Insights That Helped FreshBooks Become A Successful Paid Web App

If you’ve watched my past interviews, you know that I’m obsessed with interviewing companies that are actually charging their users (as opposed to hoping to profit from ads).  I want to learn how they do it. Don’t you? In a world where everyone assumes that everything online is free, how do these rebel companies successfully say, “Our products are so good that people should pay for them.  And, in fact, if users do pay for them, we can give them a better experience.”

This interview is with an entrepreneur who has that conviction. I invited Mike McDerment to Mixergy to tell us how he made FreshBooks into an online invoicing service whose customers are happy to pay for. And, more importantly, I wanted him to teach other online companies how they can do it.

Mike McDerment

Mike McDerment

FreshBooks

Mike McDerment is the Co-Founder and CEO of FreshBooks, which offers simple time tracking and invoicing services. Mike is also the founder of the mesh conference, lecturer at Humber College and a frequent speaker at Internet conferences. See what Mike’s up to by reading his blog.

 

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Full Interview Transcript

Andrew: Hey everyone, it’s Andrew Warner. I’m the founder of Mixergy.com, home of the Ambitious Upstart. And, if you’ve watched my past interviews, you’d know that I’m obsessed with doing interviews with people who are actually charging their users. I want to learn how, don’t you? How in a world where everyone assumes that everything online is free, how are there some renegade companies who are willing to say, “Our products are so good that people should pay for them? And, in fact, if people do pay for them, we can give them a better experience.”

So charging makes the product better, better than it was already to begin with. How are these people doing it? More importantly, what can you, what can I, what can everyone else who’s building a business online, learn from them? I’ve got one of these renegades, right now on Mixergy today. His name is Mike McDermitt, and he is the co-founder and CEO of a company called FreshBooks. FreshBooks, as many of you already on Mixergy know, is an online invoicing system. And it does so much more than that. So, here’s my interview with Mike, where we find out from him. And you’ll see. I ask specific questions. We find out how he’s able to create a product that people are willing to pay for, and what you can learn from him. Here it is.

Interviewee: My name’s Mike McDermitt. I’m the co-founder and CEO of FreshBooks, and we’re the leader in online invoicing for people, professionals, who get paid for their time and expertise.

Andrew: All right. And who founded the company?

Interviewee: Myself and a gentleman named Joe Suwatta.

Andrew: How did you and Joe meet?

Interviewee: Well, as a matter of fact, we met on a cold, dark, Canadian night, playing ultimate frisbee, or ultimate disc golf, rather, in a snowy park. We might have had a couple drinks along with this.

Andrew: All right. And so, did you guys hit it off professionally right away, or where you just friends at first?

Interviewee: Yeah, we were introduced through a mutual friend. And what happened was, I was running a design firm at the time, really with a focus on internet marketing. And we were helping small businesses basically improve their online presences. And I’d started this in 1999, and this was like 2002. And Joe, I met him, I guess January 2003. So it’s 2003. Joe started doing some contract work for me as a developer. And you know, if I were to get into the rest of the story, that’s how we met. So we started off with disc golf and moved into some contract work, and then, eventually, founded a company together.

Andrew: Oh, cool. OK. So let’s get into then, where the idea came from.

Interviewee: Right. So, Andrew, have you ever invoiced anybody using Word or Excel?

Andrew: Ah, yes.

Interviewee: OK. Doesn’t sound like that was a particularly nice experience.

Andrew: You know what? You’d think actually that…

Interviewee: Do you still do it today?

Andrew: Excel comes with a template for it, and so does Word. You’d think that Word would be very easy to use because it gives you the full template. It tells you to put your name and address on top, I think it is, but they make even the simple invoice too complicated.

Interviewee: Right. So the fact is, neither Word nor Excel were built for invoicing. And I was using a combination of Word and Excel to do my invoicing back for my design shop. And you know, one day I opened up a, I was sending an invoice to a repeat customer, and I opened up an old invoice. I put the new information in, and I saved it. And I failed to do a very important thing. I failed to rename that file. So I lost the old invoice and all the data in it. And I said to myself, you know, there just has to be a better way than this. And so this was, you know, again, January 2003, not long after I met Joe. And I spent the next two weeks of my spare time, and I built an online invoicing service for my customers. I wanted them to see the kinds of things I could do. And I really wanted to just, you know, I never thought of using a piece of accounting software. I just really needed invoicing. And yeah, and so I built it out, and over time, the services evolved.

Andrew: So you developed it yourself? You’re a developer?

Interviewee: I would [Laughs], nobody here at the office would call me a developer. I’m a total hack. And, you know, I haven’t written a line of code since probably February 2003.

Andrew: Wow.

Interviewee: Joe took that over once he started getting involved with the project, and I focused more on design, development, and marketing.

Andrew: OK. Here’s something that I’ve noticed in a lot of my interviews. Successful companies very often start with something that’s very simple, like Guy Kawasaki might say, “Don’t worry; Be crappy.” I’d love to hear what your first version looked like, with all its scars, with all its warts, just to get a sense of what it was.

Interviewee: [Laughs] Yeah, crappy would be kind. So yeah, it was terrible. It was kind of state of the art, too. You’ve got to imagine that, you know, we actually came to market in May 2004. You know, we started development in, you know, early 2003.

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And there really weren’t any web frameworks or anything to speak of. When you think about all the knowledge that’s out there today for somebody who’s building a web application. You think of the guys at 37 signals who’ve done an awesome job, you know sharing how things are done we were often a corner of learning all those lessons to ourselves, you know I remember a great book called ‘Getting Real’ which I recommend to anyone that’s thinking about getting into the web application business. You know, as I say we all know lessons for ourselves by ourselves off, off in the dark and getting access to, you know, mentors and advisors to build this kind of business was ,you know, frankly next to impossible because nobody really had. You know, there was hotmail and there was salesforce and that was about it.

Andrew: I, I see…uhmm. So, first of all, I want to thank a couple of people who are watching this live. Who is Vince and Mia who’ve seen you, been following I guess online and are telling people to come watch us. Thank you guys. Uhm..can..so what did it look like? What was the design of it? What was the functionality?

Interviewee: Okay, sorry, good question. So, I mean in some ways you might say it didn’t look much different than it does today. There was a tab navigation architecture. There was a lot more use of gray so it was kind of drab and dreary. It was more… I would say more ‘boxy’ than it is though we don’t use the help of alot of rounded corners we just try to get away without using those conventions at all where we can. Alot of the activities like generating an invoice just didn’t happen as smoothly as they do today. Input boxes were the wrong sizes in some cases. People needed to put more information, less information. I don’t know, it’s hard to go back there and articulate in a way but think “2003”, “web application”, not hotmail, not salesforce and that’s kind of like the best I can do to describe it but you know, it was usable enough that people did in fact use it and some of those people are still using it today.

Andrew: Okay. So from what I’m seeing, alot of entrepreneurs start off as consultants building out applications for other people, learning along the way and also making money to keep their business growing and then they want to take the leap into creating their own product because a products scales, because a product is less… well I guess because a product scales and because it is more profitable but it’s hard to make that leap. Why did you guys make that leap successfully?

Interviewee: I wouldn’t say that, you know, you said it’s more profitable… it’s not more profitable for a good long while. I mean, we were able to invest in ourselves with my consulting business to fund the growth of the business, you know, these businesses it’s easy to develop a product but to get the marketing and the adoption and what have you and building it into a business that’s the challenge. The technology, frankly speaking, is the easy part. It’s the marketing and the, you know, the awareness of the marketplace that’s a heck of a lot harder.

Andrew: Ok, so after you built out the first version of this, how did you start marketing it?

Interviewee: Right. So from day one, so my background first off was, you know, helping businesses do their internet marketing and we had some pretty significant clients in the travel and real estates business so we were pretty good at this. But I will say this from day one and we were good at it from a “spend money, get results” standpoint, OK? So from day one when we spent on advertising and we went to some targeted niches and my background was in SEO and things like that so we bought, you know, so we bought a $400 dollar ad and like a newsletter for internet marketing consultants and things like that so we generate trials from that kind of thing. We weren’t really savvy about blogging or anything like that at the time and those things were just really in their nascents as well and to some extent there were blogs out there certainly but not the way I’d say 2004, 2005, 2006 you know they became much more common and better understood and we got, you know, blogging ourselves, you know, in 2004 or 2005. So anyway, 2003 we’re buying ads in newsletters. We were doing some pay-per-click advertising because I knew a thing or two about that, you know, and those were the primary ways of doings things. We tried a PR firm and fell on our faces. We spent, you know,…

Andrew: Oh no. *sighs*

Interviewee: Hey Andrew.

