I used to have a double-sided sign on my desk at Paychex that said, on the side that faced visitors, “Lead, Follow, or Get Out of the Way,” and on the reverse, “It’s All in the Presentation.” Occasionally I’d turn the sign around and show people my side. The phrase about leading or following has been used by many people, including Ted Turner, Lee Iacocca, and General George S. Patton, but that doesn’t make it any less relevant when discussing leadership and management. No book on the principles of business success can ignore the importance of the person at its helm, whether that’s for the whole company, a division, a department, or a branch.
In chapter 1, I discussed what I look for in an entrepreneur or business owner; in this chapter I’ll delve deeper into what makes a good business owner, manager, leader; a good jockey, if you like. I use the analogy of a jockey because when you think of a thoroughbred racehorse, no matter how good it is, no matter its lineage or pedigree, it won’t win races if it’s ridden by a poor jockey. The same can be said of a business. It can have an excellent, competitively priced product or service, it can be well capitalized, it can be competitive, but if the person managing it isn’t a good leader, its chances of success drop significantly.
I invest in businesses, and I invest in entrepreneurs, and that means carrying out enough due diligence to minimize the risks involved. It’s incumbent on me to identify that there are enough positives in terms of the entrepreneur and the concept to warrant my attention. I don’t invest just to make money—although I hate to lose it. I invest to help turn a business around, to make it more successful, to help it reach new heights. That’s the challenge.
Anyone can invest in a business, then sit back and either watch it lose money or begin to provide dividends—that’s called gambling. I always want the odds increasing in my favor. I look for companies where an entrepreneur and his or her management team are continually looking to improve. I want to see common sense, sound decisions, and leadership. What I don’t want to see is a start-up committing to a twenty-year office lease at $60,000 a month because they want to emulate a company in Silicon Valley. Think that example sounds ridiculous? Well, senior management in a business I was recently involved in did just that—and that business no longer exists.
Remember, no matter how well a company is doing, it can always do better. And that’s where sometimes backing good jockeys rather than good concepts can be a winning formula.
I am confident that almost anyone with a desire to become an entrepreneur can become a better leader or manager. One thing I found from the outset of my business career was that I learned more about what not to do in business from those who failed than from successful companies. The fact you are reading this book shows you are open to learning new ways to work on and in your business. That attitude will take you a long way in business, and you are not alone; we are all learning new things every day to ensure our businesses survive another day, another year. Welcome to the club.
In my opinion the best businesspeople exhibit a deep-seated integrity. They respect their employees, their customers, their suppliers, and above all, themselves.
Let’s assume you start your business today; how do you want to be remembered on the day you retire? When I first meet someone, I look for signs of respect. I search for an underlying sense of values and manners. As I mentioned was my habit when interviewing potential employees, whenever someone met with me at my office at Paychex’s corporate offices and one of my assistants brought them a coffee or tea, I’d watch to see if they thanked the person. If they failed to show common decency by acknowledging the assistant, I would immediately question whether I wanted to do business with them or employ them. At the end of the meeting, if their cup was left on my desk for someone else to pick up or their chair was not put back neatly, I took it as another example of lack of respect.
Too often people are hung up on their own self-importance and dismiss as unimportant people who can’t help them move their own selfish agenda forward. Respect is earned, not given.
I demanded the same level of respect from our trainees. Sometimes I used to sit by the cash register in the Paychex cafeteria at lunchtime and watch our employees coming in and out. I would call people out if they weren’t clean shaven, their hair was messed up, or they weren’t wearing a tie. I’d also watch for whether they cleaned up after themselves and pushed their chair back after leaving the table. I constantly demanded a certain level of basic respect and professionalism from our employees.
I haven’t been CEO there for more than a decade, but if you visit Paychex’s corporate offices today, or any Paychex office across the country, you will notice how clean and tidy it is and that all employees are well-presented. I am convinced you can build a level of professionalism into a corporation’s culture to the point it will last forever, but you have to be committed and lead from the front. It won’t just happen.
