FreshBooks spent $10 mil to recreate software that already works

Today I’ve got one of my first interviewees, the founder of FreshBooks, Mike McDerment.

I’ve used FreshBooks to send out invoices pretty much since I started Mixergy.

And to be honest with you, I was taking some time off–I wasn’t recording interviews. But Mike emailed me and said, “I think we should do another interview. It’s been seven years since the last one.”

I assumed Mike was doing this interview to announce he was selling FreshBooks. So, that’s why I agreed to come to the office and record it.

Then I realized what the actual news is…

Mike McDerment

Mike McDerment

FreshBooks

Mike McDerment is the founder of FreshBooks, invoicing software for small business.

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Full Interview Transcript

Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, where I’ve interviewed entrepreneurs about how they built their businesses since 2008.

Today I’ve got one of my first interviewees, the founder of FreshBooks, Mike McDerment. And to be honest with you, I wasn’t even–hey, Mike–I wasn’t, Mike, planning on coming in here to the office. I had a kid a little while ago and I decided I was going to work from home or coffee shops or not even work at all or take some time off. But then Mike from FreshBooks emailed me and said, “I think we should do another interview. It’s been seven years since the last one.”

I said, “Okay. Is there some news?” He said, “Yeah, there’s some news.” In my head I said, “I’ve got to jump on this. Mike is selling the company. He’s selling FreshBooks. Absolutely. Mike, what do I need to do to make this happen? I’ll move heaven and earth to be the person who helps announce that you sold FreshBooks.” So, that’s why I came in here.

Just to give you guys context, FreshBooks was my first sponsor here at Mixergy. It’s a service I’ve used for years. When I first interviewed Mike, I remember one of my first questions was, “Who cares? You can invoice using Microsoft Word. Why do you need software?”

And then I started getting a lot of advertisers and I realized oh, I care. I need something to not just send out an invoice, but to collect payment from people and let them have an easy way to make payment. If they don’t pay, I don’t want to have to be the nudge that has to go into people who bought from me say, “You haven’t paid, please pay,” first of all because I’m going to forget and second, it changes the relationship. I want the software to do it for me.

So, I signed up for FreshBooks a few years ago and I’ve been a long customer of FreshBooks now. My whole team is on it. As soon as we get a new advertiser we immediately get them into FreshBooks and let FreshBooks deal with getting us paid. I thought, “Wow, the guy has been running for years, longer than I’ve been running Mixergy. Let’s talk about that.”

So, that’s why I came in here. Then I sat down here and I realized, “Mike is not selling this company.” Actually, we’ll talk to him in a moment what the actual news was and what the actual news is and why he’s not selling the company.

First, I should tell everyone listening to me that my sponsors for this interview, the two people who are going to get FreshBooks invoices from me if they haven’t already is a company called Leadpages that’s doing a conference where I’ll be speaking and I’d love for you if you’re listening to me to come see me there and Acuity Scheduling, which will help you actually schedule meetings and get in front of people if that’s what you’re looking to do. I’ll tell you more about both of them later.

Mike, welcome.

Mike: Thanks, Andrew. Just right off the bat, I hadn’t realized we were not explicit about the news, but we’re not selling the company. We get into what we’re talking about today.

Andrew: You’re not selling it. You’ve been running this company for a long time. Ever since I hit my second year of Mixergy people have said, “When are you going to stop doing interviews?” I said, “I love talking to people. I want to do it until the day I die.” But software companies, especially ones like yours seem to have exit strategies. If you’ve taken money, which you did since our last interview, why not sell it? Why did you laugh that off when I said, “Hey, are you selling it?”

Mike: The short answer is we just have way too much to do still, so much left undone. I still feel like a decade in here we’re incredibly early days.

Andrew: But do you ever feel like, “I’m bored. I’ve been doing this for ten years now. There are so many new things I could be doing?”

Mike: I think very far from it. I think that’s the day I would move on and somebody else should be running the company. I actually feel like there are so many problems I haven’t had the opportunity to solve yet for our customer that that’s really exciting. I’m just getting fired up about solving some more of them. But that’s what keeps me going, the notion that there’s still lots to build and we’re just scratching the surface.

Andrew: Okay. I want to understand in this interview how you evolved as a CEO. You went from a guy who started this company I think in your parents’ house to now running a company that’s got real customers, real revenues, eventually real funding, etc. I want to know how the evolution of the CEO went for you.

I also want to know how you’re learning customer problems. But one of the things that you told me you were doing now, actually, the big announcement is there’s going to be a new version of FreshBooks. Why is that so big for you? It seems to me like Mike, you’re a little nervous about it.

Mike: Okay. There are like four interesting things, I think actually three.

Andrew: Let’s talk about the change. What’s new that you’re excited about that is so big?

Mike: So, the “news” today is that we’re launching a completely redesigned version of FreshBooks. When we started the company, we started before things like Ruby on Rails and all the common technologies that are available today and people build web-based or cloud-based technologies with, they didn’t exist. So, we were started on a whole bunch of old technology. We started a long time ago.

So, fast forward to present time and we’ve spent ten years serving our customer, we’ve learned a lot of things and that older technology was hampering us in terms of our velocity to deliver new things. We felt like we had backed ourselves into a corner with the current design of FreshBooks and how it worked and we wanted to do more. To do more, it was not like–you can’t iterate your way to greatness sometimes. You’ve got to just stop and completely rework things. So, that’s what we’ve decided to do.

Andrew: What’s going to be new about this? As a user I’m asking because I want to understand what’s coming up.

Mike: So, I think there are a few things that are sort of relevant. The first one is just the velocity of change. That may not sound like a big thing. It’s kind of vague, but in software it’s a huge deal. So, the ability to deliver more stuff faster is kind of like the killer feature. So, that is radically changed. So, we’re going to be able to develop the platform quickly.