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Andrew: You tried a PR firm?

Interviewee: Yeah, we tried a PR firm. Here. I’m just going to invite you. Oh, no. I can’t see you, can you see me?

Andrew: Okay. Let me bring myself back up here. There we go.

Interviewee: Perfect. So we tried a PR firm and I like to say that I got my Masters in Communication through that process because we basically…we didn’t get any awareness built out of it whatsoever. And so we shelved that and we went back to putting our heads down and spending our money on direct response type marketing, like being in an email newsletter or pay-per-click. You know, started trying to learn a little more about who was being successful marketing themselves online. So we started learning more about blogging and that kind of thing.

Andrew: I’m sorry to dig deeper into it but I’m a business nerd so I’ve got to keep asking questions about this. The PR. What were you hoping to get from the PR?

Interviewee: I’d say like a story in a newspaper. Right? We thought…this is a kind of funny thing too because we thought that would, you know, change the game for us. Right? All of sudden everyone would know about us, they’d start buying our service, it’s going to be awesome. And I can tell you, we’ve had lots of newspaper articles written about us subsequently and you know, frankly the impact has been relatively meaningless. In fact, the greatest value’s often been to go back to our own customers and say, “Hey, we were in this article” and they can just get excited about the validation of what they already knew which is, you know, awesome business. You guys are great.

Andrew: What about the value of just having the logo of the media that you were covered in on your website? Does that increase conversions?

Interviewee: Actually, you know what, there’s no question that is a compelling…you need third party validation in your marketing. And so, yes, actually having the Wall Street Journal as a logo who’s written about you, maybe a link to the article, or the LA Times or, I mean we were just on Entrepreneur Magazine. So something like that, it really helps validate. And when people are trying to decide whether or not you are a trustworthy business or whether this application that they’ve stumbled across has any merit, that third party validation from a national newspaper or, you know, I was on Fox Business News one day, like…it is a compelling conversion tool for a lot of prospective purchasers.

Andrew: That’s what I’m finding. But in your experience it doesn’t drive enough traffic to your site to give you a meaningful number of customers?

Interviewee: The value is in how you repurpose it.

Andrew: I see, okay. But you did say that you knew about pay-per-click advertising. How’d you get that experience?

Interviewee: Well, so in the business I was running beforehand…I mean, to give you more of my back story, I basically was running an event business. I built myself a website as a good way to communicate information. Once I taught myself how to build websites, because I did one each year, I said, “You know, other people need these.” And I started building websites for small businesses. And around that time, you know, just commonsense said, “You know, what’s the point in building one of these things unless people show up?” So I started to get interested in SEO and these kinds of things. [INAUDIBLE] had SEO but SEO nonetheless. And then so AdWords came to be; in fact, even before that there was Overture through Yahoo. And so started to understand those things and read up on those and offer those services to my small business customers. “Hey, we can generate leads for you by helping to…you can purchase advertising through these mechanisms and we can help you track them.” And when I finished off we were really just doing consulting. Go to a large company who was doing…you know, their conversion rate was half a per cent on their website and they were doing a million in sales, we’d say, “Listen, we can take you to 2%. Just sign here and we’ll help you out with that.” So, yes. So that’s where I got my background. And ironically I’ll tell you, we outsource that now. That’s…I don’t…I used to do these services and we outsource them now ourselves.

Andrew: I see. Okay. So that’s where you were able to get your customers in the early days. How much did it help you that you were charging?

Interviewee: Well, it’s a tough question to answer. I’ll tell you why. First of all we had our pricing totally wrong. So we launched…I’ve noticed that I’ve mixed up a couple of the years in this stuff. So we launched in May 2004. So when I was saying we were buying advertising, earlier I said 2003 by accident. So May 2004 we launched. We were buying advertising through the end of the year. We actually only had ten paying customers at the end of 2004. Okay? And… But people were using the service and people were signing up for the service and by any other measure…from a monetary standpoint, we were a failure. But we believed in what we were doing, we kept going. Now, back then, you used to get 40 clients for free with our service. Now you get three clients for free. Okay? So I think to get people to use the service, charging wasn’t that big a barrier.

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Interviewee: free, okay, so I think to get people to use the service, charging wasn’t that big a barrier, but being able to sort of monetize the number of people that are using the service, getting the price points right with the premium model, was in fact a bit of a challenge and took us some time. Yeah.

Andrew: So how did, well, so you were offering, I think you said, forty free clients, right? Before people had to pay?

Interviewee: Yeah I think it was thirty.

Andrew: Thirty.

Interviewee: Forty, no, yeah, it was forty.

Andrew: It was forty. Okay, so it’s forty free clients, so what you were trying to do was buy ads, get people to take the free service and hope that they were going to need thirty one clients to bill and then at that point you’d get paid.

Interviewee: Exactly, like we basically, we didn’t really know who was going to be the consumer of this service and if I had to do it over again today, what I recommend to other people is start without having, you know, that business model per se or that charging in place from day one just so you get people using the service and you get some traction and just let them know that in the future, you’re going to charge them, okay, and they’ll have the choice at that point in time, but really it’s free for now, ‘cause we want to get people trying, because when you’re developing a product and it’s in the early stages like this, you need to drive as fast and as hard as you can to getting users who can give you feedback because they’re going to guide you and that’s, that’s going to make all the difference. So, you know, having charging is almost like a barrier for some of those people but I would also say in some cases it’s not that big a barrier and you shouldn’t be afraid of charging, just make sure you know that they can get in there and try it out for free.

Andrew: Mike, this is really helpful. Okay, so you started out with one price. How did you get to adjust your pricing, how did you get to adjust your offering, without confusing your current customers and without confusing your new customers as they came in?

Interviewee: So, communications, I mean first of all you send a note to people, you don’t just raise the prices one day, so. In fact we actually just raised prices three weeks ago, we were [tape jumbled] and you know we told everybody we were going to do this and you know, you can upgrade now if you want to and we encouraged them to do so, and so that’s really it. So you tell them you’re going to do it, give them fair advanced warning and set the expectations that you will, and then, you know, at the prescribed time that you told them about so they’re dead clear, you go ahead and raise your prices.

Andrew: Okay, I had a conversation with someone who sells access to a market place online, he buys ads on, he buys ads on Google, he gets people to come over to his website and then pay a monthly fee for access to this data base. He said, “Andrew, I never put my price on the home page and I never have my full registration process be one page. What I want is to have two distinct decisions to give my users, the first is do you want to sign up for my service and in that page I don’t give them a price and I don’t ask them to pay, the second page I show them several prices and I see which one they’re more likely to pay, you know, small, medium, large service. And based on that I can tell whether my price is turning people off or my offering is.” So when I, what, that’s a long way for me to come around and ask you, do you have other techniques like that that you can share with us for figuring out how to charge, for getting people to pay?

Interviewee: I wish I could say that I , I mean, well I can talk to you about some ideas there. You know, that’s really interesting that he’s trying to break up those decisions, or she, I’m not, I mean that’s an interesting way of looking at things. I think, I think that makes a lot of sense, actually, the more I think about it and I guess we’ve always been doing it that way ourselves. One thing I was going to say is, in your sign up form, if you can make that one page I strongly encourage you to do it. We used to have like a five step process to get into your account and you know we brought it down to one page and it was much more effective. So that’s something to think about there, but effectively, we just got people using the service, we just, you know you kind of need to test these things in some way, and the way we’ve tested things is we’ve just gone ahead and lowered the prices, and you know, you always have the option to change if you see terrible results, but our experience has not been, you know that the results are terrible, so we forged on with whatever the new pricing is. You [tape jumbled] cohort thing so you can offer, you know in different, you’ve got to be careful of the legalities in some of these things, but you know, different prices or different offers, to see which one appeals most to your, you know, customer base and ideally you never stop testing that type of thing because sometimes the results are very interesting and if you can build a framework in your application that lets you simultaneously test different cohorts and what have you that is a smart thing to do. But I would say when you’re just, I’d say that’s almost like a later stage thing to do. First of all build the service, serve people who are signing up and giving you feedback and deliver you know, changes based on that feedback to them, and then worry about slapping some kind of pricing on top of it later. And you can, I mean, I think it’s a really important thing to keep

in mind that people forget is

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Interviewee [20:00]: You can always change it. And chances are you probably should change it. It’s gonna get stale at some point, maybe you’re going up market as a premium offering like Freshbooks. Maybe you’re going cheaper and low-end because you feel you’re being commoditized. I don’t know what it is for you. It should stick with your brand and your brand strategy.

