Billionare Paychex Founder, Tom Golisano, Shares How to Build a Successful Company

Tom Golisano built a $30 billion company with $3000 and a credit card. How did he do it and what wisdom does he have to share with entrepreneurs starting their first company? Click here to listen to Tom’s segment on The Small Business Radio Show, or continue to read the transcript of the interview below.

 

00:03 Speaker 1: Get ready for all the craziness of small business. It’s exactly that craziness that makes it exciting and totally unbelievable. Small Business Radio is now on the air with your host, Barry Moltz.

00:16 Barry Moltz: Well, thanks for joining this week’s radio show. Remember, this is the final word in small business. For those keeping track, this is now show number 575. It is Leap Day 2020, another day to get unstuck and really show your brilliance in the business world. This episode is provided by Nextiva, the all-in-one communications platform for your small business. It’s also sponsored by LinkedIn, the place to generate leads, drive traffic, and build your brand awareness. For a free $100 credit to launch your campaign, go to www.linkedin.com/sbr. We’re also sponsored by vCita, all you need to run your business in one software, try it for free at www.vcita.com, that’s V-C-I-T-A dot com and use barry10 for an exclusive discount. We’re also supported by Blue Summit Supplies, get your W2s and 1099 tax forms and all your business supplies at www.bluesummitsupplies.com/sbr, use the code SBR10 at checkout to save 10% off your order.

01:28 S1: Well, my next guest personifies the American dream. He built a company from $3,000 and a credit card to having over a $3 billion valuation. Tom Golisano is an entrepreneur, philanthropist, civic leader, and former owner of the Buffalo Sabres NHL team. He’s also the founder and chairman of the board of Paychex. With more than 15,000 employees and 100 locations nationwide, Paychex is the leading provider of payroll, human resources, and benefits outsourcing for small and medium-sized businesses. Active in both business and philanthropy, Tom currently mentors the entrepreneurs who run businesses in which he has invested and oversees his family’s charitable foundation. To date, he’s donated over $300 million to a wide range of charitable causes. He’s just come out with a great new book, it’s called, Built, Not Born, it’s a how-to guide to help entrepreneurs. Tom, welcome to the show.

02:26 Tom Golisano: Nice to be here with you this morning.

02:28 BM: Well, I know you’ve told this story many times, but please go back for our listeners and tell us, how did you start a company on $3,000 and a credit card?

02:37 TG: Well, I was a salesperson, a sales manager for a payroll processing firm that specialized in doing payroll processing for larger companies, 100 employees or more. But you drive down any street in the United States, you’ll see most businesses have less than 100 employees. In fact, at the library, I found out 98% of all businesses in the US have less than 100 employees. And nobody in the payroll processing business was directing their efforts towards that low end of the market. So I started a company. You were right, $3,000 and a couple of credit cards, the credit cards lasted about three months before the vendors took them away [laughter] because I couldn’t keep up with the payments. It started out slow. It took me four years to get the first 300 clients. And today, Paychex signs up about 2,000 companies a week, to give you an idea. Right now, we’re processing the payroll for 670,000 companies…

03:37 BM: Wow.

03:39 TG: Plus providing human resource services to those organizations. So I’ve got a lot of experience and a lot of background with entrepreneurs. First of all, I love them and I think they’re great for this country. I think they’re great for America. They are the ones that are the major job creators. And as you work with them, you realize that sometimes, they make mistakes, like the mistakes I made. So I wrote the book with the idea that whatever ideas or concepts I could give them to help them be more productive and more efficient, I thought it would be a real good idea.

04:12 BM: So Tom, go…

04:13 TG: When I wrote the book, it was real easy for me. As a matter of fact, I was talking to a book publisher on the phone, and while he was talking on the phone to me, I wrote the table of contents, the chapters I wanted to cover. And as you go through the book, you’ll see ones that are very, very important to entrepreneurs.

04:35 BM: So one of the things I wanna go back before we discuss the book is you said that it took you four years to get 300 clients, and I think that’s important because a lot of times, people look at a success story like yours and they think that it happened overnight, but it really didn’t.

04:49 TG: It didn’t, and that’s one of the interesting points about entrepreneurship. Dealing with entrepreneurs, sometimes they get over-enthusiastic about their ability to sell customers or clients. And when they hang up their shingle or they put up their sign whatever, and they think the world is gonna come to them, and they soon realize that it doesn’t work that way, that they’re gonna have to go out to the world to bring the world to them. And it takes work, it takes hard effort, it takes time and so forth. But I think that’s the biggest, most classic mistake entrepreneurs make, they over-anticipate their ability to sell their product or service.

