EP144: Mike McDerment - Business Tips From FreshBooks' Co-Founder

Have you ever reached a breaking point?

Today's guest sure did.

It happened when he accidentally saved over an important client invoice then he “just kinda snapped.”

That's when he realized when there's an invoice you need FreshBooks.

Mike McDerment is the co-founder and CEO of FreshBooks which is the #1 invoicing and accounting software in the cloud designed exclusively for self-employed professionals and their teams. Built in 2003, he spent 3 and a half years growing the company from his parents’ basement.

Since then, over 10 million people have used FreshBooks to save time billing and collect billions of dollars.

During this interview, you'll discover...

  • How to de-risk major concerns

  • How to price your services

  • How to embrace Impostor Syndrome

To learn more about Mike, click here.

To connect with him on LinkedIn, check this out.

To get his ebook, Breaking the Time Barrier: How to Unlock Your True Earning Potential, go here.

To further explore FreshBooks, visit this link.

Episode Transcription

Mike McDerment: 00:00 What we decided to do to solve all these problems. And so we could actually measure is the new platform better than the other? We decided to create a secret company, a, we call it bill spring, and that is where we built the new freshbooks. And we built it up over about 18 months and we actually competed with freshbooks and everybody else in the market for customers. And then one day somebody called us up and they called the freshbooks and I said, hey, I'd like to cancel my account. And they said, great, I've just helped you with that. Do you mind telling us why? And I said, well, I'm, I'm moving to bill stuff. And that was a time when we knew we were, we were really onto something.

New Speaker: 00:45 [inaudible]

Speaker 3: 00:47 you're listening to the successful bookkeeper with your host, Michael Palmer. Listen, each week as inspiring guests share their secrets of success to help you increase your confidence, work smarter and build a business you love. Yeah.

New Speaker: 01:02 [inaudible]

Speaker 3: 01:03 this episode of the successful bookkeeper is brought to you by pure bookkeeping.com the proven system to grow your bookkeeping business.

New Speaker: 01:17 [inaudible].

Michael Palmer: 01:18 Welcome back to the successful bookkeeper podcast. I am your host, Michael Palmer and today's show is going to be a fantastic one. Our guest is the co founder and CEO of freshbooks, the world's number one cloud accounting software for self employed professionals built in 2003 he, after he accidentally saved over an invoice, Mike spent 3.5 years growing fresh books from his parents' basement. Since then, over 10 million people have used freshbooks to save time, billing and collect billions of dollars. Mike McDermott, welcome to the show. Michael. Thank you for having me. Great to be here. That's great to have you on. What an interesting story you have in leading up to where you are today leading this company. And for those of you that, uh, the listeners that maybe don't know you, have love to hear a bit of your career path leading up to now.

Mike McDerment: 02:13 Yeah. Uh, happy to, happy to oblige. So my story goes something like this. I was studying, uh, business, uh, at the university when I'm in fourth year. I left the program and I started two businesses. One of them was an events business, uh, that I had to, well, I, I chose to start building websites to market it and I taught myself how to build those. And uh, then the caterer for that event needed a website. And so then I had a customer and, and you know, I ended up building a small design firm that specialized in internet marketing. So we would help small business owners get a web presence but not just a web presence, one that would bring them new customers. And so we had lost a customers in real estate and uh, in travel because those were industries that really understood customer acquisition were early to doing things online.

Mike McDerment: 03:05 Fast forward a little bit and I was preparing an invoice for a client one day and I was using word and excel to do that despite having studied accounting and business. Cool. And a, I saved over that invoice and said, there's got to be a better way to do it. I did not want to use the accounting software available on the market. And I think this is an important point, maybe hard for accounts or bookkeepers to understand, but with the exception of freshbooks opinion mind, all accounting software is built for accountants. You know, the majority market are owners or there are many more owners out there than there are bookkeepers and accountants and those owners don't have the same understanding of debits and credits and you know, p and l balance sheets. And so what we did very successfully at freshbooks was built it for myself, but built it with the owner mindset in mind.

