Mike McDerment | Founding Freshbooks, Serving SMB Businesses

John Corcoran 5:12

Right, right. And, you know, it was a cloud based accounting software back in the time when that was a radical idea. So was it hard early on to convince people that it was safe, it was secure, that they should use something that was not on their local computer, but cloud based?

Mike McDerment 5:28

It was hard not to start selling it on a CD to somebody that was we had, we had people calling up and we’re making $100 a month from 10 clients. So people say, Well, for like four grand, can you put it on CD, and I’ll run it on my servers. And it was, you know, we had to literally sit down and say, is that what we want to do? And we decided not to, I decided to stick with the cloud thing. Because yes, this is like 2004, I guess we sort of launched and, and building these things on the web was not, was not common practice, people were using desktops and building software for desktops. And we were very early. So that was a challenge. And then to your point of security and privacy, absolutely. Like that. The conversation back then was, you really got the early adopters, like the people in LIKE IT folks who were like, open to it. But now a lot of people were just afraid to put their stuff up in the cloud. And it wasn’t even called the cloud back then let’s, let’s go ahead and recall, it was like the web or whatever, the information superhighway so so, you know, a fair bit has changed, and things have definitely tilted in our favor and direction over the years.

John Corcoran 6:33

Right? It’s interesting, you mentioned this story of someone saying for $4,000, you send it to me on a CD, you know, because for so many businesses, these opportunities come along. And it’s kind of like a decision point, do we go this direction to go this direction? And I heard you tell this other story about this opportunity with Wells Fargo that came along, which sounds like that was another big decision point where you had this opportunity to serve Wells Fargo, tell us that story.

Mike McDerment 7:00

Yeah, that was, we were still in the basement. They know this yet. But we were and so in this is like, probably just before, like, 2006 timeframe. And we got a phone call one day. And, you know, it was, I think I might have answered the call, which you know, would have indicated how small we really were. But point being, they were looking for a partner to become their online invoicing solution. They found us and were interested in working with us. And so for the first time in our history, I went and pitched you know, to anybody, which meant flying to San Francisco, and riding the elevator up 50 floors, you know, a glass room, and that was not my every day. Turns out, we won the, you know, we won the Bake Off. So they were talking with, you know, all the usual suspects plus, and people who just build, you know, enterprise software, this kind of thing. Anyhow, we were selected. And that then presented this problem was like, do you work with this, you know, this large institution, you know, and the math, it’s such a big deal, like, we were a tiny company, we probably had 2000 customers or something like this, and, you know, staring at this opportunity to get distributed by a bank to, you know, frankly, millions of people and small businesses and, and, you know, that’s the one side, it’s like, the back of the envelope, well, if he was good 3% of our customers to use you, it’s going to be a great business. And, and, and that’s very alluring. And then on the other hand, you know that working with an organization that size is going to slow you down. And they will influence your roadmap, and you know, you’re probably going to have to adhere to some arcane standards that we wouldn’t worry about being, you know, a start up quite the same way at that stage. And so, you know, we knew that’d be a bit of an anchor, and I had to, I had to go ahead and sort of walk around and have some sleepless nights. Which way do we go? And I know, we’ll probably get into relationships and that kind of thing. But one of my advisors at the time, who had become an angel investor, and he founded a very successful company. You know, I called him because he was like my daily call, because I had no idea what I was doing. I was like, how do I, how do I be an entrepreneur basically, was my call every day, he was giving me all kinds of guidance. So I brought this to him. I was like, Pat, what do we do? And he was like, I don’t know, Mike, I’m sure you’ll make a great decision.

Unknown Speaker 9:25

Which was like,

John Corcoran 9:27

like, you’re my advisor. Come on.

Mike McDerment 9:29

It’s not what I wanted to hear. I wanted somebody to, like, make the call for me. Anyways, we won the deal. I told them, you’re getting the full story here. But I told them, you know, pay us 10 times as much and we’ll do it. And they said no, and we said, okay, great. And it was I think it was my way of saying I don’t really want it. If you know, I didn’t want to be foolish, you’re gonna pay me 10 times all it makes sense, but I’m glad we didn’t do it. And I promise you we would not be here today for you.