Thing number two is the reason we did it at the outset was we thought about people going out–there are more people working for themselves than there ever have been before, Andrew. A bunch of reasons for that–there are people who are getting pushed out of large companies because Fortune 500 companies are trying to transition people to contract from full-time employment. You’ve got millennials growing up and are predisposed to running their own businesses.

For all these reasons, the rate at which people are going into businesses themselves, the sheer volume of people never even hire–as somebody who’s out on his own, I know it’s not all that easy. You’ve got a lot to learn. You’ve got to go find customers. You have no safety net when you’re self-employed. So, the world is stacked against you.

Anyways, this is kind of the environment in which we said hey, our product, to be honest, in FreshBooks Classic, what we’re calling the older version, is like still the market-leading product in terms of ease of use and all these other things. We really knew over ten years of getting to know our customer and the vision I guess I had for where I wanted to take things, really wanted it to be easier, just easier. So, that’s so important.

Andrew: I see. You’re saying FreshBooks as I’ve been using it is built on a platform that doesn’t allow you to make changes like new additions and simplifying the features that are there now and that’s why you want to move.

Mike: That’s right. I think simplifying that user experience is the core thing for end customers, the benefit of rapidly developing new stuff will be another thing.

Andrew: I see. Okay. Am I wrong to say you seem a little nervous about it? You said, “Andrew, this is actually pretty risky for us.” Maybe nervous is not the right word, but it’s a risk. What is the risk here?

Mike: For the interest of your audience, we’re speaking today and we’re about two or three days from the actual launch of the new platform. So, we’re going to be communicating with millions of people shortly to say hey, this new thing is here. By the way, some people will have access to it on launch day and some people won’t yet and we’re going to be phasing our rollout.

So, there are a whole bunch of things you don’t know when you’re launching a platform like this that are kind of scary, like are people going to like it? Will people want to change? We’re not forcing anybody to change. I think that’s an important thing. People are running their businesses. We don’t want to disrupt them. So, you have the ability to change. Do you like it? Are folks who are not able to get access today going to be super frustrated? Are they going to understand, “A few more weeks and I’m in.”

Andrew: I see.

Mike: I like to talk about inside the building. I’m trying to sensitize our team. I’m like we’ve been working on this 18+ months now. We’re big believers. The early research and data is very strong. So, we have reason to be confident and excited. The flip of that is you never know until you put it out there, right? We may get more slings and arrows day one and I’m trying to get people to brace for that. It’s always hard when people don’t necessarily–they’re not bought into yet. It’s new and change is hard. So, we’ll see how it goes.

Andrew: You could keep coasting on this platform as it is right now. It just works. I’m looking here at my dashboard. I see how much money we have outstanding, how many invoices we sent out in June and April. I see everything I need. What is it that you’re looking to achieve with the company that you needed to take this big risk?

Mike: So, I think that is something–I think it is a huge risk. It’s been a massive investment, like nearly $10 million to go and rebuild this whole thing. It’s a big bet, right? But I think we have so much conviction around serving this customer or so many more people we’re so much better setup to do that with the new design, new product. I guess like ultimately I felt frustrated, like we were never living up to our potential before, like I knew things could be easier. I knew we could do stuff better.

Andrew: Could you give me an example of something that just bugs you that you knew that you could do better than that but you were limited by your technology?

Mike: So, one of the new features in the new FreshBooks is the ability to manage multiple businesses. Not everybody needs this feature. But some people have their core business, maybe a side business, maybe they’re part of two or three. Having to logout and login, very sort of disruptive. Now you can do that very simply without having to logout.

I’ll give you a small example. We have not had due dates in FreshBooks Classic since we started. So, you have a database, you send the invoice and usually what we counseled our customers to say was, “Hey, just make your due date, your date of issue due within 30 days or what have you.” But the mental model for lots of folks is you have a date of issue and you have a due date. Those two things are on the invoice, not in the notes.

So, for a whole bunch of reasons, actually putting due dates in FreshBooks Classic was very hard. You had to change all the reporting. We had things like late reminders that wouldn’t work. So, it seems like–we’d get emails from people like, “I’m a software developer. It’s easy.” The fact is it is incredibly hard to do that one thing. So, the new FreshBooks has that and we now have the ability to just make vast, sweeping changes to the platform and the product that we couldn’t make before.

Andrew: I see. I never thought of that, but I’m not looking at an invoice that I sent out to Toptal. There’s a date that we issued it and right in the notes we say, “Due in 30 days.” I see. And so, what we’ll be able to do in the future is say it’s actually due in 30 days, not write it on the invoice but make the invoice–what’s the difference, then? What happens if they don’t pay in 30 days?

Mike: I think this is–so, it’s more presentation of information and also the mental model people have when they’re coming to a platform like ours is, “Hey, you have both of these dates on an invoice because that’s what’s expected and you need to clearly communicate that.” So, I think you got there through using your notes to communicate what you needed to, but for most folks it’s a strange thing to put a due date in the notes.

Andrew: How are you–I’m looking at an invoice here from Toptal. It says a late payment reminder was sent by me to Toptal. It’s not that they were late. They paid by wire, so we forgot to enter they paid us by wire. But it did send a late payment, what’s the difference? It did send a late payment reminder to them. How did you do that if I didn’t insert it in anywhere?

Mike: So, you would have in your account–one of the great benefits of FreshBooks–I like the way you talk about the relationship is like, “Hey, I want to have the value added relationship with my customers,” I don’t want to be the, “Can you pay me now?” One of the ways we help with that and you’re using it is you can setup what we call late payment reminders to automatically go out at intervals of your choosing, say like 30 days later you can have a note that goes out to your customer automatically that says, “Hey, this invoice is now 30 days overdue. Go here and pay it.”

