Tom Golisano picked up the phone. His brother-in-law,
Nyhl Austin, an engineering student at RIT, wanted some advice.
"He came over to the house - it was a Friday
- and we sat down at the kitchen table and he said, I got my
first co-op job offer from Sybron Corp., but I don't know if they're
paying me enough,' " Golisano recalls. Sybron was offering $107
per week - a goodly sum in 1964 and, to Golisano's surprise, somewhat
more than he was making in a management position for a Rochester
Golisano told Austin to take the job. On Monday, he went back
to the bank and resigned.
Then B. Thomas Golisano, with this sideways glance at RIT, began
a journey to make himself master of his own fate. He ultimately
founded Paychex Inc., the phenomenally successful Rochester-based
national provider of payroll, human resource, and benefits services
for small- to medium-size businesses. The company posted earnings
of $190 million last year, up 37 percent from 1999, marking the
10th straight year of record earnings.
Such enviable performance has made Paychex one of the safest
bets on Wall Street. In January 2001, the company made the A-list
in the Business Services section of the Forbes Global rankings
for the second year in a row. The company's consistently high
price-per-earnings ratio (the price of a stock divided by its
earnings per share) demonstrates tremendous investor confidence
in Paychex' future prosperity. The company's market capitalization
(the share price times the number of shares outstanding - in other
words, the total value of all stock) is now equivalent to $15
It's been quite a ride, and it all started 30 years ago on the
streets of Rochester.
At that time, Golisano was working in sales for Electronic Accounting
Systems, a payroll processing company serving large companies.
"I was just driving down a commercial street one day and I thought,
you know, most of these businesses are very small," he recalls.
"And I went to the library and confirmed that 98 percent of all
businesses in the United States have fewer than 100 employees."
Small companies, he reasoned, need even more help handling payroll
companies because they tend to be less sophisticated in dealing
with complex administrative issues. Here was an untapped - and
potentially huge - market.
Golisano put together a plan for serving those businesses and
took it to his employer - twice. EAS wasn't interested. So, in
1971, he took his good idea and $3,000 and started Paychex.
Overnight success eluded the determined entrepreneur.
"I sent out 1,500 pieces of direct mail," he remembers. "I needed
about 75 clients to break even. I think I sold six. I had to beg,
borrow and steal for the next three or four years."
Tough times indeed for a married man with two small children.
"Payroll processing services for small companies, when we first
started, were unheard of," he explains. "People were very shy
and conservative relative to sending that kind of information
out of their office."
It's a tribute to his perseverance and the quality of the fledgling
company's work that he reached his original goal of 300 clients
in less than five years. As the company picked up momentum, he
arrived at another crossroads. A friend and former co-worker wanted
to get involved. They decided he should open a business in Syracuse.
"The major decision that was very important was that I decided
to expand geographically rather than to expand the product line."
In a five-year period, he formed a network of 17 operations around
the country, each a separate corporation with Golisano as franchiser
Then the light went on again. "I woke up and realized we had
the opportunity to build a national company," he says. But he
also realized that wouldn't be possible with 18 separate companies.
In a six-month period, culminating in an all-important meeting,
he persuaded the 17 partners and franchisers to go along with
his plan for consolidation in 1979. As a unified, larger company,
Paychex achieved a stronger financial position. Four years later,
the company went public.
In subsequent years, Paychex has expanded its services, helping
clients with human resources functions such as retirement plan
record keeping, workers' compensation services, flexible spending
accounts, and other offerings. Also, the ever-expanding web of
state and federal regulations employers must follow, and the wide
array of benefits now offered to employees, have made payroll
a much more complex function.
The growth potential remains enormous: There are 5.7 million
businesses in the markets served by Paychex today, Golisano says,
and Paychex' 360,000 clients represent only about 6 percent of
the total. So far, the company does business in more than 100
cities in 36 states, so there's still plenty of untapped domestic
geography. And there's been talk of expanding overseas.
At age 59, the chairman, president and CEO of Paychex hasn't
lost his passion for the business.
"I enjoy it," Golisano says, "and the leverage is huge. Let me
explain: Paychex has 375 million shares outstanding. If, by doing
a good, quality job our stock price increases by 20 or 25 percent,
think of the financial impact that has on people. It's huge. A
25-percent increase in our stock is $10 a share today, times 375
million shares, that's almost $4 billion in financial impact to
a lot of people, including a lot of our employees.
"Conversely, if the company doesn't do well and goes down 25
percent, it's a huge financial impact for everybody involved.
"So it can be intense," Golisano says, "which makes it fun."