Building Invoicing Software for Freelancers with Mike McDerment and FreshBooks

Intro: Hey, everybody. Welcome to Episode 110 of How I Built It. Today my guest is Mike McDermont of FreshBooks. I am so excited to talk to Mike because I have been using FreshBooks since 2008, or 2009. Something like that. Most of my adult freelance career outside of high school where I just used Excel. After a small journey away from FreshBooks to use QuickBooks online in 2018, like the prodigal son, I came back to FreshBooks missing what I once had. I am very excited to talk to Mike today about how he built up a company that I have been using for a third of my life, which is crazy. He offers of course fantastic advice on how he built the company, and how he is growing at a good pace with his customers now, trying not to grow too fast or anything like that. I just think that this is a fantastic conversation no matter what stage of business you’re at, because Mike has seen a lot of it at this point. I will get to the interview in a minute, but first of course we need to thank our sponsors.

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Joe Casabona: Hey, everybody. Welcome to another episode of How I Built It, the podcast that asks, “How did you build that?” Today my guest is Mike McDermont, founder and CEO of FreshBooks. Mike, how are you today?

Mike McDermont: I’m well. Thanks, Joe. Thanks for having me.

Joe: Thanks for coming on the show. I was saying in the preshow that I am a big fan of FreshBooks, I used you guys all the way back in like 2008 or 2009 or something like that. I’m excited to hear your story. Why don’t we start off with who you are and what you do?

Mike: I’m Mike McDermont, co-founder and CEO of FreshBooks. What we are is ridiculously easy to use invoicing and accounting software. 20 million people have used the software since we started, and what makes us different is we only build for folks who invoice their clients. We solve a whole bunch of billing problems in there, billing and accounting problems frankly. It’s available for desktop and cloud. If you invoice, you need FreshBooks.

Joe: Absolutely. I will say, I guess I’ll admit this to you on the air, but I used FreshBooks from like I said 2008 or something up until the beginning of this year, and I was like “I need something that can handle products,” because I’m moving mostly into the products business. So I moved to a competitor, and boy was that a mistake. I’m moving back to you guys at the beginning of next year and the next fiscal year. I’m just like, like you said, it’s ridiculously easy to use. Moving to your competitor I saw just how much easier FreshBooks is to use then what else is out there. So, I’ve seen the error of my ways and I’m moving back. I appreciate your software.

Mike: I am sorry for your trouble, but I am grateful for your support. We’ve actually done a lot in the last year that I think you’ll quite enjoy when you come back. So, we’re waiting for you. Thank you.

Joe: Awesome. I’m excited. This is fantastic. You have ridiculously easy invoicing software, and we were talking a little bit in the preshow so we’re going to talk about your accidental journey. Why is this called an “Accidental journey?”

Mike: The way we got started was I was running a small design agency helping small businesses build their websites and do internet marketing and logo design, all kinds of things. I was billing my clients using Word and Excel when I accidentally saved over an invoice, and I got super frustrated. I’d started building small web applications for my clients and figured maybe I should do that for myself. So, I built a simple thing and that became what is now FreshBooks.

Joe: Wow, that’s fantastic. We talk about this a lot on the show, for longtime listeners, I feel a lot of founders were solving a problem or scratching an itch that they had, and then it turns out that other people had this same problem. So you were using Word and Excel and you decided to build this for yourself, did you do any research into the feature set or what was out there? Can you give us a timeframe, we’re talking like 2006 or so, right?

Mike: Yeah, that’s that’s about right for time zones. A little over a decade ago. In terms of research, we took a very unassuming approach, so built the initial thing for myself, and then we did conduct structured research calling people up. You were in the basement, so I had surveys take people through “Why did you start looking for us? What would you call this thing?” Because we didn’t even know what to call it at that point, and then “If you had to describe it to someone else, how would you do that?” And then, “What else would you like?” That kind of thing. “What other pains can we help you solve?” Through a lot of customer service and through a lot of research we fleshed out what the product should be over time, and how to improve the offering we already had.

Joe: Gotcha. That’s great. So when you built this for yourself, were you immediately like, “This is something that I could charge for,” or what was the time between you built it, and started using it, and then you realized that this was a product that you could release?