Andrew: I see.

Mike: If you used our FreshBooks payments offering and they had paid you that way, all your records would update automatically and you’d be set to go.

Andrew: Got it. So, it’s not really a late payment. They’re not necessarily late. You’re just saying after 30 days, we’ll assume they’re late and we’ll send them a late payment reminder. I see. So for people who have hard, firm deadlines, that could be a little tricky. Got it. Man, that must have been so painful for you to know that was an issue for your customers and you couldn’t do anything about it.

Mike: It just seems like a small thing. All the reporting–think about an accounts receivable report. Sorry, this is pretty nerdy accounting stuff for some folks. You then have to key that off the due date. We were kind of guessing on that stuff. Anyways, it’s an example of a small thing that’s now sort of rectified. Stuff like the ability to capture expenses in multiple currencies as opposed to your own currency is a new thing as well–countless improvements in the new FreshBooks.

Andrew: Did you have to go to your investors and justify spending what ended up being about $10 million as you said to change a product that was working okay?

Mike: So, interesting, since we last spoke, I’ve kind of been somebody who has been staunchly opposed–we might have even talked about this. I was leery of external investment because we were building this company, didn’t want to be unduly influenced. But in 2014, we got to a place where the next thing to do to grow this business is actually to bring on external capital because we kind of had a management team in place, the product was going well.

Anyways, we brought on the capital, we closed out in July, 2014. In the back half of that year, it wasn’t part of our plan, but we’d started playing with a prototype for what a new FreshBooks could look like. There was no plan of record to build a new thing. It could have just been a coat of paint. We just started realizing this is a whole new build. So, I don’t know which board meeting it was, but we came in and said, “Listen, we think the thing to do is to build a whole new version.”

That’s a big decision. I really credit our group of investors who have been tremendous with supporting us with that. They kind of get like, “Hey, it’s a great thing.” Like us, they’re in it for the next ten years. They’re not in it for the next six months. We felt this was a big thing to set us up for the future and they got behind us. I just feel lucky. That could have gone down very differently, I think.

Andrew: Are you using Outlook? I think I’m hearing the Outlook chimes every time you get email.

Mike: Do you want me to. . .?

Andrew: If you could mute it, that would help. But I never know how to mute it in Outlook.

Mike: I will work offline.

Andrew: So, you sit and work and you’ll actually get chimes coming in every time there’s email? If I email you now, there will be another set of chimes that comes up?

Mike: I’ll turn it off sometimes.

Andrew: Got it.

Mike: I don’t know why it’s on now to be honest. But yes, I get notified when they come in sometimes.

Andrew: What is your work style? I feel like that would drive me nuts because I like to get fully lost in a project. What’s yours? It seems like you’re very fast at responding to emails, very plugged in.

Mike: Yeah. So, you talked before about your evolution as a CEO. I’ll just say one thing that’s true now that we’re over 250 employees–very interrupt-driven is what you get to at a certain scale. I’ve had to change the way I run my work day because when I’m at the office, I won’t make it more than like three or four minutes without somebody coming in and interrupting me on something.

That’s fine. I’m sort of sufficiently ADD that that’s okay with me. But if I have a project where I’m responsible for contributing to something, I actually need to set out time in the morning–I need to do it outside the office. So, getting notified of stuff, it’s just one more thing blinking at me.

Andrew: What else is–actually, before I ask about what else as changed as company grew, let me talk about my first two sponsors. It’s a company called Acuity Scheduling. Do you know Acuity, Mike, Acuity Scheduling?

Mike: I don’t. No.

Andrew: So, what Acuity Scheduling does is it solves a problem of you want to talk to your customers after they sign up or you want to talk to them before they sign up and it’s tough because there’s endless email back and forth saying, “Are you free this time? No you’re not. Are you free this time?” So you finally nail a time you’re both free and then you realize one person talked in Pacific time and the other in Eastern time and you both are showing up at the wrong time or the right time but the other person forgot because it wasn’t on their calendar or you forgot to ask for the phone number, all that.

All that goes away with Acuity Scheduling. You just go in, you set your available time and you get a link that you get to give to anyone you want to have a conversation with and they can book themselves.

So, one of my past guests emailed me. This is Kim Walsh-Phillips. Kim Walsh-Phillips runs a company that does ad buys on Facebook and she said, “Andrew, I got a great use case for you for Acuity Scheduling.” She says, “We put up a link on our job interview template that allows candidates to self-schedule their 15-minute meet with us. It really streamlined our hiring process,” she says.

So, anything that you want–any time you want to talk to your customer or talk to anyone, make it easy for them by just going to Acuity Scheduling, creating a calendar, by adding your availability to the calendar and then giving that to the person you want to meet with and you’ll find it makes it very easy to meet with them.

Hiring is great. New customers, great, potential customers, biz dev, meeting anybody–Acuity Scheduling is fantastic. And because it’s created by a Mixergy fan, he created a special URL for us where he’s giving us a big, big, big free use of the product. Go to AcuityScheduling.com/Mixergy to get that big free time off.

Mike, what else changed? So now you can’t get lost in a project because there are a lot of demands on your time. What else changes as you go from a bootstrap company to something this big?

Mike: Yeah. So, why I love what I do and we’re building stuff, lots of challenge and personal growth, so I’ll say personally I’ve had to change a lot along the way. So, things like–what’s really helped me with that is I’ve built a pretty strong executive team around us, folks who are working in companies of scale, sort of around the world. So, that’s been huge for me. But I think the journey since we last spoke, I don’t know how many people we would have been. We probably would have been 40–we probably would have been 40, 50, maybe 60 people when we spoke. We’re at 250 now.

Andrew: In 2010.

Mike: We’ve gone through, I think, three offices since we last spoke. We had these like I think some of the biggest stuff for me, I give this talk on culture–we’re really huge on culture at FreshBooks. We’ve had these like breaking points along the way where as a leader, you need to change how you do things.

