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Golisano built Paychex into a success story

Paychex Inc.’s new CEO calls Thomas Golisano and the company he founded a true legend in the annals of business history.
But it took years for the Penfield-based Paychex that Jonathan Judge now directs on a day-to-day basis to become a billion-dollar company. Both the company and the entrepreneur who founded it struggled for years before they hit their strides.
Golisano, 62, founded Paychex in 1971. But it was not his first entrepreneurial venture.
He grew up in West Irondequoit, the youngest of three children of Samuel, a heating contractor and salesman, and Anna, a seamstress at Hickey-Freeman Co. Inc.
He worked as soon as he could by delivering newspapers, cleaning bowling alleys and supervising a skating rink.
After graduating from West Irondequoit High School, Golisano found his first full-time job-opening packages of cash in the basement of Lincoln First Bank sent over by neighboring department stores and counting the bills.
Bored with the work and wanting more, Golisano went to SUNY College of Technology at Alfred where he earned a tuition-free associate’s degree in business.
After graduation, Golisano worked for a few years as a sales rep for Burroughs Corp. and at a regional payroll processor for big businesses, Electronic Accounting Systems Inc.
There, Golisano developed his idea of providing payroll services for businesses with 100 or fewer employees. After EAS twice turned down the idea, Golisano left in 1971 to start Paymaster-the future Paychex.
In an interview with the Rochester Business Journal in 1999, Golisano talked about his goal in 1971: selling 300 clients in Rochester “and living happily ever after.”
It took him four years to break even and five years to get his 300 clients. During that period, Golisano and Paychex lived on dedication and help from friends and family.
“We had $3,000 in cash when I started, borrowed money or consumer-type loans, and I used my MasterCard and Visa card and American Express card the best I could,” he said in the 1999 interview.
“(I) borrowed some money from family and a little bit from friends, and went about five or six years without getting a paycheck. Fortunately, my wife at the time, Gloria, did work for a non-profit in the community and that helped a lot, but it was a real shoestring operation.”
Paychex today is one of the nation’s two largest payroll providers. The firm has more than 9,400 employees and some 505,000 clients across the country along with its recent expansion into Germany. In fiscal 2004, the firm logged $1.29 billion in revenues.
One of the best decisions Paychex made early on to help its growth was to focus on providing payroll services for the small-business market, Golisano said. As the company began to move from a local firm to a national one, it maintained that focus.
Paychex initially was called a service bureau business. The usual path for such a firm was to begin with payroll and then take on other business accounting chores, such as receivables, payables, general ledgers and inventory.
Instead, Paychex opted to stick with what was working so well in Rochester.
“Paychex made a decision and that decision was basically we were going to stay in the small-payroll company niche,” Golisano said. “We made a decision we knew how to do it in payroll and make it successful, and we thought it was relatively simple, so the task of opening another branch in another city was relatively simple.”
Even today, the small-business market has enormous potential for the company, with more than 80 percent of the market untapped.
“It wasn’t the business model that was difficult for us, it was managing the growth and managing the people and creating the right combination of equity versus employer-employee relationship and all that,” Golisano said.
Golisano’s tenacity helped Paychex continue to grow-it went public in 1983-through stock fluctuations, economic downturns and the high-tech boom at the turn of the century.
Part of his endurance comes from his early family life. As a teenager living in Irondequoit, Golisano saw both of his parents go bankrupt, a life-changing event for him.
“I think at that time I made up my mind that if I was going to accomplish anything, (it) is to have some sort of level of economic freedom and safety level so that wouldn’t happen to me,” he said in the 1999 interview.
As an entrepreneur, Golisano has said he never takes risks without having an alternate plan in case the risk backfires. He did his due diligence before founding Paychex and spent several years looking at small businesses, including starting a small one, Bidder’s Guide.
He knew going into the Paychex venture that the worst-case scenario would be his return to a sales career with another company.
“It may have been a short-term economic disaster but certainly I was going to be able to recover,” he said.
He since has founded, co-founded or helped fund the startup of a number of other companies, including a records management firm, a specialized radio broadcast company, a storage business, an alternative health care center and an Internet firm.
Golisano, now a billionaire, is known for his passionate interest in both state politics and philanthropy. He has run for governor three times.
When he announced Monday he was giving up the duties of CEO and president, he reiterated his concern for the welfare of the citizens of the state. Although he declined to discuss his political plans, he said, “I am committed to political reform.”
In his 1999 interview with the Rochester Business Journal, he discussed his passion for state government reform. As the consummate businessman, he knows how the state should be run, he said.
“I certainly am keeping my options open (on whether to run again),” he said this week. “I think a lot of it is going to depend on my perspective on how the state’s doing.
“I had no intentions, quite frankly, in early 1998 to run until I saw the budget issues and the 8.5 percent budget increase and started doing some research on the debt. … So a lot would depend on how well the state is doing. I am certainly in a position to do it if I want to do it again.”
Earlier this year, he was named the most generous philanthropist in the nation by the Association of Fundraising Professionals, the largest association of charitable fund-raisers in the world.
AFP chose Golisano for his long list of charitable acts, including donations of:
— $5 million to Thompson Health in Canandaigua to help create the Golisano Center for Emergency and Diagnostic Medicine;
— $14 million to Strong Children’s Hospital, now the Golisano Children’s Hospital at Strong and part of the University of Rochester Medical Center;
— $14 million to Rochester Institute of Technology to develop a college that incorporates computing and the Internet with information sciences;
— $5 million to Roberts Wesleyan College to build a library and information resource center; and
— $5 million to Nazareth College of Rochester to help renovate the institution’s academic complex.
His gifts to the Golisano Children’s Hospital, Roberts Wesleyan and Nazareth College were the largest charitable contributions those organizations have received.
Golisano also created the B. Thomas Golisano Foundation, which awards grants to organizations working with the disabled and their families. He serves on the executive committee of Prevention Partners Inc., a Rochester coalition combating illegal drugs and alcohol abuse.
He also has chaired the successful capital campaigns of two local non-profit organizations, the School of the Holy Childhood and the Al Sigl Center for Rehabilitation Agencies Inc.
Golisano plans to spend more time on his charitable works now that he no longer is concerned with the day-to-day running of Paychex, he said this week. His focus is not on any particular segment of the non-profit world, but simply on Western New York, he said.
(rbj@rbj.net / 585-546-8303)

10/08/04 (C) Rochester Business Journal

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