John Corcoran 9:54

Right and even that decision to say to go to Wells Fargo, take some kohonen To say, pay us 10 times as much, and we’ll do it.

Mike McDerment 10:04

Well, I think that’s, you know, when you sort of don’t have anything to lose, right, it’s a good place to be. Because I kind of knew I didn’t want it. But at some, you know, some price point, it’s like you’d be, you know, sort of silly not to So, anyhow, I didn’t know what they’d say, you know, frankly.

Anyways, I think they were surprised by that approach. Right, right.

John Corcoran 10:25

Now, if I’m doing my math correctly, you launched in 2004, it three and a half years in the basement, and eventually you come out of the basement, we’re getting to about 20,007 2008, which, of course, you know, now we have this big economic downturn, what was that period like for you and for the company?

Mike McDerment 10:44

Well, harrowing, you know, for a variety of reasons, we’d actually, we just had that same Angel had decided he was going to help us out a little more, because we were doing so well, and everyone’s excited. And then, and then the financial crisis hit, and then he had some complications at the time for reasons I won’t go into. And so all of a sudden, we thought we were gonna have some capital that we just didn’t have anymore. And so we, you know, we had started spending, like, the capital would be there, because we were running lean, and then it’s like, oh, we trust this is all going to work out, and then it didn’t. And so we really had to peel things back. Anyway, it was harrowing, we were like, it was pretty existential, we didn’t know what’s going to go on. And, you know, the punch line is we grew like, I don’t know, 180%, or something that year. So it was fine. But but it was, you know, it was very uncertain, right, and he just, you just don’t know, I will go ahead and said that experience has really helped me, cuz we obviously have just been going through this the COVID pandemic, and that is, you know, it is nice to have one of those events under your under your keel, so to speak,

John Corcoran 11:53

I want to get to that when in a little bit, I want to ask about a few other things before I get to asking about what COVID has been like for you. But you mentioned advisors. And you know, to my knowledge, you hadn’t built a software company before. So who did you turn to? Did you have coaches? Did you have mentors? Did you have advisors who you could turn to who provided some guidance, especially in these early years?

Mike McDerment 12:18

Yeah, so it was kind of anyone and everyone, I ended up. So we didn’t know what we’re doing. I like, as I like to say, we built the business first principles on everything, I’d never worked anywhere else, we didn’t know how to do software development, you know, Product Management, branding, marketing, like I knew a little bit of Internet Marketing, but that’s like a tiny fraction of what marketing is, it’s you know, and I didn’t even really appreciate that at the time. So, you know, long story short, I, my, my friend’s father was a former executive, and, you know, had his MBA, and I ended up just starting like, with him, like just bringing up my like, I have no idea what I’m doing, you know, he was like, focus, do less stuff, pick a niche, like some really great advice. And, you know, so I often encourage people to go find folks who’ve, like, retired and know something, because that stuff just never goes out of style. And so yeah, so he was big. And then I found my way in, they had this, so we’re based in Toronto, Canada, that’s where he founded the company, where the headquarters still is, and we, I got involved with like a kind of an incubator scene there. And they had a raft of advisors in there, and I would go monthly and just, you know, just suck anybody’s brain that I could, like, show them the stuff like get the counsel that it could 2006 this stuff was pretty new, the internet didn’t have all the stuff it had today, you know, like you can learn how to do and access basically all the stuff you want to be able to do on the internet. Now there’s, you know, like, but back then it was massive information arbitrage, if you’re fundraising, if you’re doing product development, if any of these things, so we had to figure out how to do all that stuff. And then, you know, over time, in my travels, you know, grew up in a cohort of customers and, you know, proud to, you know, have met, you know, the founders of Zendesk and HubSpot and others when they were much, much smaller. And so, those are folks who we were like a peer group growing up, but what do you do about this? What do you do about that? And so that’s been, you know, those have been some of the peer mentors. So I think I had a, you know, a host of people and my line has always been that I like to collect advisors, because when I when I got to find was nobody has all the answers you need, but they have little parts of the puzzle and so I got a pretty good at you know, meeting somebody and realizing you have this area that I might need one day, and I build a relationship with them. And then I’d go back to them and it’s served me very well.