Andrew [20:18]: The founder of ventnation.com is watching us live and is asking us: How did you figure out your price point? How did you adjust it? Was it just based on feedback and then coming out with the price or did you have system in place to keep testing prices as users came in?

Interviewee [20:34]: None of the above. You can’t generate feedback about pricing from your users. Because no matter what, they’ll say: “Oh, no, no, no” don’t raise the .. like… too many gonna get them. Listen, if I gonna tell you to raise prices, but yours was going to stay the same. I’d say well, in that case, sure raise the price. It’s pricing is part art, part science. I’d almost say it’s mostly art. We’ve changed our prices now 4 times. We’ve raised them every time with lower the amount of limits that people get when their account 3 times. And every time we’ve done these things, these 7 different events, we’ve converted people more to more paying customers. It goes against everything in you like people building business consults as well it’s really easy to you’re the first person to undervalue your services you gotta almost looking constantly flush any gradual or process to be charging more find out at what point you loose people.

Andrew [21:46]: It’s interesting actually you’re right we are the first people to undervalue their services. What do you think that comes from?

Interviewee [21:53]: You know I don’t know probably somewhere baked in human nature. We don’t like to too seriously here at Freshbooks, right? I think if you take yourself too seriously there are people who think my services are far more valuable than [inaudible] willing to pay. But I think most of the time people they just undervalue what it is that they do.

Some deep human psychological thing I don’t know what it is. But there is something there.

Andrew: Why did you decide to charge most of the people seem to be doing at the time and that is: Give it away for free and help to make money from advertising and convince yourself that well business customers are great for advertisers are able to charge a lot CPM and my business without ever charging my users?

Interviewee [22:46]: Couple of reasons: I think first of all I don’t like ads in my own applications, so I try to serve myself. Second of all I’m not crazy about ad driven businesses as somebody who runs the business, because you’re so subject to the market. Third of all I believe people are willing to pay for value and I’ve seen that time and time again I’ve seen that time and time again. It takes conviction. You’re offering something at value and you better be sure you are offering something of value. I think that is challenged and know what that is and sometimes that takes time and testing understand where the value is in what you offer. But if you know you can figure that stuff out frankly I think subscription revenue business is basically the best end businessmodel of the world. And you know it’s our responsibility it’s to prove our value to our customer base, through service, through develop the product, through a whole bunch of different things and every month we’re on the hook for that. But as you know as long as we to deliver against that. We’ve a long track record of doing that right now. People are willing to pay for the value offer I think one thing that is helpful to do is to try to and I encourage entrepreneurs to do this trying to size up an opportunity. This is the harder question: Do you quantify the value of your service? Ok and [loosing contact]

Andrew [24:19]: Sorry Mike I think we lost you there for a second. OK. We lost you for a second, you say you need to say find the way to quantify value service…

Intervieweee [24:29]: Yes, you must find a way to quantify the value of your service and the way to do this is to poll your users. So get a bunch of free users and ask them a question and it should be an open end question. It should not be: “How much are you willing to pay for my service?” It should be based on one of two things. I can take a step backwards. First of all just have to understand if your business is a Crayon or an Aspirin. CRM it helps you drives topline, it helps you generate more sales.

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Interviewee: …helps you generate more sales. OK, that’s a crayon. It paints a brighter future. OK. Asprin. Aspirin is a pain-killer. I’m in the aspirin business. Every month, I got to do billing. It hurts my head. I don’t want to do it. Make this pain go away. OK. So, in the CRM version, something that is going to drive top-line for a business, you might want to ask them, your users, “by using our service for free, how much new revenue have you generated”? OK, so, I made a $1000 extra this month because of using your service. OK, in the pain business, you might want to understand; well, how much time have I saved you? And, we ask like, “how much time do you spend invoicing before Fresh Books, and after, in the very early days”? Some people spend, you know, save, multiple person-days a month, thanks to our service. Other people, they save four hours. Right, now four hours is a half-day for somebody who’s busy building their business. Like, you can make phone calls and generate new business in four hours. So, how much is your time worth, right? If I can save you four hours, and you bill out at $200 an hour. My services, to my mind, are worth $800 a month. OK. So, you need to find some mechanism whereby you can say, “if I’m helping you get this benefit, by virtue of you using my service, I want to reflect my [bad audio] like, based on that value. So, if it’s four hours, how much is your time worth? Maybe a monthly service costs one hour of your time. All right, so we’re going to save you three, and you can turn that into money. If it’s a CRM business generation tool, and you can generate $10,000 more a month, I’ll bet you any money you’ll pay $1000/month for that service, if you can generate 10. So, as long as, well, [bad audio], I should say”. Well, anyway, you kind of get the idea. I think you can find a structured way to understand the value of your service, and then apply that to your pricing.

Andrew: I see. I love that. OK, so, find a way to attach a value to your service, something measureable, and then pull your users with that instead of asking them, “how much are you willing to pay”?

Interviewee: Absolutely. And really, I mean, I strongly encourage the “before and after” questions. Like, before you were doing this, how long did this take you? Before you were using this service, how great were your sales? Afterwards, they were this, right? And I’ll tell you, people generate more revenue, thanks to using FreshBooks, believe it or not, but we believe we’re in the aspirin business.

Andrew: How do they generate more revenue because they’re billing?

Interviewee: Well, yeah, because they’re keeping more accurate records. OK, so they don’t lose an hour here or there. Remember how we talked about pricing, and how you’re the first person to undervalue your services? And if I were to ask you one week from now, how long did you prepare to get this interview together, what are you going to say?

Andrew: Prepare to get this interview together, I’d say, a couple of hours.

Interviewee: OK. So, if I ask you a week from now, you’d probably say, “an hour”. There’s just something with time, and your own value, like you start to diminish and discredit your own time. So, something like a time tracking tool, like what we do for a lawyer. If you think, well, how long did that take me? A week ago, it took me four hours. I bet you, if you track your time on it, it took you seven.

Andrew: I see. You’re talking about that people that you have that’s part of FreshBooks, that people don’t know about. That when they sign up, I don’t think they recognize is, that tool that lets them say, “I’m now working on this project.” And when they’re done, they hit “pause”, and when they come back to the project, they hit “play” again. And then they really get to see how much time they’re putting in.

Interviewee: It’s a start/stop timer. But I’ll give you another example, is, people do some work in, you know, on a project for a client. And if they, in FreshBooks, this is what people tell us, is, your software has changed my behavior. You know, that response use to terrify the hell out of me, because you don’t want software changing behavior. But what they say is, “it changed my behavior, and now instead of waiting until the end of the month, I invoice my client immediately after the job”. So, even if you’re not using the time tracker, because the work is fresh in your mind, you’re actually going to remember, oh, it actually took me 8 hours, it didn’t take me 6. So, you’re going to charge your full value, as opposed to putting it off, forgetting some of the details, saying to yourself, “oh, I’m afraid that this customer is going to take offense to this bill”. Whereas, you generate the invoice right away, it’s for the full amount, and the value you delivered in fresh in their minds.

Andrew: By the way, as we’re talking, Scott Mead is writing these incredible notes. Scott, you should be writing the notes on this interview when I post it. He’s pointing out that you said, “PR value is credibility, not primarily in traffic, it’s all about how you repurpose it. Start out with free-to-get traffic, remove the barriers to entry, just let early adopters know that you plan to charge.” Here’s another thing that he’s pointing out. This is a great interview. I’ve got similar notes here. You can get feedback about pricing from your users, although you say cheaper, customers say, go lower on price. Yet raising our price has brought in more conversions. Did you say that, by the way?

Interviewee: Yep.

Andrew: You did. Wow, Scott,

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Andrew: Wow! Scott, I didn’t even catch that part. Guys, if anyone has any questions, please ask them and I’ll make sure to bring up as many of them as I can. What about features? We now talked about prices. How do you figure out what features to add into your product and which ones are just going to overwhelm users?

