Mike McDerment, Co-founder & CEO, FreshBooks
One of the best ways for an entrepreneur to come up with a great business idea is by scratching their own itch. If something’s giving you trouble, it’s likely that other people out there are feeling the same way.
That’s how it all started for Mike McDerment, back when he created FreshBooks. At the time, McDerment wasn’t looking to create a new business, or invent some sort of revolutionary product to sell. He was just trying to solve his own problem—he was tired of using Microsoft Excel as a way to create and send invoices to clients.
It originally started off as simple digital product to make his own life easier, but it wasn’t long before others started taking an interest in McDerment’s new tool. Instead of selling a complete software package, the common approach at the time, McDerment decided to try out a new business model that was relatively unheard of at the time.
“The truth is, we were SaaS before there was SaaS. We were cloud before there was cloud,” he says.
While most people were selling software as licenses, McDerment was determined to build a product that would guarantee a predictable, recurring revenue. It was a new idea, and one that many consultants and others in their space advised against. And it’s true that things didn’t look great for McDerment and his co-founders after two years of developing and selling the product.
“We had only 10 paying customers paying about 10 dollars a month each. To be making a hundred dollars month after that many human years of effort is by all accounts a failure. And we stuck with it because we really loved what we were doing and our customers were telling us that it was great. It was a little more colorful in the early days,” McDerment says.
Refusing to give up, McDerment and his co-founders pushed on, and in the years since, they’ve served more than 10 million customers, and grown into a company with over 250 employees. Today, FreshBooks is one of the most widely used and preferred methods of accounting and invoicing for small businesses everywhere, and it all began with a simple idea, the passion to never give up, and some interesting strategies for growth.
- Why you shouldn’t necessarily follow best practices
- How to grow and adapt as a leader
- Why the best leaders never need to have all the answers
- The importance of instilling the right values within your team and company culture
- What “guardrails” you need in order to have your company grow as fast as possible
Full Transcript of Podcast with Mike McDerment
Hello, and welcome to another episode of the “Foundr Podcast.” My name is Nathan Chan, I’m your host, coming to you live from hometown, homegrown Melbourne, Australia. And I’m really, really excited to be sharing this podcast episode with you. We’re speaking to Mike McDerment, and he is the founder of a very big, well-known accounting invoicing software company called FreshBooks, it’s a cloud-based SaaS product, and really, really excited I got to speak with Mike. Very, very smart guy, extremely large company. They’ve got over millions of customers, and that is, yes, millions of customers, which is crazy.
And Mike and I actually talk about a topic. You know, when I do these interviews…you guys might find this interesting. A lot of the time, I don’t know what the angle is going to be. I just kind of treat it like a normal conversation and just see where things go. And you know, if something really shouts out at me that I want to delve deeper into that sounds like, “Oh, this sounds interesting,” you know, we go down, we go deeper, and we go deeper, and we go deeper, and then that’s the angle of the show and that episode. So with this one, it was quite interesting. I didn’t expect to speak to Mike so in-depth about culture and company values. But this is something that has been quite a big thing for Foundr in the past, let’s say, three to four months where, you know, I started the company while I was working on the side. And then as the company’s grown, we’ve got staff, we’ve got a team here in Melbourne, and then all around the world. And as time’s gone on, I’ve realized…you know, one thing that one of my mentors, Mitch, has taught me is, you know, a great company, a great business always has a set of values that defines the culture. And that culture is essentially why people want to work at your company. It’s the things that define everything that you do, and it’s your set of beliefs as a founder, and as a company, and as a team, and it’s what you live and breathe.
And Mike and I talked about this quite in-depth. So if you are building your company and you’re, you know, starting to hire staff, this is something you definitely need to consider because this shapes everything that you do within your business. It helps you, you know, make decisions easier. It helps you find the right kind of employees and people that you want to join your team.
So yeah, it was a great conversation. I learnt a lot. It was really, really interesting. And I just also wanted to share with you guys, before we jump in, if you are enjoying these episodes, please do take the time to leave us a review on Spotify, iTunes, Stitchr; it helps more than you can imagine. Please do let your friends know about the “Foundr Podcast.” It helps us big time. We are doing our very, very best, and we are on a mission to have our content consumed by now tens of millions of people on a monthly basis, and I know how powerful word of mouth is.