Andrew: Can you give me an example of one of the earlier breaking points? What does that mean?

Mike: Well, I remember a couple. I remember when we were–20 people is the day I realized I’m not going to have a personal relationship with everybody anymore. I can’t. That was a shame. It was hard. But it was like okay, move on. Forty people, that was a time when up until then, everybody knew what was going on in the business all the time, which was a great thing. Then people started feeling like, “Well, I don’t know.” That felt hard for people who had known forever. That was 40.

Eighty was where I thought the sky was falling. I thought we were absolutely like–there’s something about 80 people where all your prior forms of communication and the things that you did just stop working. They just break down. I’ve spoken with other entrepreneurs about this. In fact, one guy actually warned me about it and it happened to us. I thought we were going to lose the whole company. I thought it was over. I had no idea how to get from where I was back on track.

Andrew: What do you mean? What wasn’t working at 80?

Mike: The answer is basically communication, like how you communicate with the whole organization, the cadence you do that, the kinds of things they need to know. I guess we weren’t really good at how to–we did all hands meetings, but they didn’t have the right information.

Andrew: What’s the wrong information at an all hands meeting?

Mike: I think the wrong information is the absence of the right information.

Andrew: What is the right information then?

Mike: I think people, the larger an organization, the more you have to help people see how their role and the stuff they do every day fits into something bigger. And I don’t think we were kind of good at that. So, I’ll just give you a small example. For years at FreshBooks, no one has doubted why we do what we do, vision and mission, that kind of stuff, but we’ve never written that stuff down. Some companies start with writing that stuff down and then off they go.

We were like everyone still to this day comes to FreshBooks and they spend their first month in customer service. Once you’ve done that, you know why we’re here. It’s serving people and designing great products to help them. So that strength of onboarding actually became a weakness because we hadn’t done the work to codify some stuff.

So, things like having a shared mission and vision and things like I don’t if you’ve done interviews and things like OKRs, really handy way that Intel and Google kind of structure their information.

Andrew: What’s an OKR?

Mike: Yeah. So, it stands for objectives and key results. It’s basically if you work by yourself, you make a to-do list, right? You have goals for three months. You have goals for twelve months. Once you get to be a larger company, you’ve got to have more thematic stuff. So, it’s like hey, this is our high-level singular goal for the year. Maybe we’re going to grow revenue to x or profits or whatever it is. And then to get there, we have some key objectives under there that are kind of squishy things.

For us, this year one of our internal ones was leap ahead, which was about launching the new platform. We had a date for when we were going to launch it and that was a big thing. Then under that, we had specific milestones for when we would do it and these kinds of things. That whole kind of framework becomes very important when you’re trying to present like hey, your team, you’re working on helping this objective happen. We weren’t doing that. It sounds really basic.

Andrew: You weren’t setting even–were you setting the big goals for the company or were you doing that or did you stop at that and you didn’t go beyond and set the themes?

Mike: I think so. I think our goals were marginally like mainly numbers. We’re going to move this number, which is not super inspiring and not super directional.

Andrew: I see.

Mike: I think that was like as customer-oriented and stuff we were, it’s weird that it was numbers, but I’ve never worked anywhere else. This stuff, if you worked in a big company, it was like, “This is how you do it, it’s obvious.” When you try and learn that stuff from first principle is when you spend three and a half years in your parents’ basement and got going. These are non-trivial things to learn.

And then other lessons along the way, like how do you assess leadership talent–anyways, there have just been a whole bunch of things, different levels to everything as you scale. It’s been fun.

Andrew: You said onboarding people to customer service seems like a strength but it was actually causing problems. What did you mean by that? What’s the challenge there?

Mike: It’s like with every great strength comes some kind of weakness. So, basically because everyone spent their first month–and we’d teach people the history of company, metrics of the business, but ultimately you’re learning the product, you’re spending a month answering phone calls from the customer. It’s like you’re doing customer. What you would get out of that is you understand our product, our customer and our culture, right? Those three things set you up to be successful, so successful, in fact, that we got by without having other things that you need to be successful.

Andrew: I see. It blinded you to the fact that you need to tell people what the mission is, why does this even matter and be really clear about it.

Mike: Yeah.

Andrew: I see. So, then what is the mission and how do you express it today?

Mike: Yeah. So, this is part of why I’m super excited about launching the new platform and what we sort of have ahead–I feel like we’re still early days. So, for us, our insight into the world is the world is not built for self-employed professionals. What do I mean by that? First of all, when I started out and built FreshBooks for myself it’s because there wasn’t a good tool that worked for me to build my clients. We’ve gone ahead and solved some of that.

But there are other problems, like in ways that the world is still not working well for the self-employed, we’re the only group in the workforce that doesn’t have unemployment insurance. It’s like we’re the only part of the workforce that has a whole bunch of obstacles in front of it. Things are really stacked against you. That’s all well and good, tough for the self-employed folks. There are more people working for themselves than there ever have been before.

So, whether you’re 50 years old and you’ve been a project manager at a large Fortune 500 company and they’re turning your role into something they want on contract instead of full-time employment or you’re like a millennial who wants to start their own business because there’s a whole generation of people predisposed to working for themselves, that drive and passion to go work for yourself, all of which has been made easier thanks to the internet is well and good until you start doing it and you realize how hard it is, right?

Andrew: Are you going to expand beyond invoicing? You already have, but are you going way outside of invoicing now?

Mike: When I think longer term, I think there are a lot of problems we can solve for our customers, right? So, this is part of, “Why do you build a new platform?” It’s like well, v.1 is we’re going to bring ourselves back to where we were, finish off the features that people counted on, but then yeah, we’re going to be evolving considerably over time.

