How to Build an Inc. 500 Company

Tom Golisano did it once with Paychex. Now, he's out to do it again -- and this time he knows what he's doing

We tend to be skeptical of people purporting to have models for creating growth businesses. Not that we're against such models per se. It's just that the people who peddle them seldom know much about building a company. When the speaker is Tom Golisano, however, we sit up and take notice.

At 46, Golisano is a compact, combative, street-savvy entrepreneur who moves the way he speaks -- in short, aggressive forays. What he knows about business (a lot), he taught himself. His school was his company, Paychex Inc., a payroll processor he started in Rochester, N.Y., in late 1970. We ran into him 12 years later, when his company landed in the #8 spot on our first listing of the 500 fastest-growing private companies in America.

Back then, Paychex was still a minor player in an industry dominated by another entrepreneurial wunderkind, Automatic Data Processing Inc. (ADP), but Golisano was determined to change all that. Over the next six years, we watched as he took the company public, fought off challenges and friendly acquisition offers from ADP, and built Paychex into a $79.5-million business, with 1,700 employees in 62 cities. Along the way, he developed a track record of remarkably consistent growth, racking up annual increases greater than 20% in income and revenue for five consecutive years. It is a record that has played well on Wall Street: the last time we looked, Paychex was trading at 30 times earnings.

On the day Inc. visited, Golisano was flushed with excitement over the recent victory of fellow Rochester native Jeff Sluman in the PGA Championship in Edmond, Okla. To be sure, his pleasure stemmed in no small part from the presence of a Paychex visor on Sluman's head during the national telecast. But there was more to Golisano's pride than that. Here, after all, was another favorite son bucking the odds -- a Rochester kid playing a Palm Springs game, joining combat with the world's elite, and beating them all. Golisano liked that. He liked it a lot.

Editors Bo Burlingham and Michael S. Hopkins interviewed Golisano in his Rochester office.

INC.: Do you think there's a way to plan long-term fast growth?
GOLISANO: Yes, absolutely.

INC.: That's certainly not what we hear from Inc. 500 companies. Nine times out of 10, their growth just seems to happen.
GOLISANO: I'm saying that it can be planned -- not that it usually is.

INC.: What makes you so sure? Did you plan Paychex's growth?
GOLISANO : No, but I can look back at what happened with Paychex and see how you could use the same strategy in a completely different business. In fact, I'm doing that right now with another company, Safesite Inc. It's a records-management company.

INC.: Can you describe the approach?
GOLISANO : The idea is that if a business can operate successfully in one city, it can generally operate and be successful in another city. So you find the formula to do it in city A and get a bunch of people to do it in cities B through Z. You set them up as entrepreneurs in their own businesses. Then you consolidate them into a single company, build that company, and take it public.

INC.: You make it sound easy.
GOLISANO: It's simple, not easy. The key element is the common bond, which has to come from the originator. He has to find the people to do it in all those different cities, and those people have to have faith that he can pull it off and that they will be treated fairly. If you can get over that hurdle -- and it's a tough one -- I think the strategy could be used in a lot of industries. I don't understand why it hasn't been.

INC.: Why is that hurdle so tough?
GOLISANO: It's tough because of the trust part. I don't think you could do it with 20 people who independently started the same kind of business in 20 different cities. They will never trust one another enough to pull off the consolidation. But they will trust someone who has helped all of them get started and showed them how to do it. There's a common bond.

INC.: And that's how Paychex did it?
GOLISANO: Right. We had 18 little companies operating in 22 different cities, and we merged them. That was in June 1979. We had a meeting in Chicago, and a big paper signing. There were actually 18 simultaneous mergers into a new company.

INC.: Wait a second. Let's back up. How did you get involved in 18 separate companies?
GOLISANO: Well, the expansion began in 1974. Up to that point, there was just one company, the one in Rochester that I started in late 1970, doing payroll processing for small companies. Then two guys came in who wanted to do the same thing in other cities, under the Paychex name.

INC.: Why didn't they just go out and do it on their own?
GOLISANO: It wasn't that easy. Remember, this was a whole new market at the time.

INC.: Explain that.
GOLISANO: Well, you have to go back to the idea behind Paychex, how it got started in the first place. I was a sales manager at a traditional payroll processor in Rochester, and back then payroll processors were generally interested just in large companies, 50 employees or more. As sales manager, it didn't take me long to realize there were a lot of small companies around that couldn't avail themselves of this service -- for two reasons.

First, the minimum charges were too high. Second, the service itself was not as comprehensive as it needed to be. So I saw an opportunity for anyone who could figure out a way to provide the right kind of product at the right price. It was a market with a huge unrealized potential. That's a major reason why I started Paychex.