And just lastly, if you are looking to start a business, you haven’t launched your business yet, and you know, launching a physical-based product does interest you, make sure you sign up to foundrmag.com/ecommerce where you can find out more. We’re working on a step by step video course. We’ve teamed up with a friend of mine out of Melbourne, she’s built four multi-million dollar eCommerce brands, physical businesses. This is probably gonna be one of the best courses we’ve ever produced, I’m really excited. And yeah, make sure you go check it out. All right, guys, that’s it from me. Now let’s jump into the show.
The first question I ask everyone that comes on is “How did you get your job?”
Mike: “How did I get my job?” You know, I would say it’s more like, “How did you find yourself on this mission?” Because ultimately, you know, I started out scratching my own itch. I was running a small design agency, and I was using Word and Excel to build my clients. And you know, ultimately, Word and Excel are not built to, you know, track, time, and invoice people, that kind of thing.
And so, one day, I accidentally saved over an invoice and said, “You know, there has to be a better way to do this.” And I set about building a product so I can build my clients, and, you know, started working on that with one person, got it out there. Eventually, people started liking it, and the rest is kind of, as I say, history.
So I guess the short answer is I kind of fell into it. It was not by design.
Nathan: Interesting. So you never set out to build a SaaS company?
Mike: I did not set out to build a SaaS company. I really started out trying to solve my own problem. And I built the first thing just for me, and it was a couple months before we even figured, “You know, other people might like this.” And then, we started thinking about that.
You know, the truth is we were SaaS before there was SaaS. We were cloud before there was cloud. We got started in, like, you know, the early…I’ve been at it for about a decade now, right? So these concepts and the notion of building these predictable recurring revenue businesses…like, software was being sold as licenses back then.
Nathan: Yeah, gotcha.
Mike: You know, people looked at us with, like, three heads, when we’re like, you know, “All of this is like a small monthly fee.” And it’s like, “Well, why don’t I just buy it and put it on my server?” It’s like, “No. How about a small monthly fee?
So everything was kind of backwards. You know, I’d say a lot of the things that are taken for granted today, we were really going against the grain for a lot of years.
Nathan: Gotcha. So do you still run that design agency still to this day?
Mike: I do not. I kind of gradually set about firing my clients in a way where either they didn’t need us anymore, we got them into good hands. But no, I was pretty soon consumed with a passion for this business and sort of this mission of helping to reshape the world for self-employed professionals and their teams.
And it just…building the product was so addictive that I went from spending 100% of my time on the agency to, pretty soon, I was spending 20% of my time on the agency and kind of starving myself while feeding others to enable me to spend time, you know, trying to build a product, trying to figure out how to market it. All the stuff that comes with building a company.
Nathan: Yeah, gotcha. So you started FreshBooks about ten years ago, then, you would say?
Mike: That’s right. Yep.
Nathan: Exactly ten years ago. So 2007?
Mike: Well, no, no, it was kind of more than that. We had…so you know, if we’re gonna be honest about things, like, really humble beginnings. So I saved over that invoice in January 2003. It took about a year…like, we were building product…and I’m not sure how technical everyone is in the audience, but let’s say it this way: the tools people use to build the kind of product that we run today, they didn’t exist back then. And so, you know, you could have brought a product like ours to market much faster than we were able to.
Anyhow, so we worked for about a year kind of part-time turning something…our idea into something people could sign up for. And then spent three and a half years in my parents’ basement just trying to get things going. And actually after two years from saving over that invoice…you know, two years after that, we had only ten paying customers paying us about $10 a month each. So we were making about $100 a month. My co-founder has a doctorate in computer science, I went to a good business school. We brought on a third guy who’s an electrical engineer.
And so, you take that cumulative, I guess, education level, and those guys have big brains. To be making $100 a month from, you know, that many human years of effort is, you know, by all accounts, a failure. And we just kind of stuck with it because we loved what we were doing, and our customers were telling us that it was great. So yeah, that’s…anyways, a little more color on the early days.
Nathan: Yeah, that’s crazy. So you were working on the product for about four years?
