Venture Voice – interviews with entrepreneurs

Entertaining Entrepreneurship

Mike McDerment of FreshBooks

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Highlights from this episode

Sometimes, a big mistake can trigger a big idea. In 2003, Mike McDerment was running a small web design agency when he accidentally saved over an old invoice. Frustrated and looking for a better way to bill clients, he decided to build the better way himself. The solution he came up with would become the foundation for FreshBooks, a cloud-based accounting software for freelancers and service-business owners, which is now the #2 small business accounting software in America, with around 500 employees and customers in more than 100 countries.

In true startup fashion, Mike ran FreshBooks out of his parents’ basement for the first 3 ½ years. His mother was even an early investor, securing a line of credit for the co-founders since they couldn’t get a loan themselves. In 2014, after a decade of incremental growth, FreshBooks raised $30 million in venture capital funding. A second round in 2017 raised another $43 million, fueling the company’s growth and dominance in the booming self-employed and small business market. Mike shares how he made the tough decision to pursue VC funding, the innovative approach they took to replatforming, how his role has evolved over time and what he’s doing to keep his entrepreneurial chops fresh.

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Highlights from this episode:

“The funny thing about the universe is, you start doing things and things start coming towards you.”

“We really were almost trying to not grow that business. I wanted to basically just do enough to feed the team, and then have me being able to spend as much of my time as I could on building the software company, which turned into the company I now run called FreshBooks.”

“For me it was really kind of a passion, follow-your-heart kind of thing.”

“I just loved trying to build a product. I’d never really done that before, had any experience of it. I really do think product management and entrepreneurship are really sort of shortchanged by the education system of today. It’s very rare that you get an experience that gives you any sense of what it’s like to create something at that scale, those dynamics and variables, all that good stuff.”

“I think there’s this moment where you know you’re on to something.”

“And so that notion of sort of logging in, and having that login look like the owner’s website is, at least for the customers that we serve and our purposes, it’s kind of gone away. But everything else is still still pretty much true. Which, I don’t know, in hindsight, is sort of interesting.”

“I think you know, one of my super strengths, I don’t have a long list, but is, sort of, people and getting what makes them tick.”

“We just solved for people who were almost, kind of like, loyal and wanted to do what we were doing. And so that solves a lot of problems.”

“If you rewind the clock, I don’t think the technology entrepreneurs, or entrepreneurs in general, necessarily appreciate what a blessing the internet has been for them, where you can go and read about how to negotiate a term sheet, what’s in all this stuff. Like, this, to me, was pure mystery.”

“Raising capital has been an intellectual, emotional journey for me, more so than a lot of entrepreneurs.”

“Basically any entrepreneur who has an idea and a product company, like, almost every single person, you very much get to this point where it’s like, well, if I only had more money that would kind of solve all my problems. And so you start thinking about the money and raising it and all that stuff. And it’s sort of natural, it’s just what happens. And so without question, I was thinking about that a whole bunch. The flip of that is, I also grew up at a time when venture capital was not as founder friendly as it is today.”

“I was just always so concerned that we would basically lose control, not because I wanted to be the only person in control — it wasn’t that I wanted to hang on to control. I was more concerned about what would happen to the constituent groups, the stakeholders, my customers and my employees, if the, let’s call it the ‘financial types’ took over and started running the show.”

“I knew enough to know that, hey, when people invest, they want a return. And they expect a return and they reasonably should. But if I don’t have the thing de-risked enough, it could go sideways, and then they’re not making money. And then maybe I’m never getting a cent from this. And I wake up one day, and I feel like an enormous failure because I had something I brought somebody in and by bringing somebody in, I actually ended up, you know, failing for everyone.”

“It’s been a fascinating and I think very positive change along with — I think the venture capital industry, which is, you know, less a cottage industry but still has elements of that, is starting to really line up behind founders and realizing that, you know, this is a referral game and, you know, we want to be with the best folks, so let’s try to do right by everybody, which I think is just a better dynamic for everybody.”

“Well the first thing to know is we were pretty clueless. And we were doing this stuff all intuitively and didn’t even know how to begin to go ahead and get the answers.”

“Basically, we had a lot of founder code.”

“The founder of Rackspace said to us, hey, listen, you folks suck at technology, but you solve the hard problem, which is you build something people love. That was kind of, I think, an astute assessment of the situation.”

“We had come from a basement where we ran super lean. And so we had that DNA.”

“Every people problem is a people solution. And once I found that first executive, that was like, Oh, now I understand how we scale. I need more of these people.” 

“The things that kept me up at night were just being psyched — like loving building product. And then, I think, it was the existential threat of feeling like we weren’t going fast enough.”

“For the most part, [funding has been used] to scale and grow the business. We just have an enormous opportunity. And the business model and the salaries of software developers, they always consume a bunch of capital. So the lion’s share of the capital is for growing the business.”

“We had a board before the professional investors came, and I came to like just the discipline of getting my thoughts organized quarterly and having some accountability. I think those are really healthy. Even if it’s kind of an advisory board, and they don’t, say, have teeth like that, for me, it was like, I’m accountable to you all to follow up and tell you what I’m doing, think it through and then to execute.”

“I said, I have no idea what I’m doing, right. So what do you do in that situation? You go to the customer.”

“Once you get to three, four hundred employees in a software company, certainly as a founding CEO, it’s hard to do the work you really should be doing, which is the forward-looking stuff.”

“Probably the way to think about it is, as a founding CEO, by the time you get to 300 people, you know if you’re the execution machine or kind of the vision machine and you’re probably not great at both. So go ahead and get yourself as a COO type. And let them let them run the day-to-day growing of the business and the go-to-market motions, [make sure the] trains are on time and make sure the roadmaps are happening.”

“When I’ve had thoughts around what else I might do, I just get very…it’s hard. I have literally struggled to think about something that’s as appealing to me as serving small business owners and making the difference that we can for them.”

“That’s a perpetual game, to keep a culture on track. And, you know, by the way, we have the category’s best-rated product as well. So for me, sustaining excellence, that is really hard. It’s an ongoing game that doesn’t move. And it has meaning, right? Because I do I think that the people having the experience they do working at FreshBooks, or that they have, you know, enjoying the products, that means a lot to me. And I think it’s a good thing that we bring to the world. And I really believe in business as a force of good. I know some people are suspicious of that, but I really, really, really believe it.”

“I think, for anyone who thinks that raising capital is, like, an obvious choice, I would just say, why? And then, you know, it’s kind of, when, but you do want to get to a place where conditions are set up for success.”

“We have a thing at FreshBooks we call the four Es: Execute Extraordinary Experiences Every day. I think you get more opportunities to go ahead and do that and build a culture and community when you have an office, and I will triple down on that statement having spent the last year now basically working remotely.”

“Business is always an art and, sort of, working the business model and making that work — it’s non-trivial effort.”

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