math has to support what you want to do long term. Because if it doesn't support it long term, you're actually let you're actually setting people up for failure and you're letting them down because you're you're you're selling them a bill of goods that you know three years from now won't be there because if because if the math doesn't work, it's not sustainable. Mhm. The one part of math that I always talk it doesn't matter if it's a group of students or a group of fasto employees. It's a it's a rare experience. So So I'm old enough that when I went to college, we didn't have computers. We did have calculators, but we didn't have computers. they were kind of coming in towards the tail end of my college career and uh but in finance I learned the rule of 72 and there's not a group that I talk to that I don't explain the rule of 72 and I tell them the reason it reason this thing is so powerful it makes you sound smarter than you are because you can do math really fast right what's the rule 72 it tells you how long it takes something to double based on compounding and so if I know something is growing 9% a year. Mhm. I know that something that that amount will double in 8 years. 8 years. 72 divided by 9 is 8. And so it's just a it's a mathematical relationship of compounding that you take 72 divided by your annual rate of growth. It tells you how many years it takes your sum of money to double. Mhm. Or, you know, so if I'm a if I'm a $und00 million business and I'm growing 18% a year, it takes me four years to double in size. I've done the four-year math. You You sound really You sound really smart, but you're not. You just You just have You just have a shortcut. Yeah. Yeah. And and and I always tell fasto employees, I say, if you have if you have that in your head when you're talking to a customer about something, you can figure out what's going to happen 2, three, four, five years from now and then you can be better in a better position to make a promise to to a customer because you know how big it can be and what and how you're going to support it, how you're going to sustain it. Otherwise, you're just creating a problem for yourself in the future.

1987.

just before I got here, we when we went public, we were a $20 million distributor.

Yeah. We wouldn't go public for another decade, but we were 20 million. And our founder had a handful of reasons why he wanted to go public. One was when Bob started Faststone back in the late60s, he convinced four friends, three from Winona, one from Rochester that he worked with at IBM. Mhm. He convinced three four friends to to invest with him and for 20 years they all wanted to take money out money out because they saw this company growing growing growing and he kept saying to him he says hey guys you have you you're owner of a company that's growing 30% a year. There's not an investment out there that's better than that. Right? If you want to buy something go buy it and borrow the money or go buy it. Don't take money out fast because that that that that's a really bad financial decision. Mhm. So he kept them at bay for about 20 years and finally they were getting to the point where Bob, we own part of a $20 million company. We want to take some money out. Yeah. Going public allowed some liquidity for the founders. The second thing was um four of the five founders had grown up in Winona. They all went to the same Catholic high school. And there was Winona had a Catholic university that was closing. It was called Cal St. Teresa. And Bob wanted to set up a foundation and buy the campus and move their old high school into that campus. And so he he had philanthropic things he wanted to do. That was the second reason. The third reason was Fastel was growing faster than we could self-fund. Mhm. Even I mean we could selfund 32 but we were growing 36 37 38%. And we were taking on some debt. And so Bob wanted to raise some capital to fund the growth. Yeah. And then and then the fourth one was it's very difficult short short of doing a like an ESOP. It's very difficult to allow your employees to own part of the organization as a private company. A lot of there's a lot of rules. Yeah. And going public afforded the employees of Faststone. If they so chose they could they could have a part ownership in the company they worked at. So those were the four reasons that we went public in in 1987 as a $20 million distributor. Wow. Wow. We did an ease up a couple years ago. U but it is it's it's hard to find ways to let folks share in that. Um when did the spark of becoming a the CEO light for you? Did I mean was this was this like your grand plan from the early days or or is it when did it hit you or when did it first come up um through your through your tenure there? In all cander, when I joined, my my concern was can I keep up with these folks because the people I met at Fast Now, I was in awe Yeah. of the the business they they were operating. And then after I joined it, it it realized I I I realized, you know what, I have a unique skill set coming in. So, I can be special within fastenol in this financial role. But but it was a very operationally slanted financial role. Right. Right. Right. I got involved running different pieces. You saw that the skill set was transferable and and and you you start to see how people react to leadership and your style and how you can empower people. And and I and I had a lot of people around me that u I'm a firm believer and I tell this my kids all the time. Life is real simple. Surround yourself with people that are better than you. Cuz people you surround yourself with either bring you up Y or they bring you down. Y you need to surround yourself with people better than you. And then on the day that they're having a bad day, you need to be there to support them. That's what friends do. And if you do that, you'll be more successful in life and you'll have a more enjoyable life. And so over time, I I learned a lot from these great people at Fast Now that I was sharing life with. And you slowly learn more and more things as time moved on. And I, you know, when Bob stepped out of his role and our next CEO came in, you know, everybody has a a certain shelf life. Sure. And as it got to the end of that shelf life, uh, there was some changes going

