On Our American Stories, we love sharing tales of the American Dream, and today we bring you a truly inspiring one. Meet Tom Gallisano, a man whose entrepreneurial spirit was ignited early in life. Witnessing his father face financial hardship and public disrespect, Tom realized he wanted something different: the freedom and control that owning his own business could offer. This pivotal moment set him on a path to pursue his own version of the American Dream, determined to shape his destiny and build a better future.
Tom saw a vast, untapped market in small business payroll services, a crucial need often overlooked by bigger companies. Despite his employer rejecting his groundbreaking ideas, Tom wasn’t deterred. With just $3,000 and a handful of credit cards, he bravely left his job to launch his own venture, Paymaster, which would eventually become the household name, Paychex. This is the compelling story of an entrepreneur who dared to challenge the status quo, facing early setbacks but ultimately building an empire that transformed payroll services for countless small businesses across America.
📖 Read the Episode Transcript
Speaker 1: And we continue with our American Stories, and up next, an American Dreamers’ story. And the series is brought to us by our great friends at Job Creators Network, who work hard every day to help small businesses become big ones by fighting for policies that make it easier to do just that. Today, Alex Cortez brings us a unique American voice.
00:00:33
Speaker 2: Okay.
00:00:34
Speaker 3: I was born at an early age in Rochester, New York.
00:00:39
Speaker 4: We’re listening to Tom Gallisano.
00:00:43
Speaker 3: My father was from the Old Country, Sicily. My mother was born in the United States. Had an older sister and older brother. When I was in high school, my mom and dad had their financial difficulties.
00:00:56
Speaker 2: They had to go through bankruptcy.
00:00:58
Speaker 3: My father, after World War II, went into a business converting coal furnaces to gas and oil furnaces, and my brother, older brother Charlie, also worked for my father. Then he got called off to the Korean War, and unfortunately…
00:01:13
Speaker 2: He didn’t come back. He was there three days.
00:01:17
Speaker 3: Was put up on the front lines, and he was with a company of men that was attacked by a battalion of Chinese and didn’t come back. So after that event, my father’s business kind of went to hell. He went to work for a macaroni company that was based in Rochester as a salesperson, but as a salesperson also drove a truck and delivered to these small grocery stores. One day I went out with him—I think I was a junior, senior in high school—and before he went out at his route, we stopped in at the corporate office, and his boss came out in front of me and several other people, completely laid out my father verbally, very nastily. And I observed that, and it made a lasting impression on me. One of the things that came out of the course, I said, “Gee, if I ever get in the management position…”
00:02:14
Speaker 2: “…I’ll never treat people like that.”
00:02:15
Speaker 3: It was the worst thing, and of course, the fact that he did it in front of other people.
00:02:21
Speaker 2: I also kind of made…
00:02:22
Speaker 3: …the decision that I think I wanted to have my own business: freedom, control my destiny, maybe unlimited earnings.
00:02:32
Speaker 2: That type of thing were the things that interested me.
00:02:35
Speaker 4: Tom put himself through college, worked several jobs, and in 1968 landed at EAS, Electronic Accounting Service, which processed peril for larger companies in an era before the internet.
00:02:48
Speaker 3: They did several things differently. One, they didn’t take phone calls. You had to fill out forms all the time, and then you had to get them to deliver to the payroll company or they picked them up. And they’ve had very high minut of them charges. So I’m thinking about that as I’m driving down Main Street. Anywhere most businesses had less than one hundred employees. Went to the library and found out ninety-eight percent have less than one hundred employees, ninety-five percent with less than fifty employees.
00:03:18
Speaker 2: Also, EAS was…
00:03:20
Speaker 3: …not doing the payroll tax returns. So I said, “EAS, there’s whole untapped market out there that somebody should go after.” So I started thinking about the phone call, the tax returns, and the lower pricing. Could we make money? So I went to them one day and I said to the manager team, and I said, “Look it, let’s form a division. I’d love to run it, and we’ll go after the lower end of the market. I think we can do really well with it. We don’t think CPAs will like us doing payroll tax returns.” I said, “I think you’re absolutely the wrong. They will appreciate us doing the returns because payroll tax returns are very timely, they’re tedious, they can’t bill out their time at the value they think it’s worth, and…”
00:04:05
Speaker 2: “…they don’t like doing them.”
00:04:07
Speaker 3: So my thesis was that they would be a very strong referral point.
00:04:14
Speaker 2: They turned me down and said, “Now it’s not a good idea.”
00:04:16
Speaker 3: So I sat out of it for a couple of months, went in again—same reaction. So now I’m a little determined. I went into EAS with my resignation and said, “I’m going to start a company called—actually, it’s called Paymaster.” First, I liked the term Paymaster back fifty years ago because everybody generally knew what it meant. The armed services always got paid by the people in the services called the paymasters. Today, nobody knows the term.
00:04:49
Speaker 4: Eventually, they landed on a name that you might have heard of: Hate Checks.
00:04:54
Speaker 3: Not to pick on our major competitor, ADP, which nobody knows what that means, but…
00:04:59
Speaker 2: “…at least everybody understands the word Paychex.”
00:05:02
Speaker 3: If you were a five-person company, the minimum charge for you, probably in 1970, would have been twenty…
00:05:10
Speaker 2: “…eight dollars a p period.”