I’m not going to get too specific about what those things are, but our mission is to reshape the world to suit the needs of self-employed professionals and their teams. Our first act in that is we just try to make the accounting and back office part of your business so ridiculously easy that you can be successful running your business without having to learn accounting at all.

We think of taking on that one problem of making your invoicing, accounting, bookkeeping so easy that you don’t have to worry about the learning curve because people go to school for like five years to learn accounting. That’s leg one. We’ll go beyond that in time.

Andrew: I see. You’re thinking of things like independent business owners don’t have unemployed insurance, don’t have an easy way to pay contractors. Is that the kind of stuff you’re thinking?

Mike: The pay contractors thing is a thing we’ve already tackled. With regards to the unemployment insurance, I think for me I like that more as an example of how the world is kind of stacked against these folks. There is no safety net unless you go work for somebody else and lots of people don’t want to go. So, for me it’s more indicative of the problem than something I’m going to say we’re going to get into straightaway, but there’s a litany of those things.

Andrew: What other issues do you see?

Mike: I’ll go to there are more sort of tools and products that are basically not built for folks. I think there’s this group, when you’re working for yourself, your head is down and you’re serving your clients. You’re making your business go. I just think there’s work to do in terms of advocating on behalf of these tens of millions of people. It’s supposed to be 60 million people self-employed in America by 2020, right? Not all of those are the ones we’d call self-employed professionals that they’re kind of working full-time for themselves, but massive numbers of people.

When I see the things that are getting talked about, whether it’s in the election today, people are very concerned with like the gig economy and the employment standards for that stuff and like Uber is getting in all kinds of hot water, blah, blah, blah. We have more customers than Uber has drivers, right? So, you’re missing the freaking mark. There’s a much bigger number of people. Nobody’s standing up and speaking for them.

Andrew: I see. Now I see how defining what your mission is can help shape what you do on a daily basis. When I look at you on the outside, I always thought they’re starting with invoices and eventually they’re going to recreate QuickBooks for the modern era because QuickBooks seems to me like an out of date product. But no, you’re not an accounting software company. You’re a company that’s there to help independent business owners. So, that sends you in a totally different direction.

Mike: It does. I think we do want to make the right product for folks. Effectively I don’t know if I’d use the same words to describe it, but we’ve got to help you track your invoices and expenses and all that stuff. We see that as one small part of a broader mission.

Andrew: I see. Why does that mission get you psyched?

Mike: Why does it get me psyched?

Andrew: Yeah. Does it matter, first of all, that it gets you psyched or is it just the numbers make sense, this is a growing field, we have to jump in on it? Do you have to get psyched?

Mike: No. I think for me, I’m motivated by serving others. I sort of always have been. So, this notion that we can help tens of millions of people is like–it brings meaning and purpose to what I do. That makes me–you marry that with there are all these people we can help. Oh my gosh, they have these problems and we can make a difference for them. That is like the perfect storm for a guy like me.

Andrew: I see you getting excited about that. I’m excited about that to, the idea that you guys anticipate my problems and then you solve it for me. I’m wondering how do you do it today, Mike? Do you have an example of a problem that one of your customers had or a group of them had that you uncovered in an interesting way? How do you uncover it?

Mike: Yeah. So, selfishly I’ll tell you hey, I worked for myself for a long time. I think self-employed is a mindset, like if you’re running an agency, like just because you’re self-employed, it’s not about being a one-person shop. I’m actually at a conference right now called Owners Summit. It’s like there are 25 owners of digital agencies that range from 10 employees to 100. As far as I’m concerned, all these folks are self-employed, right? They’re ultimately top of the stack–top of the stack is a mindset.

So, what am I driving at? I actually forgot the question, Andrew.

Andrew: So, the question was how do you understand your customer’s problems? What do you guys do?

Mike: What I was going to say is selfishly, a big part of the vision of these kinds of things come from I worked for myself and I just feel like there are a whole bunch of problems I haven’t finished solving.

Andrew: But you don’t experience the same problems your customers do anymore. You’re much bigger than most of your customers. How do you understand that one of their problems is that they don’t have unemployment insurance or I forget what the other insurances are, that they don’t have insurance? How do you anticipate problems they have?

Mike: So, there’s the process of getting there and then there’s the other piece. So, one part is hey, I have this backlog of things we haven’t done for folks yet. I’ve been doing this for 10 years and I want to do them because I’ve wanted them myself or I’ve learned. We take customers out for dinner.

Andrew: You do?

Mike: Yeah. We’ve been doing that for years.

Andrew: I do that too. I’m sorry to keep interrupting, but I want to really understand this. When you take a customer out for dinner, how do you drive the conversation towards something that’s useful for you? Often when I have dinner with customers of mine, we end having such a good time that we bond, but I don’t learn enough about what’s going on in their lives. What do you do?

Mike: What I would say is I don’t generally try to drive things to my agenda. It’s more about kind of listening and seeing what happens. By the way, a couple things that are helpful–generally when we do it, it’s not just one on one. It’s with other folks like them. So, common ground is, “Hey, what do we do the same?” We start talking about this stuff.

Then I will ask questions, like, “When you do this. . .?” Often for me it’s really getting a clear perspective on my customer’s perspective is the important thing, right? Like, “How do you look at this? How do you think about it?” and I’ll ask some silly questions like that. We do that.

We did, I mentioned, over 1,000 user tests in the building of the new FreshBooks. That’s part of our process, to do what we call generative research. So, that’s actually we’ll do generative research to understand the problem and then we’ll actually do user tests when we start building things. So, all of this is kind of honing in on what is your problem. But as a founder and a CEO, I think the high-level opportunities, I kind of see myself being responsible for uncovering a bunch of those, then the team is responsible for figuring out how do we get there. Make sense?

