[The following is the full raw transcript for a LEADx Podcast interview, which has been lightly edited for clarity.]
Kruse: How can you lead your startup literally from your parent's basement into a 300 employee powerhouse? Kevin Kruse here. Welcome to the Lead X Show, my friends. We are helping you to get one percent better every single day. And don't forget, you can watch a new free training video every day at LEADx.org. Recent topics have been on ways to double your productivity, how to motivate your team members, and even secrets to authentic leadership. Today on the show, I talk to a great entrepreneur, very humble, who built his company patiently into a global success, with customers now in over 100 countries.
We talk about culture as strategy, defining your value by deciding who you are not for, and what it was like when after two years of being in business, they were still only making a thousand dollars a month. Our challenge of the day, based on his advice to new managers, pick one thing you're doing yourself at work that you can assign to someone on your team, and assign it. Maybe they're going to make mistake, maybe they're going to need some training, but when you do stuff yourself, you're robbing them of opportunities for growth, for learning, for challenge, and for visibility. Pick something that you're doing yourself, and give it to another.
Our quote of the day is from Steve Jobs. “Your time is limited, so don't waste it living someone else's life.” And now let me introduce our guest. He's the co-founder and CEO of FreshBooks, the world's number one cloud accounting software for self-employed professionals. Built in 2003 after he accidentally saved over an invoice, he spent three and a half years growing FreshBooks from his parent's basement. Since then, over 10 million people have used FreshBooks. They've just completed a $57 million venture raise. Our guest is the CEO, Mike McDerment. Mike, welcome to the LEADx Show.
McDerment: Thanks for having me, Kevin.
Kruse: So we have a tradition on our program where all of our guests get asked the same first question because I like failures. I think they can be stepping stones to bigger things. I think there's a lot of lessons in them. So I'm hoping you'll start by telling me a story of one of your best failures and what did you learn from it?
McDerment: I guess there's a range of failures of different sizes and shapes. There's the business failures and the personal failures. I’ve got failures of all kind of sizes, shapes, varieties, personal, and business. And I will say this, it may sound trite, but I don't really understand that word. It's all learning. So people would say failure, and I would just say learning. Like there's really no difference between the two other than your mindset and your orientation. And so commonly, when I talk about this thing, I'll say like, “One of the biggest mistakes we made was in naming our company.”
And so we're called FreshBooks today, but when we got started, we actually had a very different brand name. It was Second Sight, which if you were to try and find in the history of brand names like the worst possible combination of things, you might come up with that name, legitimately. I mean, it's two words, they both have multiple ways to spell them or represent them. It's pretty forgettable, pretty meaningless. We didn't get the right domain names. I could go on, but one of the biggest mistakes we made was actually naming the company poorly, and we had an advisor who when they just kind of asked us the question like, “What do you think about your company name? You think that's good?”
Like the initial reaction on that phone call I remember was like, “Oh, it's great.” And then we actually called them up the next day and were like, “Oh my god. You're right. This is terrible. We are so far off the plan.” And so the question is like, “Why is it one of your greatest failures?” I think it's because… And I think this was the beginning of a trend in sort of building this business, but because of how we channeled that, I then went on to really get an education in how you name companies and what makes a good brand name, and get kind of sort of scientific about it.
Like if we'd had a mediocre name, it would have been less likely that I would have gone on the journey. So there's an upside to doing things terribly, which if it's important to you, you're going to reevaluate everything and not hang on to anything, and you're going to recognize there's actually a problem. Sometimes being in the middle, it's the longest to figure out something's wrong.
So anyway, so went on this journey and really started to deconstruct, “Well, what makes a good brand name?” And there are two paths. You can take something that has no meaning and is a word that's kind of empty, and build meaning in and things like Twitter are like that. Or, you can sort of cobble together a couple words that sort of demonstrate your category, your benefit, and your difference, and variety of other things. And so for me it was a big mistake and we had to change things up. And the good news is we channeled it into something very fruitful and our name's actually been something that's helped us in many ways along the way since. So that's a good story from my point of view.
Kruse: Yeah, and I'm curious, I mean FreshBooks is a great name. Did you guys work with a naming agency? Or did you guys come up with it yourself?
McDerment: No. So the backstory is, for those who aren't aware, we actually spent about three and a half years in my parent's business after sort of launching the site trying to turn it into a business. And it was in those years. And those are very scrappy years.