05:27 BM: And why do they do that, Tom? Do you think because they’re just too optimistic or they’re too in love with their service, and it’s… Or if I build it, they will come, and people naturally just buy it?

05:37 TG: Yeah, I think they get caught up in the enthusiasm, and in a way, you can’t blame them. Starting a business without enthusiasm would probably be a mistake. But they are over-enthusiastic, in my opinion, and they over-project what they’re gonna be able to sell to their customer base.

05:56 BM: Right, because somewhere along the line, those customers have probably been getting along almost just fine before you came along, actually switching to your solution is actually harder than you think.

06:00 TG: Yes, particularly back when I started in the early ’70s, payroll processing for small companies… Today, our average-sized client has 15 employees. So that’s how it looks or defines for a small. Payroll processing wasn’t even thought of for that market at that time. So we were kinda new to the market. We did some things that made our product a little more favorable to small companies, and obviously it worked over a long period of time.

06:38 BM: I think one of the most difficult things when you start out is to get other companies to trust you, and I’m thinking, how’d you get these companies to trust you to do their payroll, which is probably one of the most sensitive things they have?

06:51 TG: Well, I’d like to say it was my smart sales ability and so forth, but it took us a while because people were reticent. Handling the company’s payroll is a very personal thing, especially in a small business. The owner is usually very concerned about confidentiality and doesn’t want the word to get out in the street what his payroll’s all about. So they are reticent… We’re reticent. But today it’s a lot different story, Barry. Most companies that start up now think about payroll processing, but I’m gonna give you an interesting statistic. Through all the payroll processors combined in the United States today, and there are a lot of them, we only have combined 20% of the potential marketplace.

07:34 BM: Wow.

07:36 TG: So there’s room for growth for all the payroll processors, obviously, including Paychex.

07:41 BM: Wow, that’s crazy to me because the advice I always give to small business owners, as soon as you get your first employee, you’ve gotta outsource your payroll. Because maybe ’cause I made that mistake in my business where I didn’t, and the IRS shut me down because I didn’t remit the payroll taxes or what I collected from my employees on time. That’s a funny thing about that, Tom, they get upset about that.

08:02 TG: [chuckle] Yes, they do. And the burden is big, too, for an employer. For example, if you have five employees in the state of New York, you have a minimum of 52 payroll tax returns and payments that must be made on a timely and correct basis. And if you don’t do it correctly and timely, the fines are pretty severe.

08:25 BM: Wow.

08:26 TG: So relying on a payroll service like Paychex is really a good move for a new entrepreneur.

08:32 BM: So another thing that new entrepreneurs face, Tom, is to try to figure out how much money they need to run their business, and I remember in the early 2000s, when I was an angel investor, a guy pitched to me and said, “Well, to get started, I only need a million dollars.” And I’m thinking, “Yeah, I only need a million dollars, too.” But how do you figure out actually the amount of capital that you do need to start your business?

08:54 TG: Well, it’s not an easy thing. And of course, you have to go through the process of doing sales projections, and the amount of sales revenue you bring in is gonna be the biggest indicator of how much capital you’re gonna need. And because entrepreneurs have a tendency to over-enthusiastically speculate what their revenue is gonna be and it doesn’t happen, then they end up with what they call a cash flow problem, but it’s really a sales problem. Having industry experience before an entrepreneur opens up their business is a very important thing, I believe. I was fortunate enough, I worked for a payroll processor, maybe directed its services to a different market that I went after, but having that industry knowledge, for any entrepreneur is very, very important.

09:43 BM: So Tom, how do you figure out the right amount? ‘Cause I’ve always said that sometimes entrepreneurs raise too much money, and too much money gets them to be lazy and stupid. How do you make sure you don’t waste it?

09:55 TG: Well, a lot of times, that depends on the source of the money. If it’s your own money, you may have a tendency to be a lot more careful with it.

10:06 BM: Right. [chuckle] Where you should be more careful with other people’s money.

10:10 TG: That’s exactly right, OPM.

10:12 BM: Right, OPM.

10:14 TG: But I’m sort of an investor myself in a number of businesses, and that’s always the $64 question. How much money do they really need and where is it gonna come from? It’s probably the biggest area of concern for any entrepreneur.

10:30 BM: And so how do you help them through that? Do you help them through what the cash flow is gonna look like a year or two years from now?