A different CEO was named and it wasn't me. I wasn't necessarily expecting it to be me, but I saw some things that were not working well after that.

And I love the way we solve problems. And they saw something special there. So in the fall of 2015, on a Monday afternoon, I learned that I was going to be the next CEO of Fastenal.

Our earnings were down and it was just a really bad period. We were after 50 years of having two CEOs, I was going to be the third CEO that year. In fairness, the second was the old one coming back for a short period.

Mhm. But I get home that evening and my kids were there. I was chatting with them a little bit. The first question my kids would always get is 'What'd you learn at school today?' Then I said to my wife, she said, 'How was the board meeting? How are you ready for the earnings release tomorrow?' I said, 'Yeah, it was a weird day.' She said, 'What do you mean?' I said, 'An hour and a half ago, I found out I'm the next CEO of Fastenal.' And she looked at me and said, 'Oh, congratulations, Florness.' I said, 'But that's not the weird part. You know how in cartoons you have the bubble that comes out? There's this bubble: Dan, we'd like you to be our next president and CEO. And I'm still absorbing that first bubble. And then they slipped a second bubble in there: Dan, we think you should get a coach because everybody before you has had a period to kind of step into the role.'

I thought she was going to say something like 'What the hell are they thinking?' I was expecting something like that or maybe worse. And she looked at me seriously and said, 'Well, are you going to do it?' I said, 'What?' She said, 'Are you going to...' She said, 'Your board just gave you an olive branch. They want to improve your odds of being successful. If you don't even consider it, maybe they made the wrong choice. You can't screw this up for 20,000 employees. There's a whole bunch of shareholders.' Then she paused and said, 'Florness, I'm one of them. You can't screw this up for the shareholders. If getting a coach improves your odds and you don't consider it, I think you're an idiot.' So what does a smart husband do? He gets a coach.

But I learned a lot from that coach about leadership and about things you do that foster leadership and things that are frankly derailers. It really got down to a few people that I had a tough relationship with. One in particular was head of HR. I realized that the reason we had difficulty in our relationship was me — I was 90% of the problem. She was 10% of the problem, not because she was wrong, but just odds. But I think going through that process — being comfortable talking to customers, having confidence from the board, and learning about yourself — those three things together made me realize I can do this. But like anything else in life, to be successful you need to surround yourself with great people. Over my 11 years as CEO, I slowly realized the people around you are more important than you. Make sure they know it. Make sure you engage with them and are candid with them because they know you trust them and value their opinion. And actually listen to their opinion, not for lip service, because you're looking to discover the best answer. I don't want to convince everybody that I'm right. I want to discover the best answer. If there are six or ten people around you, everyone should bring the best answers depending on the topic. You solve problems together and build a cohesive team. We have a great leadership team. That's why we're successful. But it's all those steps that make you realize you can do this because you're a leading member, but you're a member of a great team.

Earlier you talked about the business going from 250 million to 8.2 billion. This year we'll do a little over nine billion in revenue. We're not an 8 billion organization; we have 240 district leaders — 240 districts covering smaller geographies that average about $34 million a year each. If you think of the business as 240 districts doing $34 million each, what you described is very doable. If you think of it as an 8.2 billion global distributor in 26 countries, decentralization is scary. To me, the only thing you can truly control is the first thing you do in the morning when you put your feet on the floor. Everything else is influenced by someone else. You have a say, but finite say. I don't believe you can control others; you can influence, challenge, encourage. That's how we operate. As CEO, especially over the last eight years, I've spent about 30% of my time in one-on-one conversations with district leaders, asking them about their business, understanding why they're successful. I travel with them. I spend a fair amount of my time traveling with district managers. Even though I'm retiring in July, I'll still support our new CEO. He asked if I'm still willing to travel. When I spent two weeks last year in Southeast Asia visiting Fastenal locations, it meant a lot to them because they don't always get attention. Going in for two weeks tells them how important they are. I'm going to start in Poland and work through Central Europe. By traveling with district managers, you learn so much. That makes decentralization powerful because you ask questions about what we're doing to throw sand in their gears. Sometimes we mess things up; sometimes we just need empathy. You discover little things that help them that you didn't know were impactful, and you amplify them.