Andrew: It does. I think one of the best things about FreshBooks is that I actually could call someone up and get a human being on the phone pretty fast to help me out. I remember the one time I used it, I was paying you guys and I said, “I’m not using FreshBooks anymore. I’m only invoicing Wistia. I don’t know if I have to pay.” I called up and said, “Do I have to pay, or do you guys have a plan where I wouldn’t have to pay since I’m only invoicing one company?”

The guy I talked to said, “You don’t have to. You may not know about it, but here’s how you transition to a free account. You can keep using it as long as you have Wistia as a customer. And if you have others, then you can upgrade to a paid and you won’t lose any of your data.” And I loved it. This guy actually was paid to show me how not to pay you guys. Then eventually I became a customer. I feel like that’s one of the areas where you understand out problems. Am I right or am I missing it?

Mike: No. I think you’re right. I think it’s that customer empathy. It’s core to what we’re about. That first month is customer service is about–who we hire, it starts with who you hire. Do you hire emotional intelligence? Do you have empathy for others? Can you internalize that and turn it into things you want to accomplish? Those are like key things that make a FreshBooker a FreshBooker. As we go along, our actions day to day start to come out of that vein, I guess.

Andrew: How do you hire for empathy?

Mike: I think first you identify that it’s important.

Andrew: Do you have process? Do you have a way of knowing if someone is empathetic?

Mike: Yeah. I think we have an interview process and you look at things–some empathy I’d put in the bucket of knowing thyself. Generally folks who are self-aware, it also goes and translates into like, “I can be aware of others as well,” not always, but a good one. So, look for self-awareness and ask questions there. Look for examples, go into some of the why stuff, like we look for mission-driven folks as well, like why do you do these things?

Andrew: I see.

Mike: What matters to you? If you’re showing up and you just want a paycheck, you’re probably not a great fit to work with us because we’re trying to work at something bigger because we’re trying to serve all these people.

Andrew: Is it enough that they have–could they have a why that’s more personal, like I want to learn how you guys do it at FreshBooks so I can start my own company? Is that a good why that shows someone is empathetic?

Mike: I don’t know if it would be necessarily showing their empathetic, but it can be part of the why. Or I’ll think of like hiring engineers, right? Sometimes the why–one thing I like to ask people is like, “Selfishly, why do you want to come here?” So, that’s usually where I’ll learn about those kinds of things, right?

We have engineers who come like, “Honestly I just want to learn new technologies that you folks are working with and work with smart people.” It’s like okay, for an engineer, that’s an okay answer. That’s great. I get that. That’s what that kind of person is sort of looking for. I will say by role, the answers to differ to these questions.

Andrew: All right. Let me talk about my second sponsor and then come back and ask about culture. The second sponsor is Leadpages, which anyone who’s–well, not anyone, but many people who are listening to me know that it’s an easy way to create a landing page that converts. Well, what they’re doing is creating a conference of people who aren’t just Leadpages users, but users of any software that allows you to–boy, Mike, this is not one of my best commercials.

I’m a little rusty. I haven’t been here for a couple of weeks. I was so proud before I went away that my ads were getting really solid and now I think I’m a little bit rusty again. So, I’ll call myself out just like I pat myself on the back when I deserve it.

Well, here’s the deal with Leadpages–their customer base and people who are drawn to them and know about them are really good at creating pages that convert, that get people to give their email addresses, that get people to buy, that makes that whole transaction really easy and effective.

So, what the company decided to do was put together a conference for all of these people who care about conversions. They actually are calling Conversion 2016. I’d love anyone–sorry?

Mike: You just had a baby, right? So, this is. . .

Andrew: Yeah. Right. You know what? The good news is that I told my wife I was coming here to do an interview with you and I love talking to you, Mike. If you just say, “Andrew, I have nothing to announce, I just want to chat for an hour, I’d love it.” So, my wife knew I was excited about coming in here and she said, “You don’t have to wake up at all, forget about diaper changes. You’re totally fine.” So, I got to sleep in this morning, which I think makes it a little bit harder too because I was so comfortable sleeping for the first like eight hour sleep that I’ve had in a long time.

Anyway, Converted 2016 is the conference. I will be there speaking much more articulately than I’m speaking right now, so will Clay Collins, the founder of Leadpages, so will Ryan Deiss, the founder of Digital Marketer, so will Steve Kam of Nerd Fitness, so many other people are going to be there. If you come, please email me and let me know you’re coming so we can meet up in person.

This guy Ken Krell just the other day emailed me, said he heard me talk about this. He will be coming. He sent me his cell phone. I sent him mine. So, we could connect. The reason is I want us, if you’re coming there to hear me or coming to learn about conversions, I want us to meet up and I want to introduce you to as many people as I can. So, do what Ken did and so many others who heard me say that I will be there speaking. Go get yourself a ticket, come and as soon as you get your ticket, email me. I’m Andrew@Mixergy.com so that we can meet up there in person.

And here’s a special link where you can get a big discount, 25% off of the already low–they’ve got a reasonably high price, but here’s a way to get 25% off of that. Go to Leadpages.net/Mixergy. I’m glad that they’re not charging like $10 for it. I want a barrier. I only want people who really care about conversions to come. If I’m flying out there, I want only serious people to be there and I think that’s what Converted 2016 is about.

So to get your ticket 25% off and to come see me and so many others who are obsessed with conversions, go to Leadpages.net/Mixergy.

Mike, by the way, you guys were my first sponsor. I remember being so nervous about doing any ads because the whole thing was a free, personal self-expression site that I said to my wife, “You have to come on. I can’t just talk to the camera on my own.” And she was there with me and we recorded those ads. Even looking back, I think those are some of the best ads I ever recorded. I love that you guys were willing to take a shot on me.