Interviewee: Features, features, features, features. Feedback. And then working really hard not to overwhelm them when you implement it. Saying no, a lot. But you’re always walking this balance between…you cannot give people what they ask for. You have to give them what they need. They’ll say, “I really want this thing. I want it, I want it, I want it!” If you ask, “Well why do you want that?” they’ll say, “Oh, I need it because of this.” And you can say, “Ah. I can give you that benefit in a totally different way than you’re describing.” So you’ve got to listen to people. The other piece is you’ve got to stay true to your vision. That’s a tough balance sometimes, especially in the early days because you’re like “Oh, my users want this. That’s a totally different direction than I had envisioned.” And, you know, sometimes those are some long, dark nights when you’re wondering, “Well do I go where people really want me to go or where they’re telling me that want me to go? Or do I go where I believe my vision is taking me?” And you have to always have a little doubt, I think, in your vision so that you are listening to people. But oftentimes you might have to say no to people because you’re not going to do what they ask for, they’re telling you to, because you have a vision that’s taking you somewhere else. So again, a little bit part art, part science product management there.

Andrew: You know what? Let me dig in deeper to both those points. So the first point you said was when people ask you for features, look for what they need. Do you have an example of that to help illustrate it?

Interviewee: Well, okay, yeah. So…well, okay let me speak in generics because I think it’s actually sort of better. Well, let me think about this. You can pick any feature. I actually hate the word “feature”. I’m always trying to develop benefits for people, not features. So to understand a benefit you can’t ask them to tell you what the feature looks like, you need to ask them what they need. What is it you’re trying to achieve by asking me for this? I think people fail to do that sometimes. They take feedback from users very literally. I’ll tell you this as well. It’s very hard to do this by email. I’m a big fan of the telephone so we answer the telephone here at FreshBooks, if you phone us. Back in the early days when we were working in my parent’s basement for like two and a half years, I would call all my customers with a questionnaire and ask them, “What is it that you need? [INAUDIBLE] If you could change anything or recommend something to us, what is it that you would change?” And they’d tell me all this stuff and then I’d ask them, “Why?” Why is such an important question when you get feedback. Any time I talk to someone…”I love your product. Well, why?” Tell me why. The fact that you love it, it’s very nice to hear but if I don’t understand why, knowing that is of no value to me. But if you can direct me based on well you love it for this reason, fantastic. That I can do something with. Maybe I can even do more for you in that vein than I already am.

Andrew: I see. So when they come to you and they say “I want this extra feature or I want this extra thing put into FreshBooks” you say why? And if you just ask “why”, it makes their feedback that much more meaningful. And you do it by phone.

Interviewee: Absolutely.

Andrew: I’m actually going to try this.

Interviewee: And sometimes you can answer…and half the time it’s like, “Well, we do that, it’s just over here.” They had a certain expectation in their mind with like this is how it works. Okay, so what is it you’re looking for again? Why do you need that? Oh, that can be performed over here in this way Oh, okay that’s great. Thanks a lot. I didn’t even have to develop a new feature.

Andrew: I see, okay. So then the next thing is, you say…well actually before we move on past the phone calls, you have your phone number up on your website?

Interviewee: Yes.

Andrew: I keep hearing that that’s an important conversion tool? Have you found that in your business?

Interviewee: You know, we haven’t tested that so I can’t say.

Andrew: Okay. So what made you put it on there then?

Interviewee: We believe in serving. Like, FreshBooks is not a technology. We’re a service. Okay? If you have a question, you deserve an answer. Email us, phone us, twitter us, go into our forums and ask it. You’re going to get a real live human being giving you an intelligent response. That’s the business we’re in. We just happen to be selling an invoicing service. But I mean, there’s so many people that don’t know…they don’t know about payment gateways. They don’t know about how to organize their expense categories. Whatever it is, there’s just stuff they don’t know and we can help them get set up, get started. Maybe they’re uncertain about something; often it’s a workflow thing. “I don’t know… this is how I do things. Can I do this with you?”

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Interviewee: …get started. Maybe they’re uncertain about something. Often, it’s a work flow thing, I don’t know. You know, this is how I do things, can I do this with you? So, we’re here for people, and I believe it’s our responsibility, just make it easy for people to communicate with us, however they want to communicate with us. That’s what led us onto Twitter in the early days. That’s why we have a phone number up there, that’s why we respond to e-mail. We just want to make it easy for you to get us, get in touch with us, because, frankly, I believe the customers have all the answers, if you listen correctly. So, you got to do as much listening as you can, which means you get as much feedback as you can, which means you need to make it as easy as possible for people to get in touch with you.

Andrew: I see. And how long does it take for people to pick up the phone at FreshBooks if we call up that 800 number?

Interviewee: I don’t know, you should try.

Andrew: You know what? I would like to. Do you mind? When I talked to Tony Shea, he said, “our customer service is different from anyone else”. I said, “what if I call it at the end”? He said, “go for it”. I did. I’ll give it a shot, for anyone who’s live, we’ll get to see what that’s like. Um, all right, the second thing you said earlier that I want to dig in deeper, is. Where is that, wrestling with the vision? That, you have a vision for where you want your business to go. You know what you want it to be. I imagine that people must be coming in to you, and suggesting all kinds of things that are related to finance, related to billing, related to keeping track of the books, but also, different from your vision. How do you know what to let in and what not to?

Interviewee: Uh, part art, part science. I think anything, I’ll tell you, in the early days, right, we put in a bunch of stuff that wasn’t really a great fit. For those people in the more IT-oriented disciplines, FreshBooks actually has a support-ticketing capability inside the product. It’s kind of the black sheep of the family. It’s not even on by default when you go in there. But, it’s there if you want to use it. We have another thing, which is a document sharing capability. So, you can do file sharing with permissions. Same deal. Those things were in there, we actually have been, [bad audio] focused on things that were more core to our offering. Like, invoicing, time tracking, expenses, sending estimates to customers for various projects. So, all of which is to say, I got it wrong, really, really wrong in the early days. Many times over. And, so, it’s not easy. But, I think in time, you start to get, as you get more feedback from people, you start to understand, and you have your vision in your head. You start to understand, oh, OK, this is something that fits, or this is something that isn’t. And I would say, I mean the guys again, I think, they articulated it really, really well, so I can’t really do a better job of that. The guys at 37 Signals, they talk about the 80:20 rule. If 80% of your customers need it, and only 20% don’t, well maybe you should consider it. But it’s just a framework to figure out if something is worth even discussing, in my opinion.

Andrew: So, you’re saying that your customers ask you for document sharing. You thought it would be a good, they didn’t even…

Interviewee: I’m saying they didn’t. You know, I had this, like, all this stuff’s all useful, I could use it for my business, right? And so like, that was an example of where, and I would even say, like, my vision wasn’t clear, it’s just like, here’s useful stuff, we’ll put it in there, they’ll like it, right? As opposed to like, OK, we want to be a focused application, that delivers a certain kind of value to a certain kind of customer. And at the end of the day, well, those things are valuable to a percentage of the customer base, they’re not core to our offering. So, let’s phase them out. [bad audio] Not so much phase them out, we main them, support them, and one day, we’ll probably invest in them and do them in different ways. But, we’ve turned our attention to other parts of the application.

Andrew: So, today, knowing what you know now, if you woke up one morning and said, “I could use a document sharing program, I think we should include it in FreshBooks”. How would you go about figuring out whether it’s the right thing to include or not?

Interviewee: Well, I’ll tell you, today, I know all the stuff we need to do. I’m just looking forward to having the time to get it all done, right? It’s a totally different, like, thing. I wouldn’t, it’s pretty doubtful, and sometimes I wake up, but anything that I’m thinking of that we need today, it’s like, I need it for much further off into the future. And if I still believe I need it at that point in time, then we’ll build it. And sometimes, things become less important over time. So, I actually find that time is a good pruner of the road map. You know, you’ll never have enough time, you’re never going to have enough resources. So, if you had all the time and the resources in the world, you’d probably build one terrible piece of software. But, by virtue [bad audio] of that, you kind of weed out stuff that was great today, or was great six years ago, right? But today, [bad audio] are afraid to ask you for that anymore.

Andrew: OK. Before we go on to the next series of questions…

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Andrew: Okay. Before we go, before we go on to the next, next series of questions that I have. You said something earlier about the need for a one-page registration process. I’ve gone through your registration process, a few times actually. Very simple. I think you only ask for use-, tell me if I’m wrong, I think it’s just the, the company name, the email address, and that do-, that sub-domain name, so, whatever.freshbooks.com. Once you give those three things to freshbooks.com, you’ve got an account. Right?

Interviewee: Correct.

Andrew: What’s the thinking behind that?

