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Paychex's Tom Golisano on How to Start a Business from Scratch

Executive Summary

When researching how to start a business from scratch, entrepreneurs become bombarded with complete guides and disjointed blog posts that deliver contradictory information.

  • Tom Golisano, who started Paychex, Inc. with $3,000 and grew it to a company worth more than $30 billion, breaks down the steps to a successful startup.
  • From understanding your business and how you’ll make money to determining who to hire and how to manage them, Golisano shares the 8 things you need to know before starting a business.
  • While passion is important, especially to get through the beginning years (it took Golisano four years to receive a paycheck from his business), it’s more beneficial to understand the elements of a successful business.

Regardless of how you became a businessperson, or where you are today in business, you can improve your business skills and become a better entrepreneur. I often meet people who for one reason or another have a business idea and want to launch a new enterprise, but they are not there yet in terms of business acumen. Maybe that’s you. Perhaps on an entrepreneurial scale of one to ten you consider yourself a five. That’s good; being honest with yourself is the first step to success. To become a ten, you need to understand what makes businesses successful; you need to know what you need to know.

Are You Ready to Learn How to Start a Business from Scratch?

Here are the 8 things you need to nail down to be the best entrepreneur you can be:

  1. Understand your business.

The most important thing when planning your business should be the accuracy of your facts and statistics. You need to be able to provide proof of the veracity of your figures. If I see a plan that states a business is going to capture 10 percent of the market, I’m suspicious; warning bells are ringing. Today, in spite of decades of history in the market, if you combine ADP, Paychex, and Intuit (the third-largest player in payroll processing) together, they still only have less than 20 percent of the potential payroll processing market. Wildly inflated projections are common. Sometimes they can simply be the result of overenthusiasm on the part of the entrepreneur, but they can also be used to mislead the reader. Understanding your market, or the market someone is trying to get you to invest in, is of paramount importance.

  1. Money matters.

People often ask me, “How can I start a business when I don’t have enough money?” My advice? Don’t. Too many businesses start out undercapitalized, and it’s downhill all the way from there. What makes things worse is that banks don’t like lending money to small businesses. So what are your options if you still want to start out on your own or take your business to the next level?

Financing: The reality is that financing won’t be easy to come by, and it won’t come to you; you’ll have to go out and knock on doors to make it happen. Before you begin, do some simple arithmetic: estimate your operating costs for the first year, add whatever you need to pay yourself (zero is a good number), and then figure out how many widgets or services you need to sell to cover that amount. This will give you a baseline of your financial requirements. Look at the quantity of products or services you need to sell and assess whether it’s reasonable. You should take your cash requirements into consideration before coming up with the amount you need to either launch your new venture or grow your existing business.

Profitability: The primary reason you are running a company is to make money. You owe it to your shareholders, your investors, your staff, your customers, the charitable organizations you support, and yourself to make money—and you can’t do that if you are not making a net profit. Understanding profit margins is essential to the overall health of your company.

Pricing: One of the problems entrepreneurs face is determining the price of their product. A lot depends on the cost of production and the price your competitors are charging. The concern is always: Are you selling your product at a high enough price to allow the margin between the sale price and your costs for that product to cover all the rest of your expenses?

  1. Who is going to buy?

Whatever the reason behind your choice of business, you must choose wisely if you expect your company to be successful. Here are six questions I encourage you to ask yourself about the products or services you are either selling now or planning to sell in the future.

  • Is there a large enough market?
  • Can you make a decent profit margin?
  • Can your company deliver?
  • Does it have longevity?
  • Do you have enough capital?
  • Can you keep up with technological change?
  1. Understanding sales.

There are many different ways to sell a product or service, so developing an effective sales strategy that identifies key prospects is vital …You need to be creative when figuring out how to reach customers in your target market, and you need to solve the prospecting riddle early on in the game.

Position your product or service: The big advantage you can have over your competition, especially when starting out in business, is that you know what you are up against and can take action to position your product or service more favorably in terms of features, advantages, and benefits.

Hire ethical salespeople: Your salesperson’s primary responsibility is to convince prospects that what you offer is a better deal than what your competitors can offer. He or she needs to do this in an honest and ethical manner...Most potential customers will take a dim view of your company if your salespeople openly criticize the competition. This strategy of integrity first will put your salespeople into a stronger position when dealing with prospects.

Treat your sales team well: To protect your own people from being lured away, ensure your sales team is happy, well paid, well trained, respected, and made to feel they are part of the bigger picture and the future of the company.

  1. Hire the right people.

I always worked on the general basis of hiring for attitude, training for skill. This may not be an original thought, but hey, if it isn’t broken, don’t fix it. Over the years I have developed several interview techniques, including testing, that help me identify the good from the not so good and the indifferent. Being selective is one of the keys to good hiring. There is a cost to educating and training a new hire, not to mention a transition period where the person is not performing to full capacity. This is especially true of salespeople. I’ve always believed in building a quality workforce through skillful and careful hiring and through superior training.

  1. Lead and follow.

Effective leadership comes down to four steps an owner, CEO, or senior manager needs to nail:

  1. Create the vision.
  2. Sell the vision.
  3. Execute the vision.
  4. Monitor the results.

Do you consider yourself a good leader? Good leaders have a vision for their company and the ability to share that vision with everyone involved in their business. Ensure you are clear about your goals and objectives because it is up to you to take responsibility and lead by example. Leadership takes many forms, but in essence you have to take a step back and put the needs of your company, your customers, your shareholders and investors, and your employees first.

  1. No-nonsense negotiating.

I always attempted to create win-win situations when doing any deal, but especially in major negotiations. The key to good negotiating is to do your homework and know, before you start talking, what the other person is likely to consider a good price. You also have to know what price you feel represents a good deal for your company. There have been complete books written about the art of negotiating, but when you strip away the smoke and mirrors, it’s simply about finding that sweet spot where both parties feel they can sleep content. Anything else is fool’s gold.

  1. Build a positive public image.

When you think of any company, even one you don’t necessarily know well, you will instantly have an opinion, or perhaps a feeling about the brand, be it good or bad. Think of Starbucks, or the Nike swoosh; think of Microsoft and Apple; think of Walmart. As you read those names you will instantly have a gut feeling about each company. They have a profile, an image, that in your mind is either negative or positive. Unlike the companies mentioned above, your company may be new, but it’s important to build its image from day one.

Never underestimate the power of your public profile to influence everything in your company: employee morale, motivation, retention, recruitment, customer satisfaction, sales, media attention, investor interest, and more. Your public image is based on everything you say and do and on your overall corporate culture and philosophy.

Adapted with permission from Built Not Born, copyright Tom Golisano.

Bring It Home

I’m not one to make impulse purchases, but I certainly empathize with the urge. Instead, however, I’m one of those “think-too-longers.” I’m the person who over-analyzes a decision for days, weeks, even months, and rarely do I take the plunge and ring up an expense. There are entrepreneurs on both sides of a similar spectrum: the type that sits on an idea only to stumble across a site selling the same product years later and the type that jumps on the shiniest object without considering the consequences of inadequate research. Where do you fall on the spectrum? What’s holding you back from starting your business? What keeps you from just reading how to start a business from scratch and actually taking steps toward building it? Answer in the comments below! Share your business or business idea with us.

Tom Golisano

Tom Golisano—entrepreneur, philanthropist, and civic leader—is the founder and chairman of the board of Paychex, Inc., headquartered in Rochester, New York, with more than 15,500 employees and 100 office locations across the United States and Northern Europe.

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