Not only do you learn more, you learn ownership. If I tell you to do something and it's a dumb idea, and something fails, it's my fault. You don't have ownership to fix it. If I ask you what you think we should do, and you come up with a solution that's less than optimal, you have ownership to fix it. If you break something and fix it, you learn that it's okay to break things, but you have to own it. Your customer sees how you react to problems. Customers want to know if you'll own it when things are less than optimal. Because we break things every day. Customers want partners who are willing to try new things and care enough to own problems and fix them.

Yeah, those are the big relationship moments. When things go sideways, how do we respond? It's not the absence of problems that defines the relationship; it's how we deal with them. I really believe you cannot manage somebody into a leadership role. If someone is in a role because they did what someone else told them, that's not a leader. So do you think you need to select people with potential to be leaders? Most people can lead. Those who aren't leaders in a business setting may choose to be leaders in other aspects of their life. Being a leader is gaining confidence without arrogance. Being a leader is being vulnerable. One thing we did about eight years ago was create a corporate university, the Fastenal School of Business. I challenged everyone to figure out what they'll study and why, and dedicate at least 30 hours a year. If you're part-time, 15 hours, that's a message to our leaders to encourage people to feel they have permission. This is during the workday. I sat down with Pete Giddinger, our head of the school, and said I realized how meaningful the coaching experience was. We couldn't do six-month coaching for all leaders, but I wanted to start with about 500 leaders and create a course. We created a leadership course called LDR450. We interviewed leaders throughout the organization and boiled it down to 24 competencies in five categories. The first category is develop self — the habits you have daily to develop your personal skill set. If you don't know more tomorrow than today, you're not the best leader. The second is develop others — how you challenge your team to develop themselves. If you do those two, the rest becomes easy. The other three are direction, alignment, and commitment. Direction is describing where you're going. Alignment is how you align resources. Commitment is getting trust that you're committed to the path. That doesn't mean the path doesn't evolve; you tweak things. When you provide that tool, leadership isn't scary. It's partly mechanical. A coach provided techniques to improve my odds. Anybody can do that, but it has to be a priority. Some people aren't willing to be vulnerable or wrong. Arrogant leaders are bullies, not leaders. They can be successful, but it's not fun.

A decade ago when I stepped into the role in fall 2015, I defined what success looks like. I thought 10 years would be nice. Then I had conversations with my wife. Our youngest graduated high school in 2023. My wife Jenny moved to Winona, Minnesota because I asked her to, eight months after we got married. I thought she might want to do things because it hijacked her career. We have four kids. It's her turn. I hit 30 years at Fastenal on June 17th. I wanted to be in the role until then. I stepped out of the president role about a year and a half ago. I wanted to be in the role, and it logically ended at the end of a quarter, so mid-July. My wife and I have joked about getting a sprinter van and camping, going from Big 10 city to Big 10 city for college football. We'll see if we can put up with each other. We have a farm an hour from Winona that's been in my family for 100 years. We built a house there. I think 10 years is a good number for a CEO. Longer might get stale. I'm 62, so I want to step out while I still have energy. I'd rather step out a year too early than a year too late.

I don't know the answer to that yet. You'll be in an RV! Yeah, I'm a Big 10 guy. My oldest son went to Ohio State, another to Purdue. My wife and I enjoy doing stuff. I'll be at venues. Probably a rare Packers home game I won't be at. I'm serving on a couple boards. The brain still needs to work. You need a reason to get up in the morning. You can't just tell stories from 10 or 20 years ago. You need stories from last week. Builder's got to build. So you need a way to create new stories.