We get asked that question, “Like hey, what do you think of it?” And eventually, became very clear, it was a poor name. And that's when I went on the journey of trying to figure it out. And so I called another advisor who had a background in marketing, and there were a couple blog posts at the time out there that were helpful, and sort of distilled things down to like, “Hey, this is literally category benefit difference are some of the things that matter.”
Ease of use of remembering. I developed some personal opinions. Like I actually believe harsh consonants are actually really powerful things to have in a name, because they kind of pound their way into your head and they're memorable. And so sort of went on this journey. We literally, we spent an hour a day for like two and a half, three weeks brainstorming words that captured our category, that captured our benefit, that captured our difference, and it was like 1:00 till 2:00 PM every day for like two weeks. We were like dictionary, thesaurus, like crossword puzzles, in a room trying to come up with that stuff. And had lists, and lists, and lists.
And the most hilarious thing about it is so we got the word books out of that. We had a lot of stuff around billing, because that's the core focus of what we were doing. But interesting, the word ‘fresh’ never came up in all that brainstorming. And this is the way breakthroughs work.
Like a piece of direct mail came through the mailbox at my parent's home one day, and the word ‘fresh’ was just sitting there, and we had just been doing this. And once you start working on a same problem for an hour a day for a couple weeks, like everything you see starts to go through that lens. And it was like, “Oh my god, FreshBooks. Like that's actually really great.” It's not a harsh consonant, but otherwise, it's totally memorable. It's easy, it's friendly. Like there's just so many good aspects to it. So probably longer than you expected on that one. That's the real story.
Kruse: No, no. Well it's a great piece of your origin story because… And you were literally started the company in your parent's basement. And it's almost like how do you name your rock band or something, people coming with all these crazy words, mashing them together. But that's often what entrepreneurs, startups need to do now to get a domain and hopefully something that reflects your business. So I think that's going to be very helpful to people. And in the spirit of giving advice, you've now, again, gone from your parent's basement, built this big business, and I'm curious about your management advice, specifically for new managers. Someone that's going from individual contributor and you've just promoted them now, they're a first time manager, what would you tell them?
McDerment: Well, first of all, I'd say you're about to start on a wonderful and fulfilling journey that never ends. People management, which sort of pretty rapidly, if you're doing it right, evolves into people leadership. It's very rich, rich sort of things to learn about. You know it's funny, if I had one thing to think about, I would have people… As a contributor, it's like what you do and get done, like how much productivity and capacity and efficacy and efficiency, like you as an individual. So like, “How much can I crank out in a day?” That is the model. And that's what makes you successful as a contributor. And there are a bunch of ways you can kind of improve that vector.
As a manager, it's a completely different objective. It's, “How do I help this individual realize their potential? And do that in a way that lines with our business outcomes?” And it is a very different sleight-of-hand that you really need to be thinking about and exercising, different mental muscles. And it kind of gets to like coaching pretty quickly. But I will say like lots of great contributors, the transition to becoming a coach versus, “Well, you should just do this,” because maybe you know a lot about the domain or what have you, is very much a challenging transition that can take time.
And frankly, it's not easy managing people because the first person you manage, like you don't have a lot of data yet. And you haven't had a chance to run experiments and stub your toe and fail, like try to deliver an important message and have it go horribly wrong and be demotivating to that person. And you will make all those mistakes at some point in your career if you manage people. And so anyways, don't expect to be perfect I guess may be another one.
Kruse: At any time when it comes to leadership, like you said, it's a journey that never ends. And you talked about starting in your parent's basement. And you were there for I think you said three years, is that what I heard?
McDerment: That's right. We moved in about a year after sort of starting the business, and were there for about three and a half years actually.
Kruse: So I think especially this day in age, I think there's a lot of wannabe entrepreneurs who think it's all about inventing the next Instagram or What's App and you sell for a billion dollars a year from now. And that's not how most companies work. So tell me about those early days. I mean, I think everybody's views FreshBooks like an overnight success, like really a great start up success, and yet it took you awhile to get some traction.
McDerment: Yeah. Like overnight success 10 years in the making, right? So that's how I think of it. And I'm not going to lie to you, if you scratch behind most of the successes that happened very quickly, they usually had a chapter of their lives where they learned a lot before that. Like it's usually you're seeing the byproduct of some other experience that leads to this other outcome, and people will generally skate over that and forget about it, which is I think dangerous, because you can take the wrong lessons from someone else's success pretty easily. I'm going to ask you to just sort of remind me what the question was there. So like-
Kruse: -Yeah, well your early days, because again, I think you had some patience and tenacity in your early days. You did not immediately take off. And also, for our listeners, we were talking before we started recording that I sort of admire what you've done because there were already some big name, or commonly known names, entrenched competitors out there. So you had the moxie to say, “Hey, we can go into this space.” But it wasn't like you had a thousand customers after your first month or anything.