Mike McDerment: 03:57 So the product was incredibly easy to use and self-explanatory, uh, and it would enable and empower somebody who is getting, going to just get going and not have to take on the burden of learning a discipline of accounting that you go to school for years and years to learn about that whole knowledge, that domain knowledge, you know, wasn't and isn't nearly as important as accurately capturing your transactions. We focused on invoices and expenses, right? And, and time entries and some others because that was the CSUs. It's proved us very well. Uh, may not be aware, and I suspect none of your readers are, we're number two in America for small business accounting software by, uh, by revenue. So we've actually built a business of considerable scale only into, it has more revenue than us. And you know, we should probably be more proud and trumpet that fact a little more than we have, but that, that's a big deal on my book.

Mike McDerment: 04:46 So we've had great success with our approach. We have a growing number of bookkeepers and accountants that recommend us and you know, we purport to be ridiculously to you, easy to use invoicing and accounting software that does, uh, you know, available on mobile and in the cloud. And I like to say if you invoice, you need freshbooks. And what that's trying to say a in so many words is that we built our platform for owners, but not even all owners. We built it for folks who are not restaurants or not retail and our, you know, primarily, you know, sort of service or invoice based in, in some way. Uh, they have billing processes that they need help with. And, uh, we, you know, that's the prime in our offering. Hey, we're going to help you with your client billing, uh, and we'll give you some accounting in the back as opposed to starting out with accounting, which owners don't really understand.

Mike McDerment: 05:38 And then saying, hey, you have, you know, these other modules you need and considerations that you have. So that's all that maybe this would be a little long winded for this audience as well as if you haven't checked us out in a while. Uh, late in 2018 so just a couple of months ago while we had rebuilt our software, but we, we released a series of, you know, double ledger accounting capabilities that we didn't have before WIC. We got to number two in America without a GL, without a balance sheet. Would that have a chart of accounts in Q four of last year? We made those available and we're continuing to build them out so people are able to scale longer with us. I think people thought previously. Yeah. Hey freshbooks, you know, the typical customers, you know, like very small and has no employees. First of all, that's not true. And second of all, it will be increasingly less true now that we can help people scale their back office. Wow,

Michael Palmer: 06:28 that's exciting. And I'm sure many, you're probably very, very accurate and not many of our listener would know that. And what have you seen since releasing that?

Mike McDerment: 06:39 Well, it's just that we've had a lot of owners who are pleased to be able to stay with us because, I mean, I'll tell you this as well and I'll tell it with humility. And by the way, I think people are familiar with things, but there's an interesting dynamic with some of our customers and where we're, they'll often want to desperately want to stay with freshbooks and they'll have, you know, accounting or somebody else who, who wants them to move to another two they're more familiar with or something like this. And so this is how the owners were like, great, now I can stay because, you know, they said I needed, you know, this thing that you now have. Right. Um, and so that is a, that's great. And most professionals, hey, you know, the jails there. And I could use it. I'm happy to work with or the client has, but we just, we didn't even offer it before. So, uh, I think, uh, you know, I've been a lot of, uh, success, uh, since, since then we'll look forward to more. That's awesome.

Speaker 5: 07:36 [inaudible]

Michael Palmer: 07:36 that's exciting. And you know, it's for the small business providing something that's working for them. Obviously if you're the number two by revenue and the United States, that's a big deal. Means you've built a really great product that's supporting and helping your customers grow. And so our audience cheers that I'm sure. But then there would be that, you know, their job is to do the accounting in a certain way according to the rules and procedures and all that good stuff. So if the tools aren't adequate for what they need, then there's going to be friction. And, and by all means, you, you'd never want to send somebody down a road of increased complexity. You'd want to keep them keeping it simple so that they can focus on growing their business. Right. Which is what you do. So now you've got both ends. And I'm excited that our audience now gets to hear that. And you may change is because accountants and bookkeepers were likely saying, hey, we need these. We need a general ledger. We need some additional functionality here where you need to switch to a different platform. So you've gone and made those changes. If our listeners were, were those people who made those recommendations in the past and now that it's like, how do they go and learn about the changes you've made and how they can start helping their customers using fresh books with this new technology that you've introduced?

