Built, Not Born

A Self-Made Billionaire's No-Nonsense Guide for Entrepreneurs

Tom Golisano, Mike Wicks

• Publisher: HarperCollins Leadership
• Year: 2020
• eBook ISBN: 9781400217601
• Topic: Business
• Subtopic: Business General
• Index: Business

Get tested and proven advice on how to navigate risk and succeed in all phases of business ownership from a successful entrepreneur who turned a small startup into a billion-dollar company.

Self-made billionaire and Paychex founder Tom Golisano understands the fears, risks, and challenges small-business owners face every day. He has launched and grown his own highly successful business and mentored dozens of entrepreneurs, helping them build their own fruitful companies.

Golisano knows how nervous aspiring business owners are about the risks of entrepreneurship. Now, he’s sharing the startup-to-exit secrets to success and how he turned $3,000 into $28 billion dollars.

Built, Not Born shows you:

• How going against the grain can be a great strategy for finding business opportunities and why it pays to question conventional wisdom.
• Why the pregnant pause can be an effective weapon in negotiations and when interviewing potential employees.
• Why a prenuptial or even a postnuptial agreement is critical to any business owner. 
• What potential buyers and funding sources look for, and the best way to present a business plan.
• And finally, the key growth and leadership strategies that have helped Paychex sustain its incredible level of growth and profitability.

Built, Not Born provides a direct and practical approach on how to overcome everyday challenges. This essential handbook is a key resource for current and aspiring entrepreneurs on how to start, grow, and operate a successful business.

Two
Understand Your Business

Viability on One Page

The basics of running a business haven’t changed since trade began. Sure, we have the internet and social media, and digital technology is advancing faster than many of us can keep up with, but when it comes down to it, the most important part of a business boils down to a few simple calculations on a single page. I’m talking about a profit and loss projection that shows you immediately what you have to do to turn a profit.

Tell me about any business opportunity, and I can grab a piece of paper and outline a plan detailing how it might become profitable—on a single page. My initial business plan for Paychex was exactly that: one page. I calculated what my operating costs were and discovered how many clients I needed to sell to break even. In many ways it’s that simple. If I’m a retailer selling popcorn, how many people do I need to come through the door and buy my popcorn to allow me to pay all my bills and give myself an income? The rest is strategy, useful but peripheral.

Recently I was sitting in my car outside a video game store. It wasn’t in a good location, and I watched how few people were going into the store and even fewer coming out with a purchase. The arithmetic wasn’t complicated: the average price of a game is not very high, and the sheer numbers required to pay for overhead (rent, utilities, inventory, etc.), let alone an income for the owner, meant there would have to be a continuous stream of people entering the store for the business to be profitable. Let’s look at the basic math:

Annual Overhead on a Small Store

Rent	$15,000
Utilities	$3,600
Employee	$20,000
Freight	$1,000
Professional fees	$5,000
Owner’s salary	$60,000
Misc.	$6,000
Total	$110,600

If we take the average price of a sale as $60 with a gross margin of 40 percent, this results in a gross profit of $24 per sale.

This is where it gets interesting. If we divide the store’s overhead (bear in mind we are using the barest minimum of expenses) by the gross profit made on each sale, we can see that the store needs to make 4,608 sales per year. If the store were open 6 days a week for 52 weeks per year, which is 312 days a year, they would need almost 15 sales a day, every day. Of course, sales at Christmas would be more vigorous and the sale of used games delivers a higher profit margin, but the need to have a consistent flow of customers purchasing something every day makes it very doubtful the business could be successful at this location.

I have used this quick-and-easy, one-page calculation countless times to quickly ascertain the viability of a business concept, and after I have done a full financial workup on the business, it is usually proven correct.

Business Planning

I’m not a fan of business plans that could double as doorstops. Who’s going to read a thirty-thousand-word plan? Actually, I’m not a fan of the business plan document itself, although I do believe entrepreneurs have to thoroughly understand everything to do with their business. My advice is to focus on the key points and financials that demonstrate your business concept is viable and cut the rest of the verbiage. The peripheral stats, five- and ten-year projections, and other useless elements of many business plans can be ditched; they’re not fooling anyone. These “by the pound” business plans are often used in an attempt to justify the author’s claims. They are crammed with documents containing masses of statistical information and projections, or as I like to call it, “fluff.” Business plans should keep to the basics.