McDerment: No, we had 10 customers after two years, paying us $9.95 a month each. We were making a hundred bucks a month.
Kruse: Are you exaggerating that or are you being literal?
McDerment: No, I'm dead serious. And that we weren't working on it full time. It was kind of a side thing. But I mean, two years in, we were making a hundred bucks a month. So the word I think probably best describes those time is sort of perseverance. And I think what we did a really good job of in those early days was we derived satisfaction from things that were non-monetary and numerical. So talking with our customer, we were always… FreshBooks is one of the world's greatest service organizations. Think of us like Rackspace or Zappos and we compete with them and win awards ahead of them when we do.
But like that, we've always derived enormous satisfaction from just speaking with our customers. That was literally like fuel because people were telling us they liked it. We hadn't figured out everything yet. Like how to market it at a higher scale, how to price it correctly. There lots of stuff we hadn't figured out, but people liked the product. And so that counted for a lot and did keep us going. And we enjoyed each other's company and we were scrappy and kind of figuring things out. And I think that all those things, like that's the DNA, that's a great starting place. Add time and perseverance and you can really sort of get somewhere. So that's kind of a window into those early years.
Kruse: And now, we come to today, you've got customers in over a 100 countries, you I think recently raised over $50 million dollar venture round. I mean it's incredible. I mean, like when you started, do you see yourself growing it to be as large as it is now?
McDerment: It's very funny. So the short answer is no, and I think when you think back to those entrenched competitors and what have you, there's… My favorite definition of entrepreneur is folks who are too naïve to see the obstacles. I think that's the best definition, and so they just carry on. Or sometimes they're presented with them and they just ignore them. And so that's where we started out. And so we didn't have this vision of being like, “We're going to be a $10 billion company,” or what have you. And what I would say is over the years, our ambitions and our conviction that we get there have just increased.
And it's taken… Frankly, in the early years, it took me working with one individual advisor who asked me the question about the brand name actually, he used to consistently ask me this question like, “Hey Mike, how big do you think this thing can be?” And turns out, he was the co-founder of a $6 billion company. And my answer to him was the same for years and years. It was like, “I don't know. I really don't know.” And he was like, “Just keep going. I believe it could be big. I believe you're nowhere yet. Just keep going.” And it actually, like having someone around me that was frankly instrumental in our success, because it gave me the…
It was some conviction. Like, “I can't see it, I don't know instinctively like what we're doing, the trend is way up, the numbers might be small. But this person who's been very successful thinks it can be huge. I'm just going to keep going.” And now we have a very different orientation towards how big it can be. And that's great, and more conviction around it and how that all works. But I think there's a lesson in there of like surrounding yourself with people who have kind of operated a completely different scale if you're just starting out can be very, very helpful.
Kruse: Yeah, and I think what's critical there, it's first of all having outside advisors, friends, partners, whatever, not to do it alone, but it's not just because of what they know, but sometimes they can believe in you even more than you believe in yourself, or they can see some strengths that you don't see in your own organization, just that perspective.
McDerment: Absolutely. Another place, like we were always sort of values-oriented as a business, and this was an individual who had been very values-oriented in the building of their business. And so conviction around that. Like I had that, but that was part of what drew me to this individual and they kind of appeared on the scene for me in a roundabout kind of way. All of which is to say I agree, and it's true, and I think it's not easy to find those people, and it was accident and happenstance in my case, but I certainly hung on by the coattails once that door opened.
Kruse: And I've read in your articles and seen you present in some videos, you say, “Culture is strategy.” So what's the culture like at FreshBooks and how did you build it, or how are you maintaining it?
McDerment: Yeah, so putting your name on what is culture is never easy. So I'm going to give you my answer, and then explain why I like it. And I did coin this phrase, but we had somebody in our early formative years who worked with us for about five, six years and then it was time for him to go do his next thing. But we really wouldn't be here without him, he was great. And he said, “The culture is like summer camp for adults.” And so let me tell you why I think that's a good handle. It is this is first of all, maybe it's not surprising, because the only place I've ever worked before really was a summer camp.