Interviewee: Yeah. And then we have a page. I mean it’s, it’s about barriers to entry, right. If you’re staring at a long form… We actually have a page but then we take you to your subdomain and you login page, and you go in. You just click a button, we have a temporary password in there for you. And then, we take you to a one time set up page, which is actually a little lengthy. But the idea is, if you fill that stuff in you’re gonna have a better experience getting start, you know, started. You can even imagine, if mean, you could maybe even do that one-page form. I guess what I’m advocating against is almost like a shopping cart aspect. We used to have a five step process. Which was, you know, enter your username and password here. On the next step, put in your address. Excuse me. On the next step, you know, agree to our user agreement. You know, so it was, like, three pages to do what could be effectively done in one page. So, I just, I thought that was, you know, a useful nugget for people in terms of, you know, just getting people to go through the form, right. ‘Cause the more people you lose, you know, just setting up their accounts. You know, the more people you lose just setting up their accounts. So, you want them to get in there and be able to get to the value of using the service as quickly as possible.

Andrew: What was the reasoning, back in the early days, for splitting that process up into multiple steps? Why’d you ask for a name, then an address, then etc.

Interviewee: I just thought it was better. I mean, I was looking at design, I mean this is 2003, you know, I was looking at this like it was a checkout process for a shopping cart. You know, I had, it had go usability, like, you know, there are three blinking lights at the top and you’re on blinking light number one, and when you go to step… Like, it was all clearly laid out, but for people it was just like, “Man, this is such a pain.” It’s just faster to go down one form. Be done with it.

Andrew: Okay. Alright, so what I, what I want to ask about next is a setback. So far, it seems like this was all fairly easy with some learning along the way. Was there a period there where you, where things got really rough and questionable?

Interviewee: I, you know, I think the first, so we’ve been at this, like, six and a half years now. I think the first two and a half, three years, anyone could probably characterize as rough and questionable. Except, I will say this, is like, we never saw it that way. You know, we always just liked what we were doing and we believed in it and we were getting feedback from people using the service. Even if they weren’t paying us yet. And so, we stayed committed to it, and we got better and smarted about thinking about these things. And honing what it was that we did. And over time we’ve evolved the business into what it is today. So, I, I honestly think, I mean, smarter, like, it’s gonna be a lot harder for me to start my, my second, you know, if I ever start another business, it’ll be a lot harder. ‘Cause I’ll see a lot more obstacles, I’ll, you know, I’ll have different expectations. But, you know, ignorance if, kind of, bliss. And we just loved what we were doing, and so we, you know, we just, we just kept doing it.

You know, so that’s the spirit of those times, and as I say, I think, you know, we were, smarter people would have deemed us a massive failure, before, you know, we ever even thought of ourselves that way for a second. So, I think that’s, you know, I think that’s actually really important for people building businesses.

Another thing though is, kind of the classic thing, we got our name wrong. And we’ve seen it, a big difference in the business since we renamed the business. So, we used to be called Second Site, and you could find us on secondsite.biz. Which is a terrible domain name, that didn’t even have the dot com. Second Site, you can spell it, like, ten different ways. It’s totally forgettable. Doesn’t talk about what we do. Just so many problems with it. And so, not having our brand right was bad. And we also, at that time, we really, I would say we had a very, we thought, I mean we’re working in a basement. You know, and I work in a t-shirt today, and what have you. Like, we had a very, commun-, Internet communications in, you know, ’99 through 2003, were about projecting this very, you know, I don’t know how to describe it. But, you know, you need to project this über-professional image, and so, we used, like, navy blue and, and grey as our colors. Because they’re trusted, like, banking colors. And what we found is, is, you know, we started the business in 2004. We re-branded in 2006. And over that period of time we just said, you know, “Who are we kidding?” Right? We’re not, you know, we’re not wearing suits to office here. We show up everyday, you know, we’re totally professional about what we do, but, you know, we’re pretty low key guys. And, you know, and I think, you know, as the more we meet our customers.

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Interviewee: [45:00] You know, these people are entrepreneurs. They’re professionals themselves. They’re also pretty low-key, are driving people who probably don’t wear suits for the most part. And, so, it’s OK to, you know, be ourselves, so to speak. And, so, instead of being a company with, sort of, a corporate face, being our website. We really changed our orientation to quite [inaudible] don’t [inaudible] so, you know, it’s just not very [inaudible]. We’re just, sort of, more open. We do a better job of sharing our culture under the hood than we used to. And I think it’s. I think that’s a really important thing to do. People want to do business with people. They don’t want to do business with businesses.

Andrew: [45:39] How did you re-brand? How did you go from being called second-sight? Were there pains involved in that?

Interviewee: [45:45] Oh. Yeah. So, you can literally, if you search for, you know, how to name a company. I, I wrote, wrote the Google article, the book on it. We learned a lot in this process. But, basically, we had an advisor who said, you know. I think you guys might want to consider changing your name. We were, like, what are you talking about? It’s great. And, then, and, then, we were like, wait a second. This is like the worst name that anyone has ever conceived of.

And, and so we set out about trying to, you know, trying to re-brand it. And the reason that happened was that we were so busy, had so little time, and so little money. We didn’t put much value in getting our name right. So, we just, you know, we said. Basically, hurrying along, we got these three choices. Let’s pick one. Let’s go. And, and, you know, that was like, literally, how strategic that decision was. We just needed to get this over with, so we can move on, you know. And, in hindsight, naming your company is just so important. And we, kind of, were lucky. Cause we got a chance to, basically, start over again. And it’s been an enormously valuable thing for us to have done.

Andrew: [46:48] We talked earlier about, don’t worry, be crappy, about just launching something and figuring it out later. Names are probably the most important, one of the most important pieces of a business. And, here, you were even able to change that. So, does that, then, just emphasize the point that you should just launch something that doesn’t have to be perfect. You could, could even get one of the most important pieces of your business wrong. And you can still recover if you just launch.

Interviewee: [47:11] Yeah. I, I think. I mean. I, it’s a, I think that’s, you know, kind of fair to say. I would encourage people to spend more time and energy on getting your name right than we did. I don’t think that, you know, you know. If I had to do it over again, I wouldn’t, I wouldn’t mess that part up. But I think there’s a kernel in there that I totally agree with, which is, there’s still time. You know, there’s still time to change. And I think people, you know, don’t remember that. And they, you know, they, they fail because of it. Yeah.

Andrew: [47:40] All right. And I’m still getting lots of great pose from Scott Mead. For anyone who’s not listening to us live, first of all, you are missing this. And, second, I’m gonna see if I can pose some of Scott Mead’s tweets out. So that people who are listening to us afterwards can see it. Also, Mia, thank you. He’s, she’s quoting you here, saying, I don’t like ads in my applications. So, I try to serve myself, the founder of Fresh Books. That’s right. And, not, that’s a lot of it, right? As an entrepreneur, you can’t figure out what everyone wants. You’ve got to, sometimes, say, this is what I like. Then, let’s see what their reaction is.

Interviewee: [48:12] Yeah. I, I think in building. If you can have the option in building your business, of having yourself as a customer, and scratching your own edge, and building for your own needs, you know, I’m still effectively solving my own problems. I have, you know, I, I like to say I’ve got three problems to solve. And I, I, you know, I’ve solved number one. It’s like sixty percent complete. And I’ve got another one that I’m just spinning off and starting to work on. And there’s a third problem to be solved. And they’re all based out of, yu know, you know. They’re all aligned with this business. It’s just different phases to it.

Andrew: [48:47] What’s the second problem?

Interviewee: [48:48] I can’t tell you.

Andrew: [48:49] So, it hasn’t even launched yet, not even solved.

Interviewee: [48:52] Yeah. So, we don’t talk to much about that kind of thing. In fact, you know, we don’t even talk about our road map. We just like to do stuff.

Andrew: [49:00] OK. Actually, no, let’s, let’s talk a little bit about that. Because I, I hear from most people that when you have an idea, you should just put it out there. Ideas aren’t valuable. It’s all about execution. Get your idea out there. Get feedback. And then you can build it more intelligently. But, at the same time, I do hear your perspective, too. And I want to, I want to understand that, and give that perspective much attention as I give the other side.