10:36 TG: So, the way you help them through is to sit down with them and look at their projections and make sure they’re realistic. Example, in the case when I started Paychex, I knew how much of revenue was gonna come in from each customer. I had an idea of how many customers I could sell a week, a month, or a year. Then I took that revenue and multiplied it by the number of customers, and then I took a look at what my overhead was. And for example, if a customer brought in $15 a pay period every week, and I had 100 of them, that would be $1,500 a week. Now, what is my overhead to service those customers? And that’s pretty easy to determine, I know I probably have to have two or three employees, and the cost of processing and so on and so forth. So it’s pretty easy to do. And I think any entrepreneur that goes into a business should have a real good idea of what it takes to make a profit starting with the sales volume and compare it to their expenses.

11:44 TG: I think any entrepreneur starting a business can put that on one piece of paper, one page, if a business plan should be: How many clients do I need? What’s gonna be my profit margin per client? And how much capital do I need to get to that point?

12:00 BM: So one of the things as you’re giving someone capital, you’ve gotta negotiate what the equity deal is gonna be, and I know that the philosophy for your company is a good deal for everyone. Tell us about that, what does it mean a good deal for everyone? Is that possible?

12:16 TG: I think it’s very possible, and I think it’s also a quality way to operate a venture. The people around you, the people you associate with, if they’re not doing or if they’re not getting a decent deal from you for whatever the service might be or equity in the company, they’re not gonna stay with you. So I really believe that making deals that are good for everybody is very important. Now let me tell you how Paychex became a national company, this might help explain this question. After I got started in Rochester, New York, and had those 300 clients, I started getting individuals involved in setting up payroll offices, Paychex offices in different cities around the country. As a matter of fact, in a four-year period, I brought in 17 more people. 17 different people that all basically lived in Rochester, New York, and moved to various parts of the country and started a Paychex operation.

13:16 TG: Did that for a number of years, four or five years, and then we decided we would form one company. We would band together these 17 organizations, we would all become employees and shareholders. We had a five-year plan to open offices and develop our sales force for the first three years, focus on profitability the next two years, then eventually sell the company or take it public. Now, when I convinced or made the sales pitch to these people to consolidate into one company, I was trying to make a good deal for everyone. Now you mentioned, we have a market capitalization of the company of $31 billion today, the smallest shareholder of the new organization own 1.5%. Now, you can multiply 1.5% times $31 billion.

14:11 BM: That’s a lot of money.

14:11 TG: It’s a very sizable dollar amount. So it ended up being a great deal for everyone. And that’s sort of the basic philosophy, when I get involved with an entrepreneur or entrepreneurs. How is this gonna be good for everybody?

14:24 BM: I really like that, because I think that in the world today, in politics, in current events, it always seems like you win, I lose. And I think that in business, if everyone can come out ahead, everyone’s happier for it, and you have a greater chance of success.

14:40 TG: The only place you win and somebody else loses is in politics.

14:45 BM: Right. Or sports, or sports right?

14:47 TG: [chuckle] Or sports.

14:48 BM: Absolutely.

14:48 TG: Yeah, but sports, at least you can come back next year.

14:51 BM: Exactly. Let me ask you one last question. One of the things that has always puzzled me is, how do you train a entrepreneur to become a good leader and a manager? Because I was fortunate enough, Tom, that when I started my career for the first 10 years, I worked for IBM, they promoted me to a manager, they sent me away to charm school for a month, and I got a lot of experience and training to be a manager, but most entrepreneurs don’t. They don’t know how to really delegate and lead. What advice do you have them for that?

15:20 TG: Well, there’s some basic principles of that, and it’s gonna sound so basic, people will probably scratch their head and say, “Is that right?” Here it is, treat people the way you wanna be treated. That’s the number one goal of good leadership: Honesty and integrity, and treat people the way you would like to be treated, and then they will follow you. Now, I believe if you’re an entrepreneur with a certain skill level, let’s say you are at three. With work, with experience, you could become a six or a seven, or maybe a six can become a nine. Everybody has the opportunity, especially and including employees at small companies, to become more entrepreneurial than they are.

16:08 BM: I like that a lot. It’s trying to improve what you have, [16:09] ____ how the book is called, Built, Not Born. People can get it at Amazon, but Tom if they wanna learn more about your journey, where can they reach you?

16:22 TG: Yeah, there’s a website that you can go to.

16:24 BM: Called Tom Golisano?

16:27 TG: Yeah.

16:27 BM: Tomgolisano.com, it’s T-O-M-G-O-L-I-S-A-N-O dot com. Tom, thanks so much for being on the show and thanks for everything you do to help out entrepreneurs.

16:37 TG: It was a pleasure, thank you much.

16:39 BM: This is AMA-20 WCPT in Chicago. We’ll be right back.