Mike: Well, I think I don’t know what to say other than you’ve proven us to look pretty smart in hindsight, Andrew. I’m proud that you’re still doing it and to have played a little role at the outset is really humbling and special. I love being able to help people get things started as they build things.

Andrew: Yeah. I was proud. I know I delivered for you guys and I was proud to have because if guys had taken a shot on me I wanted to not just say, “Thanks for the money. Sorry it didn’t work out but we both learned.” I wanted it to be, “Yeah, we both learned and we got what we were looking for.”

Let’s talk about culture. I feel like when small businesses start, the founder does everything himself and then kind of like Michael Gerber’s “E-Myth Revisited” book, he starts to systemize and pass work onto others. Then at some point, your systems break down. Unless you become McDonalds, you can’t survive on systems alone because people need more expression to be great. You’re seeing where this goes. Is that when culture comes in?

Mike: I think they’re separate concepts. I think culture is an enable of you fixing it. It’s an enabler of people having patience with you when it’s broken, helping you identify it faster, being willing to do the hard work to change, to get the next place as opposed to saying, “This is just the way we do it.” Those are the things I think culture does.

I think the problems you encounter every business faces them. Even McDonalds, they systemize everything, but different things change and systems break along the way. That’s kind of the fun part of operating a business, right? It’s not a machine, but it’s like you have to figure out a way to program it so it runs like one, which is a puzzle.

Andrew: Yeah. Systems feel like the natural way to do that, but they don’t work enough, why do we need culture?

Mike: Why do we need culture?

Andrew: Why do you need culture?

Mike: I think very early on as an entrepreneur, I sort of glommed onto this thing that culture is strategy, right? I really believe the different between good companies and great companies is culture. So, the question is what is culture? Culture to me is what happens when nobody’s looking.

So, if something breaks for a customer, if somebody calls at 5:55 p.m. or whatever your end of day is, does that person say, “Well, I’ll tackle that tomorrow or they’re like, “I should do this now. I’m going to stay the extra 20 minutes or whatever to fix it.” If you have a culture that’s like that and people are going to stick around, you’re business is so much stronger, your customers will love you so much more. It means your team cares. You can’t buy any of those things, right? Culture is sort of just critical to success.

Andrew: So, what do you guys do to actively create the right culture at FreshBooks?

Mike: I think a bunch of things. It starts with hiring. It sounds glib, but who you bring in really matters. I think that first month in onboarding where you’re setting the expectations for how folks behave in the organization. Part of that is you see people doing it every day, like doing ridiculous acts of service for a customer in one form or another. You also get taught about nine values at FreshBooks, which we educate people around.

Then those values you can use to kind of enforce–so much of maintaining a good strong culture is making sure you terminate any sort of negative or counter to your healthy culture activities that spring up. So, it’s kind of like values are about how you want people to behave. So, you want to reward when people do that. We have a program where you can give a thing called a values card to anybody who lives on of our values to an extraordinary level. It’s like $25 coffee card or like the liquor store or whatever. You can choose whatever gift.

Andrew: And anyone can notice someone else living one of your values and give out one of those cards?

Mike: Anyone at any time, right? So, on a typical quarter, we actually put them up on our quarterly company meetings, we give it 176 value cards in the last quarter. What’s really nice about that is you’re reinforcing the positive behaviors that you want. So, that then spurs more people to behave in that way. That’s really, really critical.

It also gives you the opportunity if somebody is–no hiring system is perfect. We’ve had a really good track record, but I can think of at least one occasion where somebody was kind of like putting people down, like really negative, may have been smart, may have been hard working, but that is like really bad news, the rotten apple thing.

It’s like if you have a set of values, you can look at that like, “This person is putting people down. Which of these values is that not in keeping with?” Then you have like it’s not about you, it’s about this behavior. Let’s talk about that in the context of our values and say, “This doesn’t fit with us. We need you to either stop it or you’re going to have to go.”

Andrew: I see. Actually, I’m looking at your nine core values. Passion is one, honesty, empathy is one. So, I guess if somebody is putting someone else down, you can say, “This is not a good way of living our value of empathy. You’re not feeling how this other person is taking what you’re saying. We need to adjust it.” I see. When someone gives out a value card, how do you communicate that act that deserved a value card to the rest of the company?

Mike: Truth be told, we don’t in every case. It’s more about those one to one things. This is back to like is it happening when you’re not looking? Almost 200 of these go out in a quarter, that’s pretty good. What we do at that all company meeting is we take a selection of stories. It’s usually two or three and we’ll have people, “I gave this card to so and so, here’s what they did.”

It’s always this ridiculous thing, like somebody bent over backwards to help a FreshBooker who was trying to do something right for another customer or they like sort of worked really hard on this project on their own and kind of helped everybody get to the next level. The stories always kind of blow me away.

Andrew: I see. Do you ever get one yourself? Do people give you one?

Mike: Rarely. I think I’ve received one. I think that’s one of those things with leadership too. If you need to be patted on the back, you’re probably not fit for the role. I tend to be–one of the things I’ve found, I’m sure anybody who’s been in a leadership position, is don’t expect praise. If you have it, make sure it’s not empty and ask why.

You’ve got to work really hard to get feedback. One of our values is honesty. It’s about being straightforward and direct. So, I have an expectation people are going to tell me stuff if they don’t like it, but you’ve got to draw it out of people sometimes still.

Andrew: One of things I’m doing as we’re talking and you might have noticed it is I’m like searching online and I’m finding a lot about you as we talk, but what I’m not finding is a Facebook page. I thought, “Maybe I could get a sense of Mike in a personal way on Facebook.” You’re not on Facebook, are you?

Mike: No. I guess there’s a part of me that’s a bit of an–I go on to Facebook like once or twice a year now, Andrew. I use Facebook really to keep up with my oldest, dearest friends, by in large and I go in there once or twice a year. That’s not the–

Andrew: You’re kind of a public but private person, aren’t you?