Interviewee: [49:23] So, I think the question is, do you want to be Bill Gates? Or do you want to be Steven Jobs? Alright. Bill Gates. We’re gonna deliver a long horn. It’s gonna be totally secure. It’s gonna be awesome. Big vision. It’s coming. It’s gonna be awesome, you know. Steve Jobs. This is an iPod. This is how you can use it. Buy one today. And I just, I’m sort of. I don’t know if it’s like my consulting project managering background. But I’m a huge fan of low expectations. OK? So, I would rather keep expectations low and over deliver.

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Interviewee: Keep expectations low and over-deliver. Then, you know, speak bombastically about someone, expectations really hyped-up, and then under-do it. Or upset some people who had a different vision when they heard your words, or whatever it is. This something I think, that was set with our culture at the start, as well. You know, sometimes I think to myself, “Geez, it would be so awesome to talk about what’s coming”. People appeal to that. Like, “Oh, it’s coming. I’ll just hang on. I’ll go do that.” And some people leave us for companies, you know, that are like, “Oh, these guys say they’re going to do that, so I’m going to leave you because you won’t tell me anything”.

Andrew: Uh-hmm.

Interviewee: And then they go, and like a week later, we deliver it. So, but I just fundamentally would rather be delivering than talking. And I think it’s really easy, at some point, if you don’t manage what you’re talking about effectively, and live up to those expectations, every time you let somebody down, you crush their experience. And I, I mean we, have this, like a little mantra here at FreshBooks. We call it, “Execute on extraordinary experiences everyday”. And so we’ve got a million ideas. If you don’t execute, you’re nothing. So you’ve got to execute. Extraordinary is like, if you’re going to do something, just make sure it exceeds people’s expectations. Now, the good news is, people’s expectations are incredibly low. They don’t expect to get a real, live person if they phone you. Well, we give them that experience, so we’re extraordinary. Experiences, that’s the business that we believe that we’re in. OK, so we are in the business of, whether you’re using our web application, and you get a funny message in there when you submit some time, or whether you get us on the phone, or, you know, I don’t know what it is. But all these things are experiences. If we set your expectations and don’t live up to them, you know that’s a very bad experience. OK?

Andrew: How do you go from, you have an idea, you want to release it, you don’t want to tell people about it because you want to show them when it’s released, but, at the same time, you don’t want to build this big thing that’s out of touch with what they’re looking for, or it doesn’t work the way their looking for, how do you test it before you launch it? Do you bring people into your office and show it to them? Do you just start off with something small, so that even if they don’t like it, you can scrap it?

Interviewee: I think it’s important to remember, like, you can launch whenever you say you launch. So you can be out in the wild, having a service, and people using it for awhile, but until that day where you say you’re launching, you’re not officially launched.

Andrew: I see.

Interviewee: OK. I think people forget that. So you want to get people using a service, but when you actually launch the feature, that’s the day it happened. You know, I think it’s tough for people. Expectations are much higher than they used to be for applications, like ours. So you want to make a good first impression. And I think it’s perfectly OK to have the service out there, being used for six, seven months with a group of people. Do some test marketing. Develop a user base. And then declare your launch, like after the fact.

Andrew: I see. So that’s the distinction right there. That’s something that I talked to Eric Reese about in our interview. You’re not just hiding it, building it internally without telling anyone, and then launching it on Day One, and saying, “All right, world. Love it”. You are launching it somewhere small. You are getting some kind of feedback, but it’s not a big, splashy, first day. And only after you’re happy with it, do you make that splash into the world.

Interviewee: I’ll tell you this.

Andrew: Uh-hmm.

Interviewee: If you’ve never met your users, I don’t know why you’re announcing a launch. Like because what that means to me is you have no feedback from the marketplace. You don’t know anything. You’re a fool, you know. If you’re doing product development, and you’re guessing, you are lost. So the faster you can get to users, you know, who are your are your sanity and reality check, who are going to start to tell you what you need to build, instead of you thinking you know what you need to build, you know the faster you can get there, the better off. So you need to get users. You need to have them use the product for a bit. And then, telling your story, the day you decide to launch, is far more compelling, because you’re talking about people who are using the service. And these are the benefits they get. And la-de-dah. All the rest of it.

Andrew: That’s something that I’m actually starting to see a little bit in my interviews, too. Meet the users in person. You do that? You bring people into your office? You go out and you talk to them?

Interviewee: Well, we do more going out. So for years, we traveled, and I talked to a conference, I was in San Francisco, like three weeks ago, and we host these things we call Customer Dinners. And basically, you know, a couple days before I showed up, we sent an email to people in San Francisco. We had about 70 people come out for dinner. We bought dinner. It’s our treat. And it’s just one of our little ways that we sort of show the love for some of our customers. And, you know, they get to meet each other, and we get to meet them and hear about, you know, how they like the product. And things of this nature.

Andrew: I see. OK.

Interviewee: So I do think there’s enormous value in meeting your users face-to-face. And I think for some developers, it’s really hard to get their head around that. You know, oh, I just, I’ll do it all by email, or IM, or whatever. It doesn’t count. The telephone, the telephone, the telephone is good enough, if you ask me, frankly. But, you know, meeting people face-to-face is also awesome.

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Interviewee: …meeting people face-to-face is also awesome. Going to visit them in their environment to see what their office looks like and understand what that is is also useful. To see your product being used out in the wild without it being influencing the environment. But yeah, getting on the phone and asking surveys…I’ve written some blog posts about this stuff, it is so important.

Andrew: Wow. You know what, as you’re saying I could see that it makes a lot of sense. I could see that it’s different from what most people expect. And at the same time it’s a little intimidating. I could imagine somebody listening to this saying, “That’s a great thing, I should do that.” And then when he’s going out to get started being intimidated. I hope they get past that intimidation.

Interviewee: Well, get over it. If you want to be successful, I’ll tell you, email doesn’t cut it. You have to talk with people.

Andrew: Okay, I’ve got a note here to talk to you about your culture. And I’ll bring up the question about your culture by asking you about profitability. How much money you guys making, Mike?

Interviewee: We don’t talk about the finances of the business and we never have.

Andrew: Okay and I’m half kidding about asking you that question because in the pre-interview you said that’s part of your culture. That it’s…Can you describe a little bit what…how that fits in with your culture? And what your culture inside Freshbooks is like?

Interviewee: Okay. So, the culture inside Freshbooks is awesome. But specifically as it pertains to sharing financial information I’d say there’s kind of two things. Cultures are kind of fascinating things. Especially sitting here, six and a half years in, I realize so much of our culture was set before we even started the business, I can’t tell you. So we don’t disclose financial information. And I think a big part of that actually comes from my mother because she would never share financial information basically with anybody. Including our own family, in a lot of cases. She just doesn’t talk about it. It’s a private thing. But I would also say, another piece of that, is it really fits with the nature of our service. We’re helping manage people’s financial information. There’s a privacy, trust and respect aspect to that. And we honor that with ourselves as well as with all our users.

Andrew: I see. And I do see that you guys have a fairly open conversation with your users. Or, what am I trying to say? I discovered Freshbooks because I had a conversation with one of your guys in a chat board on Hacker News…he went in… Somebody had an issue that had nothing to do with Freshbooks. He went in and he helped him with the issue. And I think he also said a disclosure, “I’m part of Freshbooks so I want you to know that I’m steering you in a direction that I care about but also it’s my background.” What kind of interaction do you guys do beyond the usual phone calls and emails that most people don’t even do?

Interviewee: Yeah, I was going to say, “What’s usual about those things?”

Andrew: As I said “usual” I said, “Wait a minute. It’s only usual because we use it talk to our families and our friends. But companies don’t do that.” But you guys do something else. You talked about twitter before. This is an example of me seeing you guys in my world at Hacker News. How else are you guys doing it?

Interviewee: We take people out to dinner, all over, whenever we travel. Send an email to customers in that area, invite them out and treat them to dinner. Technically we launched in May 2004, even though the company was founded in January 2003. And so actually tomorrow night, we’re having our fifth year birthday party. We’re going to have a picnic with three-legged and there are going to be loot bags and all the rest of it, here in Toronto. I think we’ve got something… I don’t know. In the neighbourhood of 100 people who are coming out to joins us for this thing. I just think it’s really easy to think like a technical person and think that everything’s on line and technical. But the fact is, online relationships are often forged offline. You need to get out and meet people. And I think it’s really easy to sit back and just sit on the other side of your computer and think I can do it all from here but the fact is, that there will be exceptions to every rule. But 99…it’s a one in a million that you can do it without getting out and meeting people. So you got to get over that, you got to do it. And we strive to make it easy for people to approach us. Our goal is to support the people who use our service and the communities in which we operate and that is what we do. And I think that example on Hacker News is, I think I even know who that was and he’s now the greeter and participant in that community and he thought he could offer some value in that situation so he did. And I think that’s a nice reflection of a lot of our values here. And I think even just being honest and open about where he was coming from is another great example of some of our cultures here.