Mike: About eight months after launch, about two years since we started it, we had like 10 paying customers. We started out, I think we had a business model applied to it, but I wouldn’t say we had things like pricing and packaging correct. The way we structured our packages basically meant a lot of people could use it for free. I don’t think that’s a bad thing. It worked out well. But we were basically trying to figure out, “What is the product? What features are necessary? Where do people see value and what do they want to pay for?” All those things were, we were groping our way through the darkness trying to figure out how to find a sustainable path forward.

Joe: Gotcha. Again, just talking about my personal relationship with FreshBooks, like I said I think I got on it around 2008-2009. More likely 2009, my friend told me about it and I think she had an affiliate link. Did you have like an affiliate program at that time, to help you grow?

Mike: Yeah. It’s interesting. We had a referral program where people get links inside their own accounts, yes. It worked a lot like an affiliate program where you can share a link with somebody and that would be– Effectively, short answer, yes.

Joe: Nice. So you mostly conducted interviews, customer service, you said after two years you had 10 paying customers. You have like, 10 million plus now. I’m just curious to learn what the jump was. You had 10 paying customers, what would you say is the moment everything clicked for you and you started to grow?

Mike: I get that question a lot. The simple answer is, I’m still looking for it. I think success is doing a million little things right when nobody’s looking, and then all of a sudden it turns into a thing. Maybe those are occasions where there’s this major turning point, but I’d say we just kept going. The biggest thing we did was we just kept going, we kept trying to improve, we kept trying to get to know our customer better and serve them better. Over time there’d be like, “We’ve got a new– We worked on our pricing and packaging,” or “We added a feature.” But it’s hard to really see major changes in the curve even when those events happened. It’s really about the direction and the continued progress, and trying to get better all the time. That was our story, at least. I’m sure other people have this blinding moment that it all changes direction, but that was not us.

Joe: That makes perfect sense. People in the podcasting space, especially– I started off a lot in the WordPress space here. They’re like, “How did you grow your show and how do you get so many downloads a month?” And I’m like, “I don’t know the one thing I did to make that happen. It was just consistency.” Like you said, “Just keep going with it and keep working with it.”

Mike: Yeah. Then sometimes if you’re putting things out there, at least in a consumer product like ours, or maybe your show. I can think of times when people would point a link to us, like the folks at 37 Signals pointed a link to how we handled a challenge that we had that they liked. All of a sudden all this traffic comes over and more people learn about you, so those kinds of things do happen. But 100 of those things happen, so it’s not just 1 thing.

Joe: That’s really cool, and that’s really interesting. I think that’s good advice or maybe encouraging words for people who are starting a product and they’re not seeing the out of control overnight growth that you hear about. Back in Season 1 I talked about how– Or, we talked about how the Olympics were going on, and  my guests and I talked about how you see the gold medalist at the Olympics but you don’t see the years and years of practice that they put before that to get to that point.

Mike: Or the three Olympic Games where they didn’t even medal.

Joe: Right.

Mike: There are– I think this is a terrible thing that’s always happened with the media and these companies, like there are the odd company who’ve done it the first time, but a lot of the really big successes and most of the companies that happened really really fast are people who are repeat entrepreneurs. If I started all over again, could I do it better, faster and cheaper? Maybe. Almost certainly I’d either fail faster or I’d make something as big or bigger faster, but that would have been based on all this experience I’ve been getting doing this.

Joe: That makes perfect sense. My first, again, my first podcast was not great. I learned a lot of lessons, and then I launched this one and I was able to apply those lessons. Much like you are able to apply what you’ve learned over the last 10 or so years, which is fantastic. That’s what people need to hear, because they think– I still think that sometimes, “I’m going to launch a thing and it’s going to be a huge success, and that’s going to be my boatload of cash that I know I need, or deserve, or whatever.” You said that, before we get to the title question I do want to ask one more about the research and building up FreshBooks. You said that you were running a design agency and then you launched FreshBooks, at what point did you decide that this was the thing that you wanted to focus on full time? Or did you basically say, “I’m not going to do client work anymore. I’m going to focus completely on this accounting, invoicing software.”

Mike: Pretty quickly I was excited about the product and got about 80% of my time there, but it was years for that last 20%. I had some employees in that business so I couldn’t abandon them, but what I found was if I spent 20% of my time doing the other thing I could make enough money for them and me, so that I could focus on this other thing. So there was pragmatic reasons. But then there eventually, after probably two and a bit years, I started firing my clients which meant trying to find them good homes, like somebody else who could take good care of them. But that was a progress. That’s the one side that’s nice about a client service business is you can wind things down gracefully over a period of time, if you like.

