INC.: What about after the consolidation?
GOLISANO: Yeah, there was some trauma. I mean, all these people had had "president" on their business card. Now they're all "vice-president." We had 200 employees and 19 vice-presidents. We were worse than a bank. Then there were the management reports, comparing how branch A is doing with branch B. We're comparing cities and measuring job performance. And, suddenly, people have to report to a supervisor, after being their own bosses for the last few years. There was a lot of trauma put on them all at once.
INC.: And on you, too?
GOLISANO: I would definitely say that, for me, the years from 1980 to 1983 were the toughest. I was continually dealing with personalities and egos. There were cliques, backstabbing, high-level politics, fence-building -- all those negative things.
INC.: Did anybody leave?
GOLISANO: A couple of people left voluntarily -- based, I think, on their level of discomfort. I mean, the job wasn't getting done, and they said, "Rather than you guys get rid of me, I'm just going to leave gracefully." But they kept their stock.
INC.: What were you doing as a company during this time?
GOLISANO: Our main focus was on developing a sales organization. Within three months after the consolidation, we recruited, hired, and trained 65 salespeople and put them in the branches. That was very costly, and we didn't do a good job the first time around.
INC.: Why not?
GOLISANO: We didn't have experienced, disciplined sales managers. We had a bunch of entrepreneurs who came from a variety of different backgrounds -- engineering types, schoolteachers, an insurance salesperson, the doorman of the Boca Raton Hotel & Club. They hired the wrong people, and they didn't train them right. We learned some very painful lessons.
INC.: How do you mean?
GOLISANO: Well, in the first half of 1980, we had to suspend our salaries for four months because we got into a cash-flow crisis.
INC.: If everything was so predictable, how could that have happened?
GOLISANO: We underestimated the cost of bringing in those salespeople. And we were probably paying ourselves too much as well.
INC.: This sounds like a very rough period.
GOLISANO: Yeah, but you have to remember, there was a fairly high level of excitement at this point -- positive as well as negative excitement. I think there was a feeling that, even though we had the option to retrench, we'd rather put up with the lost wages and keep going forward. As it turned out, the company was able to resume the salaries, and we paid the money back the next year.
INC.: So how did you solve your sales-management problem?
GOLISANO: A lot of it was trial and error. Fortunately, we had some people in the company who knew how to develop a sales organization. But it took them a while to educate the rest of us.
INC.: How long?
GOLISANO: Probably five or six years before we really understood the sales process and could instill it in our organization. This sort of thing does not happen overnight. It evolves. At Paychex, it's evolved from rank amateurism in 1979 to a point where we are pretty good, in my opinion. And there's still room for improvement.
INC.: But you must have seen some payoff along the way.
GOLISANO: Oh, sure. We saw the payoff when we began selling clients in numbers that we had never thought were possible. To give you an example, I sold 42 clients my first year. In 1982, an average salesperson sold 100 clients a year. Today, the average is 170.
INC.: Meanwhile, you had a goal of selling the company or taking it public.
GOLISANO: Right, but we decided early on that we didn't want to sell -- for several reasons. First, the management team was fairly young, and we were all very ambitious. Number two, we felt we had an unlimited marketplace, and we do. There are millions of small businesses out there. We've hardly scratched the surface.
Number three, if a competitor had bought the company, it would have been dissolved, and I guess that bothered a few of us -- perhaps to a fault. But mainly it was the opportunity and the ambition level.
INC.: Did you have a target in mind for going public?
GOLISANO: The only thing was a seven-figure bottom line. We figured, rightly or wrongly, that we could have our choice of underwriters if we had a seven-figure bottom line.
INC.: When did you go public?
GOLISANO: August '83. It was a fairly successful public offering.
INC.: And did the company change after that?
GOLISANO: You bet. I completely reorganized and restructured the company. Because we were now a public entity. This was no longer a fraternity.
INC.: How many of the original equity partners left?
GOLISANO: Most of them. Some left because they didn't want to work for a company like this, a big company; they wanted to get back and be entrepreneurs again. Another group was just outgrown by the job; they either knew it and left voluntarily, or they didn't know it and were asked to leave. The third group thought we should run a sheltered workshop for them. We got rid of them, too. Today, there are only five or six of the original people left in the company.
INC.: Did you ever have any qualms about this?
GOLISANO: No, not at all. You see, the public offering meant the end of my responsibility to those people. My new responsibility was to our shareholders. And you also have to realize that on the day of the public offering, not one of those people had a net worth lower than a million dollars. We had to separate out those who were committed and understood their new responsibilities. I think that was the first major step of Paychex beginning to mature as a company, but that's another story.
INC.: OK, let's go back to your model. Tell us about this records-management business, Safesite.
GOLISANO: We provide a very secure location where we store records and magnetic media -- like computer tapes -- for customers. The storage can be active or inactive, depending on customer preference. When the customer needs files, he calls you, and you bring them back. Or you have a driver who goes back and forth making pickups and deliveries on a regular basis.