00:05:12
Speaker 3: That’s a lot, 1970 dollars, and we came in at about a dollar apiece—five to seven dollars, I think it was. We were able to really cut the price. Plus, all our competitors are going after the one-hundred-person payrolls. They know who all the one-hundred-person-plus companies are in your community, so you’re always fighting those guys. Nobody was interested in at least the fifty below. I decided to start. I had three thousand dollars, a few credit cards. I said, “Now I’m going to use that three thousand dollars…”
00:05:46
Speaker 2: “…I’m going to send out a bunch of direct mail in November.”
00:05:49
Speaker 3: “…let’s see if I can sign up sixty clients, which is what I needed to sort of get by, to start processing…
00:05:55
Speaker 2: “…the first of January.”
00:05:55
Speaker 3: Well, I sent out the direct mail. I sold six. So there I was with six clients.
00:06:03
Speaker 3: Needless to say, the credit cards got used, very much utilized. In fact, they eventually got all taken away, and there—forget. I took a bunch of employees out at dinner one night at the Steak Stackade. My handed to my American Express card. He came back, is torn in half, and he said, “Sorry, they made me do this.” I said, “Well, I’ll tell you about your client. We bill you every month. How about if you take my bill and give me credit got to your bill?” And he said, “Okay.” But it was embarrassing in front of the employees.
00:06:37
Speaker 2: But anyway, we struggled through.
00:06:40
Speaker 3: Fortunately, I had some friends and the banking business. They’d helped me get consumer loans, which were really business loans, but they called them consumer loans because they can’t make business loans…
00:06:48
Speaker 2: “…to a guy like me.”
00:06:50
Speaker 3: And EAS was doing our processing, the company I worked for, and the reason they liked the deal—and I liked the deal…
00:06:57
Speaker 2: “The reasons I liked it are obvious.”
00:06:59
Speaker 3: The reasons they—they were taking all of our little clients and treating them like one large client, and it was very profitable to them too, because they had no customer contact and zero sales expense.
00:07:11
Speaker 2: One day we…
00:07:12
Speaker 3: …decided we were going to get into our own equipment, so I hired a contract programmer. We were writing our programs around the IBM System Three. Got in a little over our head with the cost of producing the software and so forth, and I was really up against it…
00:07:27
Speaker 2: “…again.”
00:07:28
Speaker 3: Went over to my sister, who was a widow with three kids. Her husband died at the age of forty-one, and I said, “Maria, I need some help.” She says, “Tom’s insurance money—her husband’s insurance money—is in the bank. It’s forty-one thousand. Take what you want, just like that.” Now, here’s a single woman with three kids and a handicap. She lost her right hand when she was working in the meat department of a supermarket, which she was fifteen years old, anyway. So she loaded the money we got buy the program her and the kids. Now we’re else significant shareholders of Paychex. You can guess how that happened. Now it’s time to convert. He says, “It’s ready.”
00:08:16
Speaker 2: “It can’t.”
00:08:17
Speaker 3: We can’t run it. It doesn’t run. We can’t produce the checks, of all things, the most important thing. So we got IBM engineers and other outside programmers. Everybody’s working on a simple program. But they couldn’t solve it right away. So we were supposed to cut off with EAS Fourth of July weekend.
00:08:39
Speaker 2: It was there. It’s now Wednesday.
00:08:42
Speaker 3: Fourth of July is Friday, so everybody’s got to get their payroll by Thursday, and we’re really up against them. So I called up EAS and I said, “Ed and Jim”—they were two partners…
00:08:55
Speaker 2: “…I said, ‘We need your help.’”
00:08:57
Speaker 3: He says, “Okay, we’ll send somebody over,” and they were going to run our perils instead of us converting to our system.
00:09:04
Speaker 2: So we got through the night.
00:09:05
Speaker 3: I had about ten relatives and friends delivering checks on Thursday morning, including one guy in a motorcycle. That was funny. I don’t know who brought him, anyway, but we got them all delivered. We didn’t lose any clients, but it was a hell of an experience.
00:09:21
Speaker 2: That whole week, I never went home.
00:09:23
Speaker 3: I slept right on the floor in my office, and I lost about ten or twelve pounds. The pressure—when you can’t deliver payroll checks—that’s pressure, you know. Cup clients are calling, it’s pressure. So we finally got it fixed, and I came home and I just fell right on the bed.
00:09:41
Speaker 2: I think it was three o’clock in the morning, and…
00:09:44
Speaker 3: I’m sure I just cried, so I know. I got into conversation with Gloria says, “I think we—I don’t know if I want to keep going with this,” and she just said, “One foot after another, just keep going to have to your mother.” That’s great advice. Pretty simple, with great advice. My original goal was three hundred clients in Rochester, New York. It took me four years to get there. Now, Paychex sells two thousand a week. Now, that’s no representation of my sales ability. But obviously, we have over three thousand salespeople.
00:10:24
Speaker 1: Now, and great work is always by Joey and Alex on that piece. And you’ve been listening to Tom Gallisano’s story. He’s the founder of Paychex. Tom Gallisano’s story, a true American Dreamers’ story, as always brought to us by the great folks at Job Creators Network, here on Our American Stories.
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