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Joe: For anybody who’s trying to move from client work to a product, do you think that’s maybe the the best piece of advice you can give? Or is there some other thing you took away from that experience?

Mike: Just know that it’s hard, and the learning curve is really steep. They’re very different kinds of businesses and business models, and things that make them go. I think client service is a great way– If you’ve built a successful client service business, it probably means you have great customer empathy and you understand being able to deliver and focus and execute. Organizing resources, and time. You need all that stuff to start a product company. But the thing about a product company is the way you market is different, and the way you build the product is different. The way you– Everything about it is is different. I think just recognizing that you’re carrying two– They’re just not the same, and being prepared for that learning curve. “I need to unlearn a bunch of stuff here because it’s just not the same game anymore.”

Joe: Yeah. I wish that we had this conversation a year ago, because over the last year I’ve learned that lesson. Though I don’t know if I would appreciate that advice as much as now that I’m on the other side of it, I say “I’m able to sell a $5,000 dollar or $10,000 dollar website to one person, but I can’t convince 50 people to buy my $100 dollar course,” because it is very different. That is for anybody who’s looking to– That’s just fantastic advice. Awesome. Thank you for that. Now I would love to get into the title question, and this is very exciting, because a lot of people that I’ve been talking to lately are the visionaries for the product and then they hired a development team. But in your case, you are the founder and you also built the product. So, how did you build version 1? Then when did you know, do you still do hands on code? Or when did you know it was time to start letting go of that?

Mike: The first thing I should do is come clean and say that makes me sound like I contributed more to the product than I probably did in the end. I did build the first version, I built a prototype to bill my clients. But it was pretty soon after that, like a couple months, that I met my co-founder and he has a doctorate in computer science. He started building things, and then I went to more of a design role. Product design, product management, and then I focused on also marketing and trying to get the business operational and organized, finding customers, all that stuff. There was a division there. I think that’s probably a little more in line with what you’re used to hearing, that visionary that’s more about what the product is and who the customer is, connecting those things to build the right stuff. That is ultimately the role I played. So, sorry. With that clarified the question was, what?

Joe: How did you build it?

Mike: With great customer empathy over a long period of time. Those are some of the key ingredients. I don’t know how technical you want to go when there’s so many ways to answer that question. Is it like, the awareness of your product in the market? Is it trying to figure out what to build? Is it– These are the technologies we chose to build on. How would you–? Sorry to break it down, but that’s a big question to me, I don’t know how to box it into something that I can answer.

Joe: Absolutely. Generally the answer I’ll give, because I’ve gotten this question before, is whatever you’re most comfortable with answering. But I am super curious with the prototype, what technologies specifically did you use? And then, as you grew, whatever you’re most comfortable answering there. Like, whatever you touched the most as FreshBooks became FreshBooks.

Mike: So, my role in growing it up. I think, for whatever it’s worth, [Lamp Stack] at the start. Ruby on Rails didn’t exist, so it was actually pre-2006 when we got started. We were building our own frameworks to do these things and then by the time that stuff came out we were pretty committed already, so Lamp Stack. I think it was MySQL, and I think they had just came out with version three. To back there. Anyway, with that my role again became product management, voice of the customer, and also marketing. Also we started, once we had a website up, and we generated a lot of traffic through SEO and online stuff, and we still do. That was my responsibility as well. But then as soon as we had people coming, then we started having people want to talk to us on the phone, so I did some of that. I did some customer service there and learned about our customers, asked them how they heard about us and constantly asking similar questions. Like, “How did you hear about us? What could be improved?” All that kind of thing to keep furthering my understanding of, “How do we improve? How do we win? How do we go further?” And then bringing that back to the rest the team, like “Here’s what we need to build.” I was pretty prescriptive about, “This is how I’d like it to be built,” as well. Those are always fun, and we had good healthy discussions about that stuff over the years.

Joe: Gotcha. This is really interesting to me, it’s something I’ve been hearing more and more lately, and I don’t know if it’s just because I’ve noticed it more or because it’s becoming more important advice. But having conversations with customers on the phone is something that I’ve been hearing a lot more lately. Maybe it’s that people around my age or younger have an aversion to phone calls, they would rather just do things with email, but it sounds like phone conversations were integral to understanding your product.