Mike McDerment: 08:58 No, it's a great question. So first of all, you can always drop by our website. I think the other thing that you get if you're recommending freshbooks to your clients is, you know, an incredible, and I know sometimes people want their clients to come to them, but we offer a lot of customer service as well. And so, uh, the upside of that is, is you can call on it as well. Uh, so I would say, hey, you know, please, please visit our site. There are materials there. Uh, you know, feel free to give us a call. We can walk you through some things. We're continuing to build out the capabilities so we don't see it as a job that's done. It's a job that you know, continues, you know, and I think you know, through, through those things, those are probably the, the, the best paths. You could also shoot me a note@mikeatfreshbooks.com and I'll get you connected with somebody internally if that's interesting to you. Yeah. Great.

Michael Palmer: 09:43 Well, this podcast and our, our company pure bookkeeping, we're software agnostic in that we don't say one software is better than the other. We say what's the best for the application you need and let's help people use the technology that's going to best serve their clients, which is the small business owner. And so that's why I'm excited. I'm was excited to have you on the show because I know a lot of small business owners use your product. I used to use your product and, and also you've made a whole bunch of, uh, also you've got a whole bunch of other things that have happened in the history of fresh books and not that that long ago that I'd love to have you share that story. I think it's an interesting business story. This whole concept of bill spring building a competitor compete with you so that you could actually take your company to a whole different level of world-class.

Mike McDerment: 10:38 Hi. Thank you. I guess that's the, the punchline. So yeah, let me, let me tell the story and let people know what we did and why. I think that makes it more, more sensical. And so we started the business, you know, sort over 15 years ago and it's my opinion that in technology, if you get 10 years out of a platform, you're doing, you're doing pretty well. In our case, we got to about the 10 year mark and, and we had some, some challenges. And when we looked into the future, when I looked in the future, I said, hey, we may have challenges that we can, we can rework the software in parts that are not visible to customers. But we felt quite stuck from the customer facing side. And you know, our customers loved it. It was very simple. We got a lot of points for that.

Mike McDerment: 11:20 So all of that was good. But as I looked in the future and you know, when we started out, smartphones didn't exist. I think user experience and what customers have come to expect, the simplicity, the ease of use, it's, it's changed a lot. And when we looked in the future, I said to myself, you know, do I really think we're going to have the market leading product in our current set of design constraints? And the answer was no. And because of the way our software is architected, that meant changing, you know, a variety of things. And so we ended up our, our software, once we decided to do that. So, hey, we're going to build this new thing. We're going to build it because we're long term greedy and it's going to be painful in the near term, but it's going to be beneficial in the long runs.

Mike McDerment: 12:04 The question became, well, how do we, how do we build a new version of our product and de-risks a major, major concerns, often writing software. If you've had a great success with your first offering, odds are if you try and recreate that success, your customers will deem it a failure for a variety of reasons. It's like, I like the analogy of a band. People understand this as a band you put on the first album and you love it, right? And then the second album comes out and they call it the sophomore jinx. It's terrible. And you're like ashamed of yourself for liking the band in the first place. Cause the second album was so much worse than the first. Uh, so software could be like that. I think any creative endeavor can be like that. And I wanted to find a way to de-risked that.

Mike McDerment: 12:46 I also wanted to find a way to work on this where our co, our competition wasn't watching because believe it or not, we're number two in America. So there are people who wake up every day and their job is to like follow me around the Internet and other places and make sure they know what I'm saying and doing all the time. And so under close scrutiny, I want to get as much a time and space away from that light as we could. And then, um, you know, finally really wanting to ensure the team could innovate and take risks. And you know, if you're running under your existing brand, people can watch you, you know, the risks you take are going to be muted because you're afraid of tarnishing the brand even though it's an experimental kind of petri dish. And you wanted to verify that people actually liked the new product better.

Mike McDerment: 13:34 That gets hard to do just working without data, just building in a corner. And so what we've decided to do to solve all these problems and so we could actually measure is the new platform better than the other? We decided to create a secret company. We called it bill spring, and that is where we built the new freshbooks. And we built it up over about 18 months. And we actually competed with freshbooks and everybody else in the market for customers. And then one day somebody called us up and they called the freshbooks and they said, hey, I'd like to cancel my account. And they said, great, I've just helped you with that. Do you mind telling us why? And I said, well, I'm, I'm moving to bill spring. And that was a time when we knew we were, we were really onto something. The whole company at freshbooks kept this a secret for, you know, really the better part of two years. And so we were kind of working in this sort of stealth mode with this new offering in market and learning every day. And it was, it was really quite a journey. And so, uh, we lost that in, in late 2016 and then we rolled out the new accounting capabilities in late 2018 and those will be ongoing for, for years and years. We continue to better serve people.