The second piece of advice I’m going to give you is to keep it real. Nothing turns off a lender or an investor more than exaggerated or poorly thought-out statements, promises, and projections.

People come to me all the time with what they consider a great idea with nothing to back up their claim. These people start and close businesses every day. There is no sense of reality to what they are trying to achieve. In retail, for instance, location and the type of product they are trying to sell can make it impossible to make enough money to survive—but people keep trying.

To me, it’s a simple calculation, as you saw with my simple analysis above, but very few people do the math. They let passion cloud their judgment. That’s the myth many business books peddle: “Follow your passion,” or “Believe it and you’ll achieve it.” That sort of thinking can lead you down a dangerous path.

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. The same is true when buying a business, but I’ll talk more about that later.

A few years ago, someone came to me with a new HR product for employers. He was hoping to sell it to Paychex’s customers with one thousand employees or more, which he excitedly stated was 10 percent of our company’s clients. He estimated that number to be fifty thousand clients, then he multiplied that figure by one thousand to come up with the market for his product of fifty million employees. That’s all good; in fact, it sounds great, doesn’t it?

Guess what? Paychex delivered only twelve million W-2s the previous year. The market could never be fifty million people. It’s easy to get the math wrong, especially if you haven’t done enough research and don’t have knowledge and understanding of the market and industry in which you are operating.

All too often entrepreneurs get carried away with their sales forecasts and try to make the statistics tell the story they want to hear themselves and to promote to others. In the case above, the reality is the average Paychex customer doesn’t have one thousand employees; it has sixteen—and that’s a massive difference. Projections mean nothing if the person creating them doesn’t fully understand the market.

The myth of business plans is that they are used in an attempt to sell the reader on the strength of a business concept, either to encourage investment or convince a lender to commit funds. In many cases, the numbers are inflated and unrealistic at best and duplicitous at worst. Don’t forget, at some point someone is going to compare your projections to your results. I repeat, projections don’t mean anything if you haven’t done your homework.

Another important thing not only to understand but to accept with every fiber of your being is that a first-rate business plan can often tell you not to start the business at all but run away and run fast. It’s critical that you take a hard look at the actual numbers and be candid with yourself about what they are telling you.

As I said earlier, I’m not a proponent of the business plan document, but I do believe that every entrepreneur should plan their business. And during the planning stages they need to be brutally honest with themselves and with those from whom they are asking financial assistance.

Whether you decide to formalize your research into an actual document or not is up to you, but what follows is an overview of the key questions you need to answer and the information you need to gather.

A good start might be to create a mission statement. Paychex’s first mission statement was “Sell clients, service clients, and make money.” Sometimes it’s as simple as that.

Before I take you through what I consider to be the must-have knowledge when planning your business, I’ll tell you the three most important things investors and lenders need to see before deciding whether they are interested in supporting your business.

1. Executive Summary

This is a one- or two-page summary of your business concept, the industry, your market, and the highlights of how your business will operate. This is a quick overview, so investors can put into perspective what you are about to tell them.

2. Profit and Loss Statement

Sometimes referred to as an income statement, this is the one-page assessment I menti...

Table of contents

• Dedication
• Contents
• Acknowledgments
• Preface
• Introduction
• One: Entrepreneurship:
• Two: Understand Your Business
• Three: Money Matters
• Four: Would You Buy What You Sell?
• Five: It’s Not a Cash Flow Problem—It’s a Sales Problem
• Six: Hire for Attitude, Train for Skill, Fire When Necessary
• Seven: Lead, Follow, or Get Out of the Way
• Eight: A Good Deal for Everyone
• Nine: Building a Positive Public Image
• Ten: Only Diamonds Are Forever
• Eleven: Regrets, I’ve Had a Few
• Twelve: What Can We All Do Better?
• Notes
• Copyright