John Corcoran 14:43

What are your secrets for building relationships, particularly, you know, you meet like a Zendesk or HubSpot or someone like that, who’s a little bit further ahead of you. And you know, a lot of my listeners, I think, are curious about this. Like when you have another company or another individual who’s Little bit senior to you or further advanced or their business is doing better. How do you approach a company like that? How do you develop a relationship that leads to some kind of strategic partnership for supporting one another? What? What are your tips for that?

Mike McDerment 15:13

Yeah, so So a couple of thoughts. So back then those were my peer mentors, like, I don’t know that they were ahead of me. In fact, they were probably, you know, behind, they had sort of business models that had different dynamics and some other things. And they went, you know, pretty heavy on the venture capital route. We didn’t do that for a long time. So no regrets on my side of the house. But yeah, there’s certainly like the running public companies now. It’s awesome. I’m super proud of them. And they’re just great people, by the way, and they built great management teams. And, you know, I encourage everyone to invest behind those folks. So that is, that is great. But, but some of the other folks, you know, you get introduced to, you go to these incubator things. And so I had the former CFO of at&t, right, showing up to like, he fly in monthly from wherever he was to help these companies, because they had assembled this group of basically, like retired executives, who are like doing board time and trying to help companies, and I think there’s a really good initiative. But so that those are the people that, you know, I met through that incubator thing. And, and the job then is, yeah, you still need to build rapport with them, because you’re gonna want to get a hold of them, you know, between, you know, between here and next month, or whatever it is. And so you want them to respond when you reach out or send an email or text or whatnot. Yeah, yeah, hundred percent 100%. And they’re doing it for the love of it, right. So it’s like, you know, it’s like, can’t buy their love at this point. It’s, you know, it’s not what it’s about. And so, anyways, that the feedback I’d have with any of these things is first, like, figure out if there’s somebody you want to spend time with, I think is really important. Like, somebody may have all the knowledge I have passed on wanting to spend time with a lot of people, because I just felt like there probably wasn’t a value fit at the end of the day. You know, like, some people have been really successful, but it didn’t feel like it had a lot of depth to me, in some cases, or I just didn’t feel like it had jive. And so, you know, not 100% of people do I try to go on myself too, but then, you know, when I feel like there’s, you know, there’s some kind of connection there. And I think that’s, you know, there’s some kind of rapport, and I don’t know what goes on with building the immediate rapport. But normally, the guidance I give to people is, is kind of lay yourself bare, right? Just be honest, like, Don’t try to put an error on that you have all the answers and know everything. It’s more like, this is what we’re doing. These are the 10 things I don’t know how to do. Right. And my experience has been that, you know, people who have experience and who you know, are there to mentor or what have you, like, if they meet somebody who’s kind of, like, honest and true, and, you know, is respectful of their time, like not being like, jeez, can you tell me this? And now, can you tell me that and or is it like, they can’t help but want to help you? Right? If you show them like, I don’t know how to think about marketing. It’s like, Okay, let me try and explain that to you to help you. And so, yeah, I just think laying yourself bare and being forthright and respectful. And, and then there’d be some follow up, but just like little things, so they know that, like, if I say I’m going to do something, I’m going to do it. And then they’re like, Okay, this guy said he will get in touch with me next week. And he did. And he’s asking me to get on a call. But he’s also said, like, let me share some stuff with you that helped me since the last call so they can see the effect. I don’t know, I’m kind of running on. But I think it’s a lot of little, little things. You know about rapport about being a valued fit. And then I think just really laying yourself bare. Because I think that’s incentives. That means people are like, Listen, I don’t know how to help you. But you know, I can steer you to someone who is and that that saves everybody time. If there’s no crossover, and it’s not a fit, like, you know, you want to figure that out up front.