Speaker 5: 14:49 Wow.

Mike McDerment: 14:50 So it's an incredible and

Michael Palmer: 14:51 one that in some way I think our, our listener can appreciate the times are changing. Right? You talked about things changing and you know, you have to, you have to innovate, but yet, you know, there's, you don't want to break what, what you already have. When you were going through this, how did you as a person that was like, this is unknown, you know, you don't necessarily know what's gonna occur. How did you personally deal with this as, as a, as a business owner?

Mike McDerment: 15:22 Well, I, you know, a couple of sides. So first of all, I, I like not knowing where the music's can stop or what have you. Like I liked that, you know, sort of walking up to the edge of a cliff and jumping off of it and figuring out how I'm going to land on the way down. And that's not everybody's cup of tea. But suffice to say, there was a lot of that with this effort, like literally eight weeks before we launched the team was like, I don't know if we're going to pull this off. Right? So it was down to the wire and it wasn't just the launch date, it was like, I don't know if we can make it all work, but it all came together a, you know, in the end and, and very effectively. So it was that kind of a, a journey.

Mike McDerment: 16:00 And, you know, for me that was a lot of fun and my job became, you know, helping people, you know, there's so much unlearning to do in an organization. If you really want to have true innovation, you need to unlearn the ways you've done things before or things that have made you successful. And, uh, you know, my role through this process was, you know, to hey folks believe, you know, despite the fact, despite where we're at, you know, believe, and by the way, let me help you unlearn that thing that, you know, helped us before, that's only going to hold us back now. Uh, I did that through sort of question asking and what have you, but it was, it was, uh, it was, you know, it was huge. And then I really credit all the people and the leaders around me who really did, you know, the lion's share of the work. But um, you know, we were very supportive, very said fast and kind of getting to the end and I think, you know, it would have been easy to kind of fold up our tent along the way. Um, but uh, we just, you know, just sort of kept believing and kept helping other people believe sometimes even when we were uncertain. And I think that again, it's just leadership and the challenging time.

Michael Palmer: 17:03 Hmm. Well said you have, the stat that we had was 10 million people have used freshbooks to save time in their business and their small business. You probably have a pretty good idea of what a small business owner is dealing with on a day to day basis. What have you learned about small business and what they do to be successful that you could pass on to our audience?

Mike McDerment: 17:27 Great question. It's funny, like I will say the things that have stuck with me that we have learned over the years or things that you learn more talking with people, like the data is there, but the data tells you that hey, people who do a good job of collecting their invoices in a reasonable time are generally more successful than those who do not buy. It's like, you know, like a lot of what you get out of it is like, you know, things you already already knew. But, um, when you go out and meet people, you know, the, the things I see our customers learning are things like, hey, how to price their services differently, how to benefit from, instead of having to hire a full time person in a benefiting from people who work, you know, on contract. So we can kind of de-risked that. Maybe we ultimately hire them or maybe we make it working arrangement where, you know, it's kind of like fractional, uh, employment in some way or, you know, just contracting by another name.

Mike McDerment: 18:18 And I think these are these new working models and uh, you know, the ability to educate yourself online. These are all kind of the new dynamics of, of owners these days I would say. Very interesting. And I think that's an area to, to explore our listener can explore. What about mistakes that you see people making in their businesses does not show up? Yeah. One of the hardest things, and I think I'm relatively less burdened by this, but it's a hard thing. It's a mindset thing. I just, I feel like people sometimes lose the plot on, on the value of themselves and the value of their time. Right. And I'll use the example for me of, you know, something I do. Yes. Okay. I'm running an operating company right now and what have you. But you know, sometimes I have a decision of should I take the subway or should I take a cab or an Uber or something like that.