Mike: It’s complicated. I think that’s a stretch, right? So first of all, we were part-time. Joe, my original co-founder, never worked more than, like, a day or two a week with us. So we were always just kind of squeezing it in; you know, 20 minutes here, an hour there, because we were doing other stuff.
And then Levi, who was the third guy who joined us, he started full-time in March 2003…sorry, 2004. And we launched in May 2004, so two months before we kind of launched. And he was the only person who was full-time, because I still had my agency and all the rest of that. So part-time for a couple of years, and then, yeah, and then it was full-time.
And we had people signing up and trying it, right? So we knew we were kind of doing some stuff, right? We just hadn’t figured out all the kinks yet.
Nathan: Gotcha. And when did things really start to take off? When did you get traction?
Mike: Yeah, I mean, I would say ten paying customers is traction, right? So if you launch in May…I know we only had ten paying customers, but we had other people using the site and signing up. And I think there is a lot of “best practice” in building companies and technology companies and software companies today, and that’s ultimately the kind of company we ended up building.
And I am personally, like, I am skeptical of best practice in a lot of instances, right? Because, you know, I think by all accounts, again, we were a failure because, you know, like, we may not have achieved someone else’s definition of traction yet. But we saw, you know, progress, and a good trend, and so, we stuck with it. There was no, like, one turning point where all of a sudden, the business just kind of took a new direction. It was this gradual and consistent build. And when you’ve got small numbers, they’re growing at high rates. If you’re patient enough to let it run out, you know, you might just have something there. And it turns out, you know, we were patient enough because we really loved what we were doing, we believed in it. And you know, that was kind of more the money in those days.
Nathan: Yeah, I see. So at what point did you start to fire your clients?
Mike: On the agency side?
Mike: So that…yeah, so a good question. So we were kind of running two businesses for a while. That probably took from, you know, January 2003. I probably fired the last one in, like, 2006 or something. That’d be my guess, I don’t know. And that would be, you know, pretty congruent with when I’d really say, you know, FreshBooks kind of…you know, 2006 is probably about the time it really got going. So it is about a decade, if that makes sense.
Nathan: Yeah, wow. And can you give our audience just a little bit of insight around how big FreshBooks is right now?
Mike: Yeah, sure. So what we are is a ridiculously easy-to-use accounting software that’s in the cloud. It’s designed for self-employed professionals and their teams. And basically, if you invoice, you need FreshBooks. It turns out that, you know, since we started, over 10 million people have used the software. We’re about 250 employees…you know, FreshBookers today, and we don’t share revenue or anything like that. But that gives you the size of the, you know, the scale, and we’re still growing really fast. Yeah.
Nathan: Yeah, gotcha. Awesome. And when it comes to, I guess, the way you’re operating the company now, what kind of leader are you? What type of business leader do you consider yourself as, and how do you grow and develop yourself as a leader?
Mike: Well, for what it’s worth, that’s a particularly interesting question to me, and I’ll tell you why. Growing a business is really hard. And the kinds of people who start businesses are often not the people who scale them. And I’ve had the good fortune to have about a decade to try and grow into it and become a leader. And, you know, frankly, it’s taken the better part of a decade to understand that’s the problem to take on and start working against it. So yeah.
So what kind of a leader am I? Jeez, I don’t know. I do know that I’ve learned a ton about leadership, and that I’m still working at it. And it’s…you know, as you scale, it gets more and more important, and more and more challenging. And you know, I think about…I guess as a builder and an entrepreneur and a leader, to me, there’s two things you need to be successful. You need shared values of the people on your team, right? And we’re really big on values at FreshBooks. And you need alignment. And so, people need to know where they’re going and why.
And so, I think you get the right people in who have their shared values and you point them in the right direction, those are a big part of sort of, you know, what I feel responsible for as a leader. Let’s stop there for now and we can dig deeper into this stuff, if you want. But it’s…yeah.
I mean, maybe, I’ll just go into some of the lessons. One of the things I have found particularly hard as, I would say, an entrepreneur and someone who’s…you know, I would say I like things when they’re moving really, really fast. And I’m comfortable having a very conceptual conversation that gallops really, really quickly.