Mike: I think that’s the one. Where I was going to go is my rule–this is probably totally inappropriate, but basically my rule for becoming friends on Facebook is you have to be comfortable with basically seeing me with no clothes on, which is like a dividing line of professional versus private. It’s not that I have photos of myself with no clothes on up there. It’s more about that’s who I would I be comfortable sharing with. This is probably something that should not be in the public record.

Andrew: I think it should be in the public record. I think it’s a good insight into you. There isn’t that much. I actually don’t know, when we were talking about kids, I don’t know do you have kids, do you have a family–what do you do when you’re not working? I know you played Frisbee. That’s about it.

Mike: Yeah. That was my get-go. So, on the more personal side I now have a one-year old son, another baby on the way. That’s new stuff for me, being a dad. I’ve gotten married since we last spoke. Those things are certainly out there. It’s been a lot of fun. Being a dad is getting more and more fun all the time. That’s been a blast and something you already know about.

Andrew: Did you raise money to take some money off the table to get a little bit of safety for yourself?

Mike: So, we raised the capital. We raised $30 million in 2014 and that was all primary capital to grow and drive the business. I’m very bullish on the way forward. Some of the folks who had been shareholders for ten years, in which case I’m one, my mom is one, my founder is one, there was a little bit of dollars that went out there separate to that, but really–it was really about the primary capital to drive the growth of the business going forward.

Andrew: I see. When you started the whole idea of SaaS, software as a service, software that goes down if your internet goes down was kind of a scary thing for people but it was the future. Do you agree with that? I saw you look up for a second.

Mike: We were SaaS before there was SaaS. We were cloud before there was cloud, right? We had to fight a lot of battles and had to hang in there. We almost started building and deploying our software for installation on people’s computers because they were offering to–they were willing to pay for it, which would have been a whole other game. Sufficed to say we held out, but it was close.

Andrew: Today, is there something like that, where you’re looking into the future and seeing something that most people, including your customers don’t understand?

Mike: So, I think–here’s how I’ll say it. I don’t know that our customers–people are so busy, I don’t know that our customers as a group necessarily have put their finger on the things they want or need all that well. That’s where I feel it’s like my job, to really read between the lines of like, “Oh, this is kind of what you’re searching for.” You don’t even know this is what it is, but this is a missing piece for you. We can test it. I’m sure I could be wrong, but we’ve had a pretty good track record with that before.

Andrew: How do you do that? You do that well. You as a person do that well. How do you do that?

Mike: I don’t know. I think that’s probably closer to like an innate thing. I think you can put some research around it, I think you can train it and run a discipline, but to be honest, I think the x-factor is down to each individual human being and their capacity to really internalize someone else’s world and see through it and layer on some vision for like, “What does it mean?” There are terrible examples of that.

I think the real strength is in actually doing it in lock step as opposed to like, “I can imagine this.” It’s the different between being able to imagine something and being able to understand then carry it forward, extrapolate on what it truly means, if that makes sense.

Andrew: It does. It still feels a little bit like magic because I don’t know how to pull it off. I think I’m good at it at times, I don’t think I could do it at will. There’s no process that I found.

Mike: No. Personally I think it’s like an instinctual innate thing. I think you try and read like “The Lean Startup” or whatever. That’s a book that tries to turn it into a process. But to be honest, I have a bias that you can get 80% of the way there, which is really good, but it’s the people, personal, individual dimension that takes it to 100% to 110%, which is where the real magic happens.

Andrew: All right. I want to get access to this new version. I can’t wait to get it. If I get it and my team is uncomfortable using it, then we could always switch back, right?

Mike: Yeah. That’s right. One of our tenets for rolling this thing out was hey people are busy running their businesses. We don’t want to impose a new thing on them without them being ready and the timing of it as well. Yes, you can go to the new one and go back if you’re not feeling it.

Andrew: And you think that–for how long do you think you’ll keep both versions up?

Mike: For the foreseeable future, I don’t know. If almost everybody switched over the new one and we had a couple stragglers left, we try and tackle that. For now, I think it’s going to be a good chunk of time and we’re okay with that. We’ve kind of built it into our plans for the next few years.

Andrew: I remember interviewing Jason Fried about why there’s a Basecamp 1, Basecamp 2 and Basecamp 3 and he said, “You don’t want to take business people off the software they know and they’re used to.” For a guy who likes to get rid of features, for Jason to keep all three really says a lot.

I didn’t understand it until I hired someone to design my slides for a presentation and they used Basecamp 2 because that’s what everyone was used to internally and they did not want to switch and I get it. I’m glad you’re making it available, but I am someone who can’t wait to try the new version and I imagine will be living in the new version and getting excited about every new addition to it.

Mike: I think the rate of change is going to compel people to switch–

Andrew: Because there will be so many new features in there.

Mike: Yeah. Just one second.

Andrew: All right. I know you’ve got to run. I’ve got to run too because you know what? My next call after this is to call the 800-number on your site to see how I can pay my contractors using FreshBooks. I had no idea I could do that until you told me in this interview. I’m going to figure out how to do that because paying contractors is a pain in the butt and I’d love an easier way to do it.

So, I’m going to thank you. Thank you so much, Mike, for doing this. The website, of course, for anyone listening is FreshBooks and I’m looking forward to seeing the new design. My two sponsors are Acuity Scheduling.com/Mixergy and Leadpages, which is doing Converted 2016, I’d love to see you guys at the conference. Get the ticket a Leadpages.net/Mixergy. Thanks, Mike.

Mike: Thanks, Andrew.

Andrew: Bye, everyone.


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  • Pingback: Freshly Picked: Weekly Link Roundup Sep 30, 2016 | FreshBooks Blog()

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