And my last two years there, I ended up taking people on 36 day and 42 day canoe trips respectively. So what I was doing was taking people out on these long, long trips, leading them through that. So that informed a lot of how we sort of built this business. And what I saw and experienced myself personally, but also within the campers I took out on these trips was by the end of the summer, I believe what I saw consistently is people were at their own, like they're physically fit, they're mentally fit, they're self-esteem is like super high. Like kids coming back to school after the summer, like they're at their peak by and large.
Now if people have terrible summers and all those kinds of things, but often it's like you're at this kind of peak emotional awareness, confidence, all this kind of thing. And so it's in that… Probably because you spent the whole summer challenging yourself in new and different ways, and getting good feedback, and being outdoors. And all these things create… They just mean people are kind of in their best versions of themselves. And that's what I want for everyone who comes. And actually, great places to work, it's a thing Fortune 500 companies do to be best number one and everyone fights over that stuff.
We were the top company under a thousand employees in 2015, number four in 2016, and so I think some of that stuff bears out in … We participate in that thing and compete against folks in our category and are proud of the results. And I think culture is strategy and other things are responsible for some of that.
Kruse: And about how many employees do you have now?
McDerment: About 300 now.
Kruse: And so with the culture, are you screening for cultural fit when you're hiring new employees? Or is there like an indoctrination as part of the onboarding? Or both?
McDerment: Well, the way I think about it is first of all, we're not looking for homogeneity, right? You want people who are different and think different. But what you do want… And so the way I think of it is like every person should be additive in some way. They should bring something different. And I love quirky people. Like give me more quirky, give me more zany, give me more just kind of out there, so long as we have this shared value set underneath however we present about. So we could have different political views, we can have all these differences, but underneath it, like there's a shared value set that… And people, you can't train that in.
Kruse: Right.
McDerment: And that's the thing where if you accidentally hire somebody who doesn't share that value set, you’ve got to help them leave because, “Hey, like listen, you're wonderful, but when push comes to shove, you're probably going to behave in a way that doesn't work here, and that's okay. Because there's lots of places where you're going to be wonderful. But this isn't one of them.”
Kruse: Yeah. Perfect. So, wrapping it up, share for us, I know you're a larger company now, and your product has grown, but who was your ideal customer? Like who is FreshBooks perfect for?
McDerment: So strategically, the company is founded around… I'm going to give you a bit of a longer answer to this. But so we're built on an insight, which is the world is not built for self-employed professionals and their teams. And what I mean by that is there's whole categories of products, like consumers and like enterprise, large companies have been served really well, but self-employed folks have not. And the fact that our product exists is demonstrative of that. There was only one choice. We wanted something that was easier to use, that was better suited to our needs, and so we built something for that.
And actually that was kind of the invoicing and accounting software that's made us popular, and time tracking, expense management. We have a simple app that does those things for service-based business owners. We then went into payment, because correcting credit cards if you were a service-based business owner was incredibly, incredibly hard. So those are two categories we've gone into. But there's other ones that are still very broken, and I'm not saying we're going to tackle these. But go and try and get a mortgage if you're self-employed and you don't have an employer backstopping you.
So the world is broken for those folks. We're on a mission to reshape the world to suit the needs of self-employed professionals and their teams. Our thesis and our strategic choice on that mission, in the sands of time, this may prove to be an awful choice, but so far, so good, and we believe it's still a good one, is that we believe that if you serve everyone, you serve no one. And so what we said is, “Hey, we're not going to try and serve every kind of small business owner, because frankly, we believe that they're different and they have different needs.” And so we don't do retail, we don't do restaurants, we don't do manufacturing. What we do do, and exclusively do, is service-based business owners.
So if you get paid for your time and expertise, we are built for you. By virtue of saying no to those other companies, we can make our product simpler and better-suited to you, and we believe that in time that makes all the difference. So I like to say if you invoice, you need FreshBooks. That's our difference maker. That's kind of like the finest point of it all. And that strategic choice is the difference between something that feels right for you and doesn't, and something that saves you time or doesn't. And if you happen to be someone who works for yourself or has a small agency or even a good sized agency and track time and get paid for time and expertise, then FreshBooks is the product for you.
Kruse: Perfect. And where can our listeners find out more about you and FreshBooks?
McDerment: Check us out at FreshBooks.com. You can start a free trial there if that's interesting to you.
Kruse: What a great name and URL. Easy to remember, short, unique, right? Long gone those days when you didn't like that company name.
McDerment: True.
Kruse: Mike, thanks for coming on to the LEADx Show.
McDerment: Thanks for having me, Kevin.