Mike: Yeah, our philosophy has always been about customer proximity. Like, “How do you get closer to the customer?” Not only email, not only phone, we were one of the first companies or maybe even the first to do customer service on Twitter.

Joe: Wow.

Mike: They said, “This is another channel to communicate with people, or Facebook, or what have you.” So that’s the orientation. It’s like, “I want to meet you where you live and serve you accordingly.” And all of them are good. Now what I will say is, if you went from email to phone to in-person, and we did do in-person we went to conferences and stuff too. I find that each medium has its own strengths and weaknesses as a research tool. E-mail you’re going to find out about a volume of problems, phone is good for getting some color on those problems, and if you meet people in person you’ll find out what it is that they want that goes beyond whatever you’re doing today. Those are harder. That gets harder. You just don’t get that in email, you might get a feature request but that’s not the same as “I think your platform should be doing this other–” just live face to face is a totally different ballgame. So, I’m a fan of all those mediums for appropriate reasons in each case.

Joe: That makes sense. I think, probably in person people are more likely to be like “You know you should do–” almost like it’s conversational. Did you find that people are less likely to complain to you? Like, not complain. But give negative feedback in-person?

Mike: Probably. But like, my whole thing is like, I’m always asking for what’s wrong. So let’s just take the drama out of that. Be like, “I know we can improve–” I’m always, if people say, one of the things I find frustrating and the thing about me is now I’ll go out and let’s say I give a talk somewhere. OK, we get off this podcast and you say “Mike, great job.” That’d be wonderful. Let’s hope we get there. And I’d say. “Thank you. Why was it great?” Because that’s when you’re live, people will tell you, and saying that. I’ll be like, “OK, great.” Now I can say, “Great. You told me something we did well. Next question is, what can we do better?” I’d do the same thing with this podcast. It’s like, “OK that’s great. That went well. Thank you for telling me that, but what could I have done better?” I think that’s the seeking to understand, and constantly improve. To me it’s a hallmark of– I’ve heard it of other entrepreneurs as well. There’s no, I’m not precious about this thing. I find that so long as we can have a civil dialogue, and you’re not yelling, then I think we can both learn a lot.

Joe: Yeah. That’s great to hear. Because especially as a creator, you get attached to the thing that you build, and if you want it to be the best version of what it is you you have to let go of that. You said, “I’m not precious about this.” I really like– Is that what you said? Precious? I really like that. Because it shows that you know it’s a tool that people use and you want it to be the best tool possible.

Mike: We talk about that a lot with even our design team here, it’s like a lot of designers will come from elsewhere and they’ll be like “This is how it’s done. It’s perfect.” We have a thing called critique, which is you cannot be precious in that room. The idea is, “Nobody’s trying to internalize feedback on work you’ve done as an attack, or as input to help you get to the next level and next better place,” and I’d much rather work with people who are oriented in the second way.

Joe: Yeah. That makes sense, because you’re not going to grow unless you learn how you can do things better. If you just think you make the best thing right out the gate, where are you going to go from there? So, cool. I love that. Let’s talk about, as we kind of wind down time here. It looks like we’re getting close to the half hour mark. I’ve personally seen FreshBooks evolve over the last ten or so years, so maybe we could talk about what are some of the big evolutions that you really liked in the product and what are your plans for the future?

Mike: OK. I think we’ve had a pretty consistent track record of improvement, and sometimes I’ll say the improvements are not as visible, but they are impactful. Because you get a lot of people using your software, sometimes a little workflow we can tune and improve things. My favorite days are when we’re launching stuff, like that’s just my favorite stuff. Favorite days in the office, and I think the big one for me would be “We’ve gone and built a new platform. We decided after all those years, I don’t know if you know this, we have a new version and new FreshBooks.” Seeing the rate at which that is changing and improving is very exciting to me. So we’re now benefiting from the first version was built on frameworks that we built at a time before standards for building companies like ours existed, and now we’re using ember and a bunch of other just more modern technologies. So we can move a lot quicker and deliver better experiences, and that’s been my experience, where we’re not only doing invoicing at this point. We now have, for those who don’t know, and sometimes we’ve had people say “You don’t do double ledger, or bank racks, we can’t use you for accounting. We’ve scaled beyond you.” And we say “Listen. You don’t need to know that stuff even exists in our software today, you don’t need to. But guess what? It’s there. And if you grow to the point where you actually care about that, it’s right there for you as opposed to imposing it on you.” So I’m excited about that too, because we’ve had a lot of customers over the years who are great customers who for one reason or another decided they needed to move on to the next thing. That’s a big thing that’s happened now, and I think what we want to do once we have that that bedrock, “We serve companies that invoice,” now by the way this is a positive development for you as you’re getting into more product stuff. We can help you track other payments and sources of income beyond just invoices, so that’s good. We’re really focused on solving billing problems in general, especially for businesses that send invoices, and we have this accounting bedrock that you can build on and grow. So I think the question is, “Now that accounting bedrock is there, how do we really help you focus on more of your billing issues?” That’ll be the direction of our efforts.