And one of the biggest struggles I’ve had, you know, as a leader over the years is, you know, “Hey, you’ve built this thing. It’s your baby,” you’re in a meeting room or what have you, and just a leadership lesson. Like, for years, like…like, somebody asked a question, I’ve got a fast answer, right? And I’m ready to go to the next thing. And one of the things I’ve realized, and I’ve had to learn as leader, is, like, you actually have to make space and time so that other people have an opportunity to contribute as opposed to just answering straight away. Like, if I answer every question in a meeting, like, no one else is gonna end up talking.
I’m ready to do that. I have the answer. I know the business so well. But I was, for years, kind of crowding people out. And it wasn’t like I was necessarily telling them what to do or anything. It was just someone asked a question, I got an answer.
Anyway, so a small leadership lesson for me there, I think, comes from being a little more…you know, that crazy entrepreneur type is I actually have to, like, the goal is…and I guess this is good leadership lesson, too. Whoever the most senior person in the room is, they should probably speak last, right? To make sure everyone has a chance to kind of get stuff out there. And when you’re working in a collaborative environment like I do, that’s been…that’s a thing that…it takes more energy from me than you can possibly imagine to sit on my hands and, like, let that conversation unfold.
But I think it’s a good dynamic for anybody who’s building a team to be aware that, you know, a fast answer is not necessarily the best behavior.
Nathan: Yeah, that’s a good one. I’ve recently learnt the importance of values. Like, within a company, while we were building up Foundr. I’m curious, how do you constantly communicate FreshBooks’ values to a 250-person team?
Mike: First of all as I learn more about culture and these kinds of things, it is about sort of continuous communication, but it’s about doing it in many sort of different ways if it matters enough. So let’s just start at the beginning. I think the first thing we do is when we’re interviewing, we’re looking for our values and people who share them, right? So we’re probing around, you know, questions that, you know, people who…you know, share our values. And this isn’t like…we’re not asking, like, opinions on, like, politics or…that’s not values, right? You’re looking for different more sort of basic things.
So we look for folks that, you know, we feel through an interview process, and what have you, do share our values. And then when they join the company, one of the most powerful things that we do is everybody spends their first month in customer service. So we’re very, very big on customer service. And everybody, like our CFO who, you know, was a CFO of a public company for ten years prior to joining FreshBooks, you know, he went and spent a month in customer service answering calls from, you know, from customers and being managed by the customer service team, not by me during that period.
And so, why do I talk about that as something that’s relevant here is because during that month, you know, people get instilled with…you know, and first of all, we deliberately walk them through the values in the first couple days as part of the onboarding process. But then, you know, they see them living, and you know, they hear them in conversations. And the osmosis of seeing, like, what the culture is, people start to, you know, kind of fit in and adopt that kind of thing. And so, that’s powerful.
And then you go to more…so after everyone’s completed their first month, and during it, like, we have kind of a lunch hall, and we have big banners with our values, you know, sort of printed on those that are, like, you walk down the stairs to this area and it’s like you can’t not see the values, right?
So we make it kind of both the invisible aspect of how people are living day to day, but also very physical in that they are present and you’re walking past them when you come in and they’re in the building and that kind of thing. Make sense? Those are a couple of ways we do it.
Nathan: Yeah, gotcha. And when it came to coming up with your values, what…like, if, you know, because a lot of our audience is just starting to build out their company, maybe solopreneurs, maybe just starting to hire, what do you recommend? Any best practices to come up with them? Do you recommend have 10, 15, 3, 4, keep it simple? How many do you guys have?
Mike: Great question. So we…I’ll just start with the end is, you know, we had seven, we’re at nine, and we have an invisible tenth one. So, like, that’s probably too many, right? So if I had a do-over, I would have fewer of them. And if I had a do-over as well, I think, you know, values…and I would look to a company like Zappos to get a picture of this, they do a really good job of it. I think the best values, in my opinion, are, like, when they describe a behavior you’re looking for, right? So I think Zappos has this one called, like, “Do more with less,” right? Which, to me, is like…it’s about creativity, it’s about resourcefulness on one end. On the other hand, it’s like, you know, don’t waste our money, right? Like, be responsible…
Nathan: Yeah, bootstrap your mindset, yeah.