In case you are thinking I’m simply a guy with OCD, that I’m a neat freak, or that this is just one of my foibles, let me tell you why this has always been so important to me. Paychex clients expect the highest level of security, accuracy, and professionalism; they deserve no less when they entrust the company with their payrolls and their employees’ privacy. You can’t deliver that level of service consistently, or maybe at all, if professionalism at every level is not part of the organization’s DNA.
Don’t confuse having integrity with always having to be a nice guy or someone who’s easy to walk over. You can be tough, very tough, but you can also be honest and fair. Remember, leading a business to success is not a popularity contest; it’s about gaining respect for the way both you and your company act.
At the beginning of this section I asked, How do you want to be remembered on your last day working for your company? I can tell you, a lot will depend on how you begin your first day. Let’s assume you start your business today. It’s important on day one to consider what you want people to think, write, and say about you when you retire. If you’re already in business, or even if you are a senior manager in a company, it’s never too late to take a step back and reevaluate how you are managing yourself and your company.
As I said in chapter 1, I believe a good entrepreneur should have a background in the industry in which their business operates. Good managers and leaders, however, need a greater and deeper knowledge of the inner workings of their business—the cultural dynamics. They need the ability to inspire people at every level, while at the same time empowering other senior managers and departmental heads to spread their corporate vision throughout a company and ensure its implementation.
Most importantly, you need to know what you don’t know. Huh? Let me explain. Often, entrepreneurs not only have large gaps in their business knowledge and experience but also are completely blind to their deficiencies. If you want to improve your chances of success, be honest with yourself and recognize the weaknesses in your business education and your business acumen, and seek help from a mentor or take courses to learn what you need to know. Let me tell you the story of my involvement with the owner of a tanning business (people, not leather).
When I invested in Zoom Tan, I was definitely backing the owner; Tony Toepfer had twenty-five years’ experience in the tanning business. Originally from Chicago, Tony had started with a few salons and now the business was showing a profit and had good cash flow, but he was finding it tough to expand without an influx of capital.
Here was a case where an experienced businessperson with industry knowledge approached a competitive market with a new way of doing business that appealed to the target market. Some of Tony’s pioneering efforts included opening smaller locations by making better use of space, introducing monthly subscription plans, advertising aggressively in an industry that traditionally did little advertising, and developing specialized software to assist managers in running tanning outlets.
My contribution, other than providing capital, has been to help Tony gain a better understanding of financial statements. As I discussed in chapter 3, I can’t stress how important it is in any business to fully understand its finances. There is no way you can take an effective leadership or management role if you don’t have a firm grip on the numbers.
It is important to wholeheartedly believe in your capabilities and demonstrate that belief. You need to have an unshakable personal conviction that what you are doing is correct; everything stems from that conviction.
Even before I seriously consider the validity of a business, an entrepreneur can turn me off completely and lose any chance of me becoming an investor in their business if they state they want to retain 51 percent of the company. What that tells me is that although they want to retain control, they want someone else to finance the risk. Let’s explore that idea a little further.
When I ran Paychex, I never owned more than 50 percent of the company. After we merged, or consolidated, I only retained about 30 percent. Did that put me in a difficult or risky position? Not really; so many stockholders would have had to come together to vote me out, the chances of that happening were very slim. Unless, of course, I did something really dumb that hurt the company and threatened their investment. In which case I would have deserved to be ousted.
Demanding that you retain an unrealistic percentage of a company you are seeking investment for, or being unwilling to invest your own money in your company or mortgage your home to raise money, shows a lack of confidence in yourself and your company.
When it comes to ownership breakdown, it has to be logical. It has to make sense to the investor. I have people come to me and say they want to start a business and they are asking for $3 million; however, they are only willing to give up 10 percent of the company in return. What that tells me is that they are valuing the company at $30 million, which is usually ridiculous—especially if they have yet to open their doors. These ownership demands discredit investment seekers immediately in my eyes and prevent any serious discussion about their business concept.
Let me tell you something. If you go to a company and the CEO is haggard, overscheduled, and busy, get the hell away from that company. Let me tell you another dirty little secret: the CEO should be the least busy of all the managers. But that does not mean he or she should be doing nothing. What it does mean is that a CEO should be working on the business, not in the business.