Joe: That’s really cool, and that’s something that especially freelancers or entrepreneurs or maybe solo entrepreneurs are your target audience, that’s something that a lot of people have problems with. Maybe they don’t think to bill on time, or they’re a little tepid about sending that reminder, like “You haven’t paid. It’s been 40 days and you haven’t paid the invoice.” Focusing on, and maybe I’ve misinterpreted what you said, but focusing on billing problems I think really helped your customer.

Mike: Absolutely. I just want everyone to know, what you just talked about is our bread and butter, and that’s that’s there and available today. If you use our product and you send an invoice, you can set things up in an automated way where 15 days later or 30 days later we will take care of you with a simple e-mail saying “This email is now 15 days since sent, will you please–?” We can even help you collect payment. So there’s a lot we do there, and we just see there’s a whole bunch of ways to make your life even better in and around issues pertaining to billing, and we’re excited about that.

Joe: That’s fantastic. Just to bring it back, that competitor that I’m on now does not do any of that. I looked for the automatic late fees, or the late payment reminders. They’re like, “You can do that through a third party.” And I’m like, “Why?” I don’t understand why I would have to pay extra for basic invoicing things, but in any caseb I’ll be happy when the calendar turns and I’m back on FreshBooks. I’m not just saying that because you are on the show, I literally said this to my wife like a couple of weeks ago. I just can’t wait. So, this has been great. I think there’s a lot of really good insight that folks can take away, especially moving from client services to products. We focused a lot there. But just also the customer empathy things that I think people need to hear more of. But I do need to ask you my favorite question, which is do you have any trade secrets for us?

Mike: Trade secrets. Here’s the thing, I think the way we do customer service. One thing I was thinking is “When you’re coming back don’t feel shy about phoning us.” I don’t know if you ever have, or e-mailing us, if that’s your preferred medium. We’re here to help and we even have some services we can help you with your bookkeeping, and move some data from one to the next, so you don’t have to take care of that if that’s interesting to you. Just FYI.

Joe: That is interesting to me.

Mike: Yeah, but then as trade secrets, I think the thing about FreshBooks that’s sort of uncanny and unparalleled is we really care about executing extraordinary experiences every day. That’s what we call it, that’s our mantra. We want to build simple user experiences that exceed people’s expectations, and we love helping people on the phone with a level of customer service that frankly most companies aspire to and talk about. But you know, they really don’t execute against. I think that is– I don’t know. But what I’ve come to realize is that’s a culture thing, and you don’t necessarily get it. You just don’t. That’s our, I don’t know if that’s our trade secret, I think our trade secret is that people really appreciate– Customer service just really matters, and it’s hard to do repeatedly over time at scale.

Joe: Absolutely. I think that is great. Especially because it’s a culture thing, because it does start within the company and making sure that the employees and the founders and everybody are on the same page, about how they feel about a certain thing. When they feel that they execute on it better, so if customer service is the most important thing within the company and the company culture, then you will have good customer service. Mike, thank you so much for your time I really appreciate it. Where can people find you?

Mike: Thanks, Joe. Great being here. If you want to learn a little more about us, or try FreshBooks for free, you can do that at FreshBooks.com.

Outro: Thanks so much again to Mike for joining us. I want to repeat his trade secret, which is the way they do customer service. Don’t be shy about phoning them. They put a premium on good customer service, and between the conversation with Nathalie last week and some books I’ve been reading I think that this is incredibly key at building your own business. Especially for smaller businesses or freelancers, offering that close customer service is the