Mike: Yeah, yeah, yeah. It’s a very…but it’s, like, such a clear picture. Whereas our values are kind of these one-word, you know, generic things with an underlying meaning. You know, we have one, “Honesty.” I think honesty is, like, actually critical. Like, trust and honesty, you don’t have anything if you don’t have any of those things. But we define it as being sort of straightforward and direct. We know we communicate directly. And, like, those…we have that underlying behavior underneath. So maybe be straightforward. If I had a do-over, I might do something like that as a value.
Anyhow, so back to…that’s like the end state. You want them to be, like, a picture. So people on your team, like, they hear the value, and they kind of know what to do. What behaviors you’re expecting of them, okay? So that’s a thing.
And then the way we built ours up, you know, I’ll kind of give you the true story and think about how others might do something similar. We made it a bunch of years without having any values specifically articulated. And then, you know, we had this day we called sort of “Values Day.” And what I asked everybody to do…and I think we were, like, 30 people at this point, was to bring one story…everybody bring one story that they think best captures, like, the essence of, you know, what we’re about and who we are.
And what we did is we went around and everybody kind of read their story, and they put in a…like a bucket, if you will, it wasn’t a bucket. But they read this story, they put it down. And later in the day, we started grouping them, right? Like, “Hey, which one…is this kind of like that?” or what have you. And then we kind of tried to find a word that kind of captured those sentiments.
So it was very much…I guess in our way of doing it, it was a very collaborative exercise. You know, if I had a future company…and I think part of that is, like, I was really good because…you know, I don’t know that I could have just pulled them all out of my rump, if that makes sense. I did shape a couple of them and sort of insist that…I will say I insisted that trust and honesty were two of them. And trust, for us, is we like we give trust to earn trust, right? And when in doubt, we trust others, have our best intentions in mind. So there’s a definition to that that I knew we needed those to have them fundamentally in there, trust and honesty. But the other ones were less clear to me.
Anyways, I feel like I’m down into the weeds. But the point is, we got these kind of words and these stories, and these examples of how we behaved, and then we kind of found patterns in them, and trying to find words to capture them. So, like, “passion” is one that we have. But the way we define “passion” is like, you know, like, we’re continuously working on our craft. And if we weren’t doing it here, we’re doing it somewhere else, right? So we don’t want people who can do a job, you know, or have a skill. We want people who love learning about that skill, and are continuously getting better at it. Does that make sense? Because you can’t teach…and what’s great about that as a leader in running a company is you can’t convince somebody that they need to…or it’s hard to…like, it’s better to have the intrinsic motivation to get better, than to think that you can kind of generate it from the outside because they’re there already, right? So we want self-learners who are self-aware and are passionate about learning more. Anyways, that’s just kind of one example.
So if I were running another company again in the future, I might decide to, like, show up day one and be, like, “Everybody, these are our values. This is how we’re gonna live.” I think there’s a lot of value to actually waiting a little later and kind of seeing what happens, and then having the values reflect, you know, how the place is. Because I can imagine creating a set of values in a vacuum, and then, the team’s ten people and, you know, X number of months or years, and, like, there’s a big disconnect between the two. Like, that can happen, right? Because I think that founding team kind of sets, you know, the ball rolling down the hill to a certain degree.
So my two cents would be, like, wait a little bit til you have enough data to kind of figure out who you are, and then take a guess at it. And don’t be afraid to edit it over time. And I always threaten to, like, rewrite the values myself or, like, tune them. Because you know what? I can, right? That’s part of my prerogative. And I don’t know that I’d completely blow them up or anything like that, I don’t think that’s necessary. But at one point, I added…we went from seven to nine because I thought some things were missing, right? So we created one called “Change,” right? Which is really about, you know, “We believe that change brings growth for ourselves and FreshBooks,” right? Because the technology company that’s changing as much as we are, you really want people to have an openness to change. And if they’re not open to it, they’re closed, they’re probably actually not a great fit, and we need to help them go somewhere where that’s, you know, less likely to have things change around them.