Andrew: Yeah, I mean how many people will have a separate fake account and then go in and see the answers. All right. Finally, I’d like to get advice from entrepreneurs for younger, or newer, entrepreneurs. And specifically what I’m hearing a lot of is people who’ve been now struggling for the last year or so because the economy is tough and they’re building their business. It’s not happening overnight. You’ve gone through, you said, two years of struggle. Do you have any advice…two years not struggle but two years of trying to build it up.

The transcript for 1 hour 0 minutes till 1 hour 5 minutes is BELOW this line.

Andrew: …two years of trying to build it up. Do you have any advice for somebody who’s going through a situation where it’s taking longer than they imagined?

Interviewee: Yes, remember that you define success.

Andrew: I see.

Interviewee: Just think about how powerful that is.

Andrew: Uh-hmm.

Interviewee: Right? You define success. You might think like, I think people have expectations, but do you ever, you know, question those expectations? You know, and where do they come from anyways? And would you be happy if this thing didn’t turn out to be as big as you wrote out on a piece of paper a while ago? Are you still happy doing what you’re doing? Like I encourage people to set their own metrics. And sometimes those metrics are like, “How many happy emails did we get from customers this month?” Because we’re not getting paid; we’re not making money. But if we got ten emails this week, or this month, maybe that’s enough to get us by. It tells us we’re on the road. And we’re going to keep doing that. So, you need to define your own success. And I think that, that can fundamentally shift the way you look at things. We started the business in January 2003. The market was not in a good place. I would say we spent more than two and a half years struggling away, you know. Frankly, I’d say it’s closer to like four, you know. And it’s all how you define it. It’s all how you look at it. You know you’re kidding yourself. You know sometimes you have real-world obligations. If you have a family, you know, and you need to support them financially, and you know you’re not able to make ends meet, OK, I understand that. But if you’re not in that scenario, and you love what you do, and you can see some sense of success, however you define it, you know, I’d just say, “Stick with it”. It always takes longer than you think. All right, one year, so wait, talk to me in three or four.

Andrew: Yeah, I’ve got here in my notes you saying that, when you are building it up, or in the early days, you weren’t making money. But you were getting positive feedback from your users. You were seeing more people use the site. Kind of reminded me of an interview I did with Greg from JibJab. His whole business basically went away. He had to lay-off all his people. And then he started off fresh here in California, and he didn’t have much money. And I asked him, “Why’d you keep going?” And he said, “Well, we kept getting great emails from people. And we knew that they liked our stuff.”

Interviewee: Soul food, man.

Andrew: Yeah.

Interviewee: Emails and certain books. You know it may sound silly, but I just remember reading Seth Gordon’s Idea Virus. And, I swear to God, that thing, it’s like 120 pages. It kept me going for like a half-year, like six months. You know, just like thinking about that book. And man, this is going to be. You know, we just believed in what we were doing. And we were passionate about it. And you know, how do you hang a price tag on that?

Andrew: Do you have another book that you can recommend? I know people keep looking for books from these interviews.

Interviewee: I’m not sure that’s the first book I would recommend these days. Like I haven’t read it in so long that, you know, I can barely remember, you know, about it. It’s so funny. I never. You know, I can’t remember. I could follow up with you like with a list of books that are useful for building businesses, if you want.

Andrew: Anytime you have them, I know our people would love it.

Interviewee: Yeah, I just blank when I’m asked to remember. [Laughs]

Andrew: I do, too. I’ve got all these books behind me. You’d think I would be able to come up with one…

Interviewee: [Laughs]

Andrew: when somebody asks me. But how do you come up with one? It’s not like I only read one. If I only read one, boom, I’d keep making that the answer to every question.

Interviewee: Yeah.

Andrew: All right. Well, is there anything that I missed here? Anything that people need to know about your company?

Interviewee: Well, I mean, it just makes me want to go to, like, Marketingland. Just make sure everybody knows that, you know, [Laughs], FreshBooks is an online invoicing and bookkeeping service for professionals who get paid for their time and expertise. You can get yourself your own free account, FreshBooks.com. And yeah, come try us out. Give us a call afterwards. Let us know how the service is. And, yeah, stay in touch.

Andrew: Yeah. Try it and tell me what you think, guys. Just go to FreshBooks. As you saw, it’s just one page, and it’s very easy to fill out. Seconds. All right. Well, thank you. Thank you, Mike. Thanks for coming on here and talking about this. Thanks for all the time.

Interviewee: Thanks for having me, Andrew.

Andrew: You bet. Cheers. And there it is. As always, I want to ask you to come back and give me feedback. Tell me what you thought of the interview, the audio, the video, the ideas here. The more you tell me, the better. But I also am noticing from reading the comments and reading the emails that I get, that a lot of people listen to these interviews with a pen and paper, and take notes. If you’re one of those people, then I’d love to see some of the notes that you took. Put them in the comments, if you feel comfortable doing them already. And I hope you do. I want other people to learn from you the way that we’re all learning from Mike and others, who come here to Mixergy to tell you their experiences, and what they’ve learned along the way. So I hope if you’ve written any notes for yourself, that you share them with others, and let them learn. And if you haven’t, you might want to start doing that now. Find a way to just jot down a couple of notes…

Edited excerpts: Insights for creating paid web apps

How to have the mindset that will help you charge

It takes conviction. You better be sure you are offering something of value and sometimes it takes time and testing to understand where the value is in what you offer. But if you know you can figure that stuff out, frankly I think subscription revenue business is basically the best business model in the world.

And you know it’s our responsibility to prove our value to our customerbase, through service, through developing the product, through a whole bunch of different things — and every month we’re on the hook for that. But, as you know, as long as we to deliver against that — and we have a long track record of doing that right now — people are will be willing to pay for the value.

How to figure out what to charge

You must find a way to quantify the value of your service and the way to do this is to poll your users. So get a bunch of free users and ask them, “How much are you willing to pay for my service?” And it should be based on which category you’re in:

CRAYON: CRM (Customer Relationship Management software) helps you drives topline, it helps you generate more sales. That’s a crayon.  It paints a brighter future.

APRIN: An Aspirin is a pain-killer.  I’m in the aspirin business.  Every month my customers say, “I have to do billing.  It hurts my head.  I don’t want to do it.  Make this pain go away.”

So, in the CRM version, something that is going to drive top-line for a business. You might want to ask your users, “by using our service for free, how much new revenue have you generated”? Someone might say, “I made a $1000 extra this month because of using your service.”

In the pain business, you might want to ask, “How much time have I saved you?”

We might ask, “How much time do you spend invoicing before FreshBooks and after?”  Some people save multiple person-days a month, thanks to our service.  Other people save four hours.  Right, now four hours is a half-day for somebody who’s busy building their business. You can make phone calls and generate new business in four hours. If I can save you four hours, and you bill out at $200 an hour, my services, to my mind, are worth $800 a month.

Maybe a monthly service costs one hour of your time.  All right, so we’re going to save you three, and you can turn that into money.

If it’s a CRM business generation tool, and you can generate $10,000 more a month, I’ll bet you any money you’ll pay $1000/month for that service, if you can generate $10,000.

How to keep yourself going before you’re profitable

I encourage people to set their own metrics, and sometimes those metrics are, “How many happy emails did we get from customers this month?” Because we’re not getting paid we’re not making money, but if we got ten emails this week, or this month, maybe that’s enough to get us by.  It tells us we’re on the road.  And we’re going to keep doing that.

So, you need to define your own success.  And I think that can fundamentally shift the way you look at things.

We started the business in January 2003.  The market was not in a good place.  I would say we spent more than two and a half years struggling away.  Frankly, I’d say it’s closer to four.

It’s all how you define it.  It’s all how you look at it.  You know you’re kidding yourself.  You know sometimes you have real-world obligations.  If you have a family, you know you need to support them financially, and you know you’re not able to make ends meet, OK, I understand that.  But if you’re not in that scenario, and you love what you do, and you can see some sense of success, however you define it, you know, I’d just say, “Stick with it.”  It always takes longer than you think.

Full program includes

– Very detailed discussion about how you can create a paid online service that earns the right to charge users by delivering value you (and your customers) can measure.