Look up the word management in a standard dictionary and it will be defined as the act of managing; a business dictionary will talk about it being the organization and coordination of the activities of a business. What all that means is that it’s your job as a manager to look at the bigger picture while at the same time being the person who picks up a chocolate wrapper on the floor of your reception area that dozens of your employees failed to notice all day.
When I was CEO of Paychex, I would occasionally go down to our accounts payable office and ask for a bunch of invoices from our branches. I’d spend a little time going through them looking for anomalies. On one occasion I saw a monthly bill for cleaning temporary foyer rugs for our Philadelphia branch. The number of rugs we were being charged for seemed exceptionally high, so I asked soon-to-be-CEO Marty Mucci to call and see how many rugs they had at that branch. It turned out the company was triple billing us and the branch manager had been signing off on this every month without checking whether the billing was correct. The overcharging had cost the company several thousand dollars and could potentially have continued for years. If several branches were using the same company, the losses could have been multiplied.
The point of this story is that once I noticed this overbilling, a memo went out demanding that all branch managers check, or have an employee check, all invoices carefully. Good management is discovering your company’s weaknesses and ensuring holes are plugged. It wasn’t the first or the last time I discovered incorrect invoices. Profit is tough enough to make in the first place; the last thing you want is other people eroding your bottom line.
There are so many ways a company can lose, or waste, money. I remember once seeing that we were paying a million dollars a year for a computer program that tracked prospects and appointments, and allowed our salespeople to make presentations to potential clients. All our salespeople were given laptops, which they would utilize in making sales presentations; I was told this was important and that the sales department was very keen that they be used.
My first thought was, I’ve got to see this in action, so I asked for a salesperson to come and make a presentation to me as if I were a prospect. A woman from our sales team came into my office and sat across from me and spun her laptop around so I could see the screen and showed me a payroll, samples of what reports I, as a customer, would receive, what the checks looked like, etc. After a few seconds I said, “I can’t see it very well from there. Could you come a little closer?” So she came around to my side of the desk and sat next to me, at which point I asked, “Do you always sit this close to someone you don’t know?” And she said, “No, I don’t usually use this. I use the paper one.” My closing comment to the senior manager in the room was, “Case closed.” It’s easy to spend money once a company gets to a certain size and profitability; it’s your job to ensure it’s being spent wisely.
It is also your responsibility to be aware of what’s going on in every aspect of your business. As I said earlier, to do this you need to have business knowledge, but you also have to be hands-on. Many entrepreneurs are so busy working in their business that they neglect to work on managing their business. Be hands-on—trust me, it works.
I remember several years ago working with a company called Safe Site. The company stored business documents, including client and medical records, for customers such as banks, insurance companies, and doctors’ offices.
One day I got a call from my partner, and he told me we had a serious problem. I was floored when he informed me we owed over $2.3 million to the bank. In fact, our account was overdrawn. Incredibly, our chief financial officer had failed to mention this during any of our recent meetings. To cut a long story short, he was arrested by the FBI for kiting checks and electronic transactions between our branches. He had been writing checks for nonexistent funds and depositing them back and forth between accounts, relying on the three days it takes for the bank to process the checks. In this way he was able to access what amounted to an interest-free, unapproved loan. This is, of course, illegal, and it wasn’t too long before the bank caught on to what he was doing.
His actions took us all by surprise, and I immediately realized it was unlikely that this was his only nefarious activity. I asked my partner to check with the IRS to see if we were behind on our payroll taxes, and sure enough, that call uncovered another $800,000 owed in taxes. Thankfully the company was able to recover from the debacle and was later sold for a sizeable profit.
The misconduct of the officer in the story above is another example of how easy it can be to take your eyes off what is happening in a company. Companies have a lot of moving parts, and a good owner/manager has to be able to recognize when something is amiss, when something doesn’t add up, when their gut instinct begins to tell them something is not kosher.