So I don’t know, I hope that’s helpful, but it’s…you know…I think what’s great about values is once you have them…you know, I’ll say this; I think this is important. What you want to do is you want to reward people who live the values, like, who demonstrate them day to day. And that’s what gets people, you know, sort of saying, like…you double down on the positives is how you get people kind of living them. And you also have a clear guideline, you know, to have a conversation with another adult about why something’s not working. Because you have a reference guide saying, like, “Listen, this goes against…you know, do more with less. Listen, you just spent, you know, $10,000, you know…I don’t know, driving limousines around town because you felt like it.” You know what I mean? That doesn’t really fit with our value here. So you know, it gives you a nice set of guidelines to have challenging conversations and to reward positive behavior.
Nathan: Yeah, gotcha. Look, we have to work towards wrapping up, but I really appreciate you just doubling down on the values piece, how important that is for a fast-growing company, even for a company the size of yours. It’s more important than ever, right?
Mike: I think to maintain speed at scale, you need guardrails and values, and having a value system that’s explicit is a great set of guardrails for everybody. People know what’s expected of them so they’re not wondering. And you know, you can reward people or, you know, in those rare occasions, have those challenging conversations without it seeming subjective, because you can point to the thing up on the wall and be, like, “Hey, you’re not living this.”
Nathan: Yeah, gotcha. Awesome. A couple of last questions before we work towards wrapping up, Mike. One, managing a 250-person team, you’ve obviously got a leadership team. Do you guys do, like, weekly traffic report meetings around your targets and goals? And I’m just curious around just the functioning part to build a high-performance team to continue growth.
Mike: Yeah, like, how we operate the business.
Mike: Yes, so we have a variety…we do have a weekly…you know, how did…it’s a bit of a…”Do you want to look at the things of looking back? How did last week go? What are the leading indicators of tomorrow?” So we do that on Tuesdays, as a matter of fact. And that’s kind of the numbers. And we do a second meeting, which is kind of the projects. And, “Hey, is everyone clear?” Like, we call it a, you know, key performance indicators meeting, and then there’s like a weekly operations meeting. And those are basically both about, like, “Are we doing what we thought we would do?” And then, “Are the trains are running on time, and are people out of each other’s way?” That’s a part of it. What other stuff in that vein might you be interested in?
Nathan: Those two pieces was what I was looking for. Because I know many different companies, in terms of operationally…depending on the size, they have different kinds of, I guess, ways they’re tracking how things are going. And I was curious, with a company of your size, how you were doing that.
Second to last question, can you talk to us about the future of FreshBooks, where you see things going, what your aspirations are, what your mission is? And then the last question will be the best place people can find out more about yourself and also FreshBooks.
Mike: Okay. So our invisible tenth value is, like, secrecy. So we don’t share financial information, and we actually don’t do, like, forward-looking statements. Meaning, like…said another way…I’m not gonna get too specific about where we’re going, but I’ll tell you about our mission, and I think it’s pretty broad, and I’ll let you kind of fill in the cracks, is, you know, we’re on a mission to reshape the world to suit the needs of self-employed professionals and their teams.
And it’s our belief that, you know, aross the world, you know, thanks to technology, thanks to demographics, thanks to a variety of things, there are more people working for themselves than ever before, that’s a fact, and the rate is only gonna increase. And so, when we look out there, we also see a world that’s not really set up for self-employed professionals. So we want to help by enabling you to run your business without having to learn accounting. Make it so simple that you can just focus on your clients and your craft, and getting the work done.
That’s…you know, that’s kind of high-level stuff. But we believe there’s lots of room to play in there, and we’re really on in kind of realizing that mission of reshaping the world for this large and growing constituency of people who are out there, you know, as professionals getting work done, getting paid for their time and expertise.
And I guess…maybe then the last part is where you can learn more about me and FreshBooks? And probably the best place to do that is freshbooks.com. Yeah, if anyone is out there and you have invoices you want to send and a business you want to run more simply so you can focus on what you love doing instead of back office stuff, do drop by and give us a try.
Nathan: Awesome. Well, look, Mike, we’ll wrap there, but thank you so much for your time. This was a great interview.
Mike: Thanks, Nathan.
Key Resources From Our Interview With Mike McDerment
- Checkout FreshBooks
- Learn more about Mike McDerment
- Follow Mike McDerment on Twitter
- Connect with Mike McDerment on Linkedin