John Corcoran 18:39

What has it been like, you know, you built this business now has 400 plus people working for it? What has it been like switching into that other role, where you now I’m sure had people who approached us to get advice from you?

Mike McDerment 18:53

Well, it’s interesting, because, you know, we started some time ago now, like, over a decade ago, and Toronto apparently hired more people in technology last year than Silicon Valley, which is pretty wild. But when we started out, there was really no ecosystem there. And we were, we were pushing it and so like, I went to this incubator. Believe it or not, it was like government funded. Okay, so the government doesn’t do anything. Well, you know, I would beg to differ. And then and then I, you know, I ended up playing a role and choosing to spend time helping to build other sort of up and coming people in the community because turns out I was 10 years down the road, I learned some things I had some connections, fundraising, marketing, you know, product, you know, managing your board, whatever it is, these are very hard things. And so I I started spending time one on one with folks and that was my way of giving back with my personal ambition for Toronto is, is that it really starts to you know, compete on the global scale, and I think we really are starting to and, and, anyhow, so that was that it can be very rewarding. You know, when you really may help somebody help somebody set them up so they can go and make the difference they need to or want to in their business and playing a role in that is very gratifying.

Unknown Speaker 20:08


John Corcoran 20:12

He, I wanted to ask you about, you know, you, you mentioned raising money, and you’ve had kind of like a mixed relationship towards that for many years you were opposed to it sounds like you got some Angel funding, but you’re opposed to venture capital. But you did face a point I think was around 2014 or so where you decided, you know, we need to completely rewrite the software. And so you decided that you needed to raise some money? How did that change the company, and particularly from like a management standpoint, I know you had to rewrite the software. But from a management standpoint, you’ve got a board? You’ve got other, you know, VC funds that are obviously wanting to return at some point, what? How did it change? And did it change your expectations? Since you were so opposed to it for many years? Did your worst fears come true? Or was it better than you thought? It would be?

Mike McDerment 21:04

It’s a great question. So yeah, we went over a decade without raising capital, I took a lot of phone calls, I just knew that I didn’t understand VCs and their whole, you know, sort of business, frankly, and so that that sort of imbalance of information, I was like, you know, my big concern was, I just don’t want to, it’s not that I don’t want investors, it’s not that I don’t want capital, something, I can’t work with people. But I was concerned about managing the business to a place where, you know, customer service would not be important anymore. And the board would be like, you know, outsource this somewhere else towards cheaper and I’m like, it’s the heart of the company, like we serve people. That’s what we’re known for, you know, I, I didn’t want to ever sort of lead the company to a place where I felt like I had lost stewardship of it, if that makes sense. And to do what I felt were the right things. And so in the punch line if you go along for a little while, and you de risk the market, oh, people want to buy this stuff, oh, this is the product they want. And then you wind up with the team. And the real reason. You know what the last one for me was an executive team. And we know, like, once I found my first executive, I thought I had found some before but once I found the first kind of real one that was like, that was it. I was like, oh, now the only problem we have is capital, we should go get some. And so we went to raise money. In fairness to those investors. I did not know we were going to rewrite the software before we raised the capital.

John Corcoran 22:37

Well, interesting. Okay, so that was the driving motivation, then

Mike McDerment 22:40

no, but what’s interesting is, once you have a lot of capital, it starts to it’s like, oh, I can think differently. I’m not like that, which I think can be, on one hand dangerous, but on the one hand, really good, because you can go take on some big problems you wouldn’t have otherwise, and have some more ambition around it. And so that was, you know, that was kind of how that went down. So we had the capital, and then we’re like, Hey, we’re thinking of doing this. And they were really excited about it. So that was, that was cool. So they were bought, and it was not it. But it was not, it was not planned. And, and I credit the board. And there, they were all very savvy sort of long term investors, and they saw enough things through enough companies to know that, you know, that this was manageable, and they’re very supportive and are to this day. Yeah.

John Corcoran 23:21

Yeah. It’s been 17 years since you launched the business, which is kind of an eternity for tech CEOs. Right. What keeps you motivated and driving forward and still doing it all these years?