Mike McDerment: 19:10 You know, sometimes I'd take the subway, but there are other times when, well, the cab's going to cost me. So it's like $2 and 50 cents to take the subway and it can be $25 to take the cab, but I will take the cab and the time that I will arrive will be the same. But the reason I take the cab is because in the cab I can spend 25 minutes getting some stuff done right on my phone and that you know, that that 25 minutes is worth more than the $25 to me. And so I think, I think that is kind of like life as an owner, you need to understand not just the cost side of your time but the value side. Because if you can bill out at, you know, and it is your billing by the hour, let's presume you are for simplicity and its argument that 25 minutes is valuable.

Mike McDerment: 19:55 Right? And you know, when I'm subterranean in the subway and I can't see my phone doesn't work, like I can't be productive. Uh, and so, or maybe it's a phone call I'm going to take and that, you know, the 25 minute phone call is more valuable than the other. And so I think that is the sort of job of any owner is to constantly be aware of where their time is going and to sometimes, and this is a hard thing, but I find most successful people do this. Like they will spend money to make money like that $25 investment to be able to make that phone call, you know, wind up and either landing a new client or making a project more successful or whatever it is. And so I mean I think that's, that's the core battle and it's an internal battle that it's, it's the battle I like. I like the way you frame the though and I think our audience would benefit from, from more of that thinking is

Michael Palmer: 20:48 more, this is an expense too. This is a, this is an investment, an investment in my business. And when you're making an investment, there should be an expectation on return on investment. And if you're clear on what that return possibly will be and into some exciting return, then it's a great investment to make versus just looking at it as an expense or a cost. And I see that often as well. In the conversations I have, it's you know the big opportunities, the big leverage come from investing in your business. You also wrote a book, you coauthored a book called breaking the time barrier. Tell us a little bit about that book.

Mike McDerment: 21:24 Yeah. That that book is on a similar and related concept. It's more focused on something I mentioned earlier which is pricing your services, but the premise of the book is in its purpose is to help people shift their mindset from billing essentially for for time and materials to billing for value. And you know, my guess is a lot of you, if you're not already doing this, are hearing a lot about this concept of billing for value and what does that all about? Value based billing is a, I'd say there's like a hierarchy in sort of client billing and the bottom rung would be time and materials. The Middle Rung would be, you know, project based and the highest rung I would say would be value based and um, none of them are, are quite the same. And so the book helps and it's kind of a 45 minute read and it's framed as a fable.

Mike McDerment: 22:20 It takes one small business owner, in this case, a web designer through a journey from effectively time and materials to value based billing and helps them see, you know, helps them understand that their clients are not showing up and hiring them to rent their time. They are hiring them to solve problems and the problems are, you know, with the, the clients will ascribe value to like, did you solve my problem or not and how valuable is you solving that problem to me is really what people are trying to buy. And yet we come at them and say, Hey, it's, you know, I don't know, $25 an hour for my services or $50 now or whatever it is. And um, so that's, that's, we just get completely offside with that. So the book kind of shows, hey there's major problems when you bill by the hour. I would say, you know, one of them is over the years we get more and more effective at what we do.

Mike McDerment: 23:19 But when you build by the hour, it doesn't really bake that in very well. Yes, you can raise your prices, but your experience and your expertise, they don't show up. Right. Another thing would be, I don't know about you, but not all my hours are as productive. Like one from one hour to the next. My productivity varies quite a bit. When you bill by the hour, there's a presumption that you're equally productive. Sometimes they get a ton done in an hour or sometimes I go four hours with barely getting anything done, you know, so the hour is not a good measure. And then that final and favorite one is, you know when you bill by the hour, you're actually pitting yourself against your clients because you are incentive to work more hours. They want you to work less and so you're just bringing mistrust into the relationship. So a value based pricing is around, you know, establishing, you know, hey, what is it we're trying to accomplish?

Mike McDerment: 24:03 Getting some sense of what it's worth, you know, setting the price and then everyone's aligned. We know what the deliverables going to be, we have the prices. It's a little more evolved than just pure project pricing and how you do it. But that's, that's the journey and I find it, it makes for better client relationships, there's opera actually opportunity to charge more. I think the way you think about service delivery changes when you start thinking about solving problems as opposed to billing for time. And I think it, it changes in a way that's very client friendly. So for these reasons and more, there's, there's lots of goodness in there. And I recommend a check in the book yet.