– How you can bootstrap a business by starting a consulting company and why you probably want to transition away from consulting.

– How to figure out what business you should launch. (Around minute 4 of the interview Mike talks about where the idea for FreshBooks came from.)

Mike’s book recommendations

At the end of the interview, Mike offered to send us a list of books he recommends. Here it is:


18 thoughts on “Insights That Helped FreshBooks Become A Successful Paid Web App – with Mike McDerment

  1. Shaan Batra says:

    Hey Andrew,

    I'm not sure if you've already done an interview with these guys, but have you heard of Angie's List? (http://www.angieslist.com) It's a local rate and review site sort of like Yelp, but targeted at contractors and home services. The odd thing is, unlike Yelp, they charge users to use the site (whether they just want information or just to leave reviews) and they claim it works better because they ensure authentic reviews, certified data and call center support. It's really interesting model. I think you should do an interview with them.

  2. madhan12 says:

    Another great interview! I came to know about Mixergy from Hacker News not long ago – first interview was “How A Kid Earned $2 Mil Before He Could Legally Drink – And The Shocking Way He Lost It – with Andrew Thompson”

    I am now hooked-on to Mixergy and listened to almost all interviews since then. Thanks Andrew, this site can become an important resource for anybody who wants to start a business.
    It is make a lot of difference to see people who have done it talk about their experience.

    Madhan

  3. I'd love to interview them. I need any intro though.

  4. Thanks. I get some of my best readers from HN.

  5. Just a thought Andrew. There's all this talk about charging customers and not just relying on advertising. But, surely there's something to be said for B2B vs. B2C in this debate.

    37 Signals and Freshbooks are good examples (both mostly B2B it seems). I have a Basecamp account and I pay and I don't even blink at the payment, even though my use of it has reduced almost to nil (now I've made myself aware of that fact, I'll certainly review it). However, my indifference to pay in this case is because it's business related and the $10/m seems so small in comparison (we're still running lean, regardless of this indiscretion).

    But if you want me to pay $10/mth for something personal, you better be offering something so revolutionary or so valuable that I just can't stand to be without it. I realize people pay for personal things all the time on the web, but it seems much rarer, especially for nascent startups. Now, me and my business are one in the same, so this phenomenon is completely irrational, but it seems significant nonetheless.

    With that said, we are in the advanced stages of a B2C startup that will charge from day 1. Like everyone else, we think we have what it takes for general consumers to pay. But all we can do is test and re-test our hypotheses and hope lady luck is on our side.

  6. Casey Allen says:

    “Crayon vs. aspirin”. Genius. Love it. That little nugget, surprisingly, rocked my world and made me rethink a lot of my own message, something I've been gnawing on furiously.

    He interviews very well, prompting me to emailed this to three people I know cranking away on software projects on the side. His realism is refreshing.

    I checked out http://www.secondsite.biz, the early iteration of FreshBook's service that Mike mentioned. I laughed out loud. Thank god Mike's committed to never-ending improvement. =)

  7. Casey – you made me laugh out loud. :)

    @andrew – thanks for having me.

    – mike (from FreshBooks)

  8. k. says:

    Note I took: change behavior.
    Not sure I will end up doing something with that note but you asked for my notes.

    About the rebranding thing. It happens a lot in retail. Same people, same store, different brand.

    How to charge money for Mixergy? You didn't ask for it but it might be difficult.
    However, you should consider doing how to's.
    Make the interviews searchable so I can jump to a section that's of interest to me.
    That would be a huge time saver!
    The videos are great, but I can't listen to all of them, so how do I decide?
    I look at who you're interviewing. What he or she's doing.
    In this case, I really had no interest but I had to download some stuff and wait for it, so I figured why don't I go to Mixergy and listen to this one, you never know.
    I didn't regret listening to it. I wouldn't be posting this if I wasn't supportive of what you're doing. I want this to get better and better.
    There're a lot of how-tos in your interviews. Why not show us where they are?
    Like how to get customers for a paid service? For Mike's take on it, go here.
    How to decide on what price you should charge, go here.
    How to build your company culture, click here.
    You could build a how to page like the one on Mahalo.

    Maybe I'm the only one who would like something like that.
    Maybe showing it in the video should be optional.
    Text is faster but less colorful.
    I'm sure it would be great for SEO.
    Give it some thought.

  9. Shaan Batra says:

    Hm. K the whole thing about charging for content on Mixergy is interesting, especially the How To idea. Every entrepreneur definitely has a set of very specific questions. Interviews that Andrew does here are more comprehensive and cover a wide variety of topics. What would be really interesting is if there was a way to segment the videos into a set of clips that answer those specific questions. So, for a particular question or topic, you could see clips from a few interviews (or text from transcripts). This would require a lot of work but this could be the premium (paid) section of Mixergy's website so that the cost of additional labor and resources is covered. I would definitely pay for this service because we all know there is a TON of gold in all of these interviews, but we don't always have the time to listen to all of them entirely and sometimes just want a specific answer to a question that multiple interviewers may touch upon. Basically, Andrew would be doing analytics on all the video content he has gathered and charging for that. What do you guys think?

  10. Peter Knight says:

    That's a interesting insight, the different mindsets from personal to professional and what you'd be willing to pay.

    This interview had some great tips on pricing that I'm able to implement quickly. This definitely intrigued me:
    “Andrew, I never put my price on the home page and I never have my full registration process be one page. What I want is to have two distinct decisions to give my users, the first is do you want to sign up for my service and in that page I don’t give them a price and I don’t ask them to pay, the second page I show them several prices and I see which one they’re more likely to pay, you know, small, medium, large service. And based on that I can tell whether my price is turning people off or my offering is.”

  11. Ted says:

    madhan12- I have been hooked for some time. Every interview I have a “entrepreneurial seizures” of ideas. I love how raw and real the interviews can get.

  12. Ted says:

    APRIN: An Aspirin is a pain-killer. I'm in the aspirin business. Every month my customers say, “I have to do billing. It hurts my head. I don't want to do it. Make this pain go away.”
    – Thanks mike — I had to grab this and stick it in my marketing swipe file;)

  13. Ted says:

    “The whole thing about charging for content on Mixergy is interesting, especially the How To idea.” I think this is an interesting idea to Shaan and am curious to see how Andrew plays it.

    I think a private message board would be awesome. Although, message boards can be time-consuming to manage I think that with the type of people who visit Mixergy you would get some people who would be willing to be moderators. If it was a private board you wouldn't have to worry about spam. I know I would hang out and spend a lot of time in a Mixergy message board. I am look for a cofounder and Mixergy is probably one of the best sites online to meet serious entrepreneurs.

  14. I am a huge fan of Freshbooks, great application. I recommend it to newbie business owners just starting out. It's incredibly user friendly and automated. It takes the guesswork out of business finance – seriously!

  15. hariscusto says:

    Great questions and answers. It is nice to see how you have gone deep in the success story of freshbooks, and I have found a lot of common things with our work flow and routines.
    Here are couple of them:
    – Always listen to your customers to improve your product
    – Don't give them what they wont, give them what they need and follow your vision (well this is what separates you from others)
    – You must have best support possible for your customers

    There are lot of them but this 3 are basic :)

    Keep up the good work,
    Haris

  16. lewro says:

    Great interview full of excellent answers. Can't thank you enough. It answered lots of questions I had in mind about starting online business.

    I specially like “Getting Real” from Mike's recommendations.

    I think this company is in the same league with 37signals it would be useful if I could see “similar interviews” in the side bar so I could keep on watching.

    Thanks a lot Andrew for bringing this excellent content for free!
    Love it.

  17. elramirez says:

    Here are my share of notes, just because you asked for them, plain and raw. Thanks Andrew.

    How do you figure out your price point?

    user feedback?

    part art, part science?

    quantify your users,

    what is your business? crayon? or aspirin?

    the value of your service

    how great you were and are now?

    have you get part of your business wrong and recover from that?

    online relationships are often forge offline.

    you define success

    soul food , believe in what you are doing.

  18. elramirez says:

    Here are my share of notes, just because you asked for them, plain and raw. Thanks Andrew.

    How do you figure out your price point?

    user feedback?

    part art, part science?

    quantify your users,

    what is your business? crayon? or aspirin?

    the value of your service

    how great you were and are now?

    have you get part of your business wrong and recover from that?

    online relationships are often forge offline.

    you define success

    soul food , believe in what you are doing.

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