Mike McDerment 23:34

Yeah, I think, you know, what do you want in a career something, it’s like a challenge and personal growth. And so, you know, there’s ample challenge. You know, some days, you know, you got periods where it’s like too much, right? You go a quarter or a couple quarters, where you’re kind of redlining or whatever, and other periods, you know, as you get to a different scale, or something like that in the business and your role feels very different, you know, that can feel uncomfortable and different. And maybe, you know, I’m not so sure about some of this stuff anymore. But at the heart of it, for me is really, that the spirit and the mission around FreshBooks was really around serving people and serving others. And we happen to serve small business owners who, you know, are best the most under no, I shouldn’t say it like that. But you know, one of the more underserved markets in the world, and you know, knowing that we build a piece of software that suits their needs, so well, and how, you know, grateful they’re you get on the phone with our customers to do customer service, they love the software. And, and we help them a lot. And so that feels good. And then, you know, the culture and the way we do service and build software, FreshBooks is something that I think the world needs more of, you know, I have this belief that, you know, businesses are a force of good. I think there’s a lot of people who want to say businesses are evil. I really believe that. I’m sure there are businesses who’ve done evil things, just like there are people who have done evil things. But you know, I really believe business is a source of good and so for me FreshBooks is a heck of a platform to go do more good in the world. As we Grow, we can affect, you know, more positive change. And that’s exciting for me. And there’s a whole bunch of ways that we can, we can go and live that more and more on a bigger scale.

John Corcoran 25:09

So we’re recording this at the end of September 2020. And the COVID pandemic has been going on for about six months now. You mentioned earlier that the 2008 downturn really kind of helped to prepare you for what happened this year, what has the last six months been like for you and for the company?

Mike McDerment 25:28

Yeah, not unlike 2008. It’s like, Oh, you got a plan for the worst. So you really don’t know what’s going to happen here. And then you get some more like you make a plan. And the plan is pretty scary, right? It’s like, Okay, well, here’s what we got to do to make sure. I mean, the first job when you’re managing organization, is to ensure it survives and thrives. Right, and so we had to look at things through the lens of what if things go terribly wrong. Now, the good news was, we had 2008 drawn, so we kind of, in, you know, interestingly, things wound up being pretty, pretty similar for all intensive purposes. So we use that as a model. And, and then we, you know, we built that plan, and we reset our forecasts, and then we started moving forward and seeing what happened and, and things looked a little ugly for a few weeks, people kind of slowed down, signing up. And then, you know, for a few weeks further than that, there was just kind of a run of people, you know, literally canceling their accounts, they probably should have done it a long time ago, and they just got around to it. Now, some cases, it was people going out of business, and, but then that kind of stopped. And, you know, we’ve just been, you know, really growing since then. So it’s been, you know, a good exercise in, you know, Hey, you got to adjust to the, you know, the new reality, and what do you do, but by and large things have been very, very positive for us. So, we are very, very fortunate.

John Corcoran 26:47

Yeah. Final question. Or Second, the last question. When do you see yourself moving on?

Mike McDerment 26:56

Um, you know, it’s interesting, right, like, so why do you ask that question?

John Corcoran 27:00

Well, just because I was curious about it. Not that I expected that you’d move on or anything, but just you seem like you have a lot of interests? And I don’t know, it’s been a long time. 17 years at one company is long for any in any career.