Speaker 5: 24:44 [inaudible]

Michael Palmer: 24:44 I love it. I love it. And uh, not only do I think it's an excellent read for our listener, but my goodness, what a great gift for the many clients our listeners have, right? I mean, helping people break through in terms of how they price their services and identify their value to their customers. I mean it, it just ends, but it's a story that ends a lot better. I love it. So we'll, we'll have definitely have a link to getting where they can get that book. Mike, you also talk a little bit about to audiences embracing imposter syndrome and fear as a founder. Can you share a little bit of that? Because I would, I would imagine that's also something and it might even tie in with person's own value and how they price what they do for others in terms of maybe they don't feel

Mike McDerment: 25:38 completely confident in themselves. Yeah, I, you know, I think there are some people who are gifted with supreme confidence at all times, you know, despite the facts and, and you know, at times I, you know, want to be those people at times. You know, I probably am less attracted to them, but, uh, you know, that's a certain characteristic. And then there's probably most of us, you know, which, you know, you can get into a situation where, oh, I haven't either done this before or I'm not certain how to do it. And you know, you let that creep in and, and then you start to like cheese. Like why would they want to hire me for this or should I even take that on or whatever it is. And you know, all of that can start to feed into your inner your inner dialogue and be less than supportive.

Mike McDerment: 26:25 And if you have a critical, you know, mind space and you're, you're aware of the voice in your head first of all. And that voice is not always as encouraging as you might like it to be. I think it's, it's, you can get to this place where you know, you, you feel as though you are not necessarily as or capable as those, you know, outside of yourself looking at, you may believe. And so, you know, imposter syndrome is really around kind of managing that journey, understanding that everybody goes through it. Okay. And that you have a responsibility, I would say to yourself and for yourself to, to recognize that everybody goes through this on one level and another, I can't tell you the number of times, you know, when people have been patting me on the back for being so successful that I have actually felt my least successful on that day. And other times when, you know, I think other people would have caused a doubt, I would see, you know, something else down the road that makes me believe we're very much tracking to the right thing. So, yeah, that discrepancy between inner and outer is a thing and I'm just knowing everyone else goes through it is to be expected and to sort of accept that and persevere, you know, is what I would like to see. Uh, you know, I wish for everyone.

Michael Palmer: 27:39 Beautiful. Uh, I love that. And, uh, you're, you're speaking definitely the challenges that I see as well. And you've been there. You've, you've done it. I mean, it's an amazing story that you have in terms of going from being a small business owner to uh, now, uh, a person who's serving millions of small business owners with a business that's grown incredibly and seen lots of highs, uh, as well as having to, to change radically change in the way you've approached it is very inspiring. I know I have so many more questions. I know I could selfishly start asking questions that I think I would want the answer to more so than, than our listener. Uh, but this has been absolutely excellent, Mike and I just really on the behalf of our, our audience, I would thank you for giving generously giving us your time, your wisdom, and I hope to have you back. You've written other books. You've, you're, your product is changing. You're, you're, the world is changing. Technology is changing. There's so much that's happening and I'd love for our audience to hear how you're tackling it and dealing with it in the world.

Mike McDerment: 28:50 Michael, thank you very much for having me. Please do drop me a line when, uh, you know, you can get to that place where you can't find any great people to have in and you need a plug, you know? Anyhow, no, I, I'd be delighted and to everybody. I hope you just have a wonderful day and there's something in here of use to you.

Michael Palmer: 29:08 Definitely. Well, it's been great and again, thank you. And with that, we wrap another episode of the successful bookkeeper podcast. To learn more about today's wonderful guest and to get access to all sorts of valuable free business building resources, you can go to the successful bookkeeper.com. Until next time, goodbye

New Speaker: 29:36 [inaudible]. You've

Michael Palmer: 29:37 been listening to the successful bookkeeper with Michael Palmer. For more information

Speaker 3: 29:42 and to download the resources mentioned in this episode, please visit us@thesuccessfulbookkeeper.com. Thank you for listening.

Speaker 5: 29:58 [inaudible].