INC.: How did you get into this?
GOLISANO: I was helping my nephew look for a business, and one day somebody tells me about this one. I say, "Gee, that's an interesting business." Recurring revenue. Service-oriented. Very large capital investment compared with Paychex, but still pretty predictable because of the recurring revenue and the overhead. So I bought a company in Rochester, and then I contacted one of my original equity partners from Paychex, the one in Boston. He came here, took a look at it, and said, "I love it. Let's do it." So we started in Boston. This was two years ago.
INC.: Was Safesite the name of the company you bought?
GOLISANO: No, it was Record Retention Center. We wanted a one-word name that said what we did. Sound familiar?
INC.: Yes. Where do things stand now?
GOLISANO: We're about to open our ninth branch, and we've got eight corporations. They're all joint ventures, no franchises. Except for Rochester, which I own.
INC.: Why just joint ventures?
GOLISANO: Instead of franchises? Control. Anyway, why would I want to be a franchisor?
INC.: OK, but why not just own them all yourself?
GOLISANO: First, because I'd have to put up all the capital. But a bigger issue is talent. Remember, my real vocation is Paychex. So I need people who can run these entities. I want them to have ownership. An employee can walk away. An owner can't.
INC.: So are you going to grow this company just like Paychex?
GOLISANO: Yes, but with a twist. After we consolidate, we'll probably get venture capital to take us to the next level -- the next 10 branches or so. Then we'll sell or go public.
INC.: Why do you want venture capital?
GOLISANO: Because of the high cost of getting one of these to break-even. And I think the venture capital is going to allow us to get where we're going a heck of lot faster than with Paychex. Of course, we'll also get there faster because I'm being much more selective about the people this time.
INC.: What do you mean?
GOLISANO: I have a better idea of what I want, and I don't need as many people. I had too many partners at Paychex.
INC.: How are the people different?
GOLISANO: I would say that, as a group, they are more mature. They are also in better financial shape than the original Paychex people were, although they're working their tails off. And they know more about what lies ahead, because of the Paychex experience. For example, they know that when we reach the consolidation stage any of them who are nonperformers may become unemployed. And they know that, after the consolidation, they may be reporting to their peers.
INC.: When do you consolidate?
GOLISANO: Well, there are a couple of issues. Number one, we want to make sure that everybody's paid their dues. That their capital investment is there. That they have proven they can perform. And -- this is very gray -- that they have some appreciation of how to run a profitable operation and some level of pride in having done that.
INC.: What's the second issue?
GOLISANO: We want sufficient models for profitability and performance, because when we have those models, we can really concentrate on execution. Of course, we may have the model in only one or two cities, but I don't care if the combined entity is profitable when we consolidate. If we wait for them all to be profitable, we'll waste a lot of time.
INC.: Do you have any models of profitability now?
GOLISANO: Not yet, but we're getting very close. You see, there's a level of unpredictability at Safesite that we don't have at Paychex. Our largest client at Paychex may be $500 per month, but our largest at Safesite could be $5,000 or $10,000 per month. It's hard to predict how many of those customers you're ever going to sell, and the number may vary from city to city. So one Safesite office may reach profitability at 500 clients, but another at 10.
That doesn't make too much difference so long as the billing comes out approximately the same for comparable overhead. But it introduces a level of unpredictability in the selling process that we haven't quite figured out how to deal with.
INC.: Just in the selling process?
GOLISANO: Yes, because once we get that client, we don't lose him. The client-retention rate is extremely high.
INC.: That's interesting. You're saying there there are different kinds of predictability in a business.
GOLISANO: Sure. There's operational predictability -- the cost of doing business -- which we have at both Paychex and Safesite.
We also have a certain amount of revenue predictability at both businesses, based on existing customers. At Paychex, we have a third level of predictability because we know, based on experience, how many clients we're going to sell this year and what it takes to sell them.
That's what we don't have yet at Safesite, because we don't have enough yeas of history. But we're getting there.
INC.: But even today, at Paychex, there are some areas of unpredictability.
GOLISANO: Oh, sure, there are. Mainly on the people side. Do we have enough satisfactory branch managers, sales managers, and senior management people to grow 25% a year consistently? That's our number-one problem.
INC.: What you've done, however, is to narrow down the major areas of unpredictability, so that you can focus on the few key ones that remain.
GOLISANO: You hit the nail on the head.
INC.: It's no wonder you put so much stock in this predictability thing. If you wanted to find the ideal business, is that the first thing you'd look for?
GOLISANO: No, the first thing would be unrealized potential. Predictability would be second, because it's easier to manage. I also think Wall Street is very attuned to predictability, which is obviously important if you want to go public.
INC.: What else do you look for?
GOLISANO: I don't know. Limited competition, I guess. I also prefer service businesses, because they tend to be labor intensive, rather than capital intensive. That gives you a lot more flexibility. If you make a mistake, you can back off real fast. But I have to say, you can have all those