Mike McDerment 27:13

Yeah, I think this is where I want to give you a couple thoughts on this, because I think it’s an interesting topic. And I, I think the world, especially the tech world, is really biased in a whole bunch of different ways. So like, success is, you know, you build a little thing, you get it funded, you run it for a couple years, you sell it to somebody, you move on, you do it again, right, and that’s like very Silicon Valley, or whatever it is. And I’ll go ahead and say, you know, if your company has no soul, and you’re not really serving anyone, yeah, I get why you’d want to go ahead and do that. But in a world where, you know, you’re bringing service to the world, you know, you’re taking care of people who, you know, you know, are not as well served as they were, before you exist, it you have a company culture, that’s, you know, frankly, we win all these awards for being best place to work great places to work, like, you know, like the, we’re not in the fortune 500 categories would be less than 1000 employees. But, you know, there’s a lot going on there that’s hard to sustain. And so I guess, and I, you know, I know, it’s tiresome to quote Steve Jobs, or whatever, but he had one, my favorite thing from him is, you know, there’s, there’s some quote along the lines of, you know, those people who, like build a company and sell it, and, you know, they call themselves entrepreneurs, well, you know, they suck, that’s not entrepreneurship is, is, is gutting it out, and going through the really hard stuff, and kind of getting to the other side where you need to find like, you know, in my lifetime, I’m kind of on my second one, and then a lot, there’ll be a third, or probably, you have to find a whole new, you know, you have to move platforms. So we’ve seen move to the web, we’ve seen, you know, mobile come along, and, you know, like you basically have to reinvent the future of the company a few times. That’s hard to do.

John Corcoran 28:51

Yeah, it’s almost like multiple companies, in a sense, like, if you look at the different phases.

Mike McDerment 28:56

That’s right. And so I think, you know, I think those are challenges that are worthy challenges. You know, when I think about working in other places, or starting other things, I have a hard time competing with the mission of FreshBooks, and how we serve people. It just kind of brings me back, it’s like, that doesn’t compare, I think I’ve co-founded another company. I’m the chair of that one. I think it’s a great company. I’m very excited about it. At the same time, I feel like our customers are the best customers in the world. And you know, it’s so it’s like, why wouldn’t I keep doing this? So, you know, it’s a great privilege to be able to do it. We have an incredible team around now that does but yeah, I just love to shift the bias away. Like, you know, I think there are a lot of entrepreneurs who are like founders now who want to be done with whatever company they’re building in, in 357 years. And to me, it’s like, that’s just backwards, you know, can you run it for longer than that? And when I look at my friends at HubSpot, I look at my friend at Zendesk, you know, like, these are people who are still there, you know, they’re over a decade into right so, you know what, what’s wrong with that? I can’t see anything wrong with that, I think, is so bad, right? Hey, So I’d like to flip the narrative on that. That’s why I asked. Yeah,

John Corcoran 30:03

yeah, fair. So to wrap things up last question, let’s pretend we’re at an awards banquet like in like the Oscars or the Emmys your mic, I received an award for lifetime achievement for everything you’ve done up until this point. And what we all know is, you know, who are the names for the who are the friends? were the people? Do you think they were colleagues or friends? Were the mentors, with peers? with business partners? Were the advisors? Who would you acknowledge?

Mike McDerment 30:26

Yeah, depending how much time I have, I certainly go to the parents, you know, just for sort of the, the formative stuff, my co-founders. You know, it’s, I’m gonna do the quick, long list. You know, you’ve got the mentors who helped me kind of get there, you know, the customers who believed in us and the team, I think, are some of the big ones. And then obviously, we’ve had people support us now kind of raising capital over the past few years. So also also important to helping us achieve our potential. But, you know, it’s all these things. But, you know, the first list for sure would be my books.

John Corcoran 31:02

Okay. All right, Mike. FreshBooks is the name of the company, freshbooks.com. anywhere else people can go to learn more about you.

Mike McDerment 31:12

I think that’s probably the best place you can find me personally at Mike McDerment on Twitter. We’re at FreshBooks, but yeah, listen, thanks for having me, john. And yeah, I hope folks are listening at home. Got a thing or two from this, but

John Corcoran 31:26

great. Yeah, it’s great stuff. I mean, I remember using FreshBooks years ago when I was just starting out in entrepreneurship, and it made a big difference for me, and you make a big difference for many, many people out there. So thank you for everything that you do.

Outro 31:38

Thank you for listening to the Smart Business Revolution Podcast with John Corcoran. Find out more at smartbusinessrevolution.com. And while you’re there, sign up for our email list and join the Revolution. And be listening for the next episode of the Smart Business Revolution podcast.