People sometimes comment that managing a larger company or corporation is easier because you have a senior management team and a board of directors to turn to for advice and specialist skills or knowledge. They have a point, but companies of any size can pull together an advisory board at little to no cost. Look around at your business contacts, friends, fellow members of the local chamber of commerce maybe, for people with specific skills that could help you in your business. Your list could include a lawyer, an accountant, a tax expert, an industry specialist, an HR consultant, basically anyone whose expertise might help you run your business more efficiently and profitably. I suggest you ask them to meet quarterly and perhaps provide lunch or dinner, which could be as simple as pizza in your conference room.
An advisory board works better if you treat it as you would a board of directors. Prepare an agenda and brief departmental reports along with a balance sheet and income statement, and if possible, provide these to the board before you meet. This will allow them to arrive with questions and advice, based on your current situation. In this way you can run efficient meetings and require a minimum amount of time from your board.
Effective leadership comes down to four steps an owner, CEO, or senior manager needs to nail:
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.
I always practiced an open-door policy, and I wandered around the offices and sometimes ate at the cafeteria. I believe part of being a good leader is to be close to the business—very close. Don’t ever get too far from the front of the business. I used to go to the training rooms every couple of weeks and test trainees to be sure they were learning what they needed to know to be successful for themselves and for the company.
Good leaders must be able to create a vision and sell that vision strongly enough to get honest and enthusiastic buy-in from senior managers, who can then sell the vision down the line. At that point, if everyone gets behind the vision, the goals, and the objectives, then the vision needs to be executed. To do that, you as the leader and the other leaders at all levels of your company need strong communication skills. Remember, one of the biggest complaints put forward by employees is lack of communication.
Good leaders are not necessarily born; they can be made, but they do have to be able to show empathy, be decisive, know how to hire and trust the right people, recognize and develop existing talent, delegate rather than do everything themselves, collaborate with the senior management team and others, and never be afraid to ask for help.
One of the keys to success is being persistent, not giving up at the first sign of problems or challenges. I remember a business I invested in that required patience and persistence, not to mention additional capital investment to survive.
I invested in a company called Ultra-Scan that was founded in 1987; it had developed an ultrasound scanner, similar to those used in medical applications, to identify fingerprints. I had invested $20 million, but sales never lived up to expectations due to the high cost to the end user.
This could have easily been a time to cut my losses, but the CEO called me one day and said he’d had an idea. He explained that our current technology was designed to only scan two fingers but that the FBI was interested in us developing four-finger identification. He needed another $5 million and a year or two to develop what the FBI wanted.
Sometimes you have to stick with the plan, so I put in the capital and increased my equity position. Time passed, and I got another call from him, this time to tell me that a company called Qualcomm wanted to buy the company for $65 million. My patience, persistence, and belief in the concept was rewarded with a significant profit. Like the song says, you’ve got to know when to hold them and when to fold them.
People who know me well know that I rarely if ever boast about my successes in business; however, there are a few honors Paychex was given of which I am extremely proud. In 2004, as I was in the process of stepping down as CEO, Paychex was recognized for the third time running as one of the 100 Best Companies to Work For by Fortune magazine, which also named us as one of the most admired companies in the country. In the same year we were listed as one of the top training companies in the United States, an honor Paychex continues to hold to this day. Finally, on more than one occasion Forbes magazine honored Paychex by listing it as one of the best-managed companies in America. I was also listed as one of the top three executives in America for three years running in the early 2000s by Forbes magazine based on my total compensation package versus the company’s stock price growth.
It’s this last point I wish to explore. I take issue with the massive salaries many CEOs make, which are often not linked to the company’s performance. I always took a very conservative salary and never felt the need to continually take stock options. It is rare after a company goes public that Wall Street allows the founder to remain as CEO for any length of time. However, for over twenty years after Paychex went public, I continued to lead the company and offered shareholders exceptional value and return on investment through my modest compensation package when compared with other CEOs of major corporations.
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. I achieved my vision for Paychex by being the best leader and manager I could be, and I’m gratified that the management strategies I introduced at Paychex over the years are still effective today.
We adopted the same management practices when I purchased the Buffalo Sabres, and in 2007, when the team won the Presidents’ Trophy, ESPN The Magazine voted us the best-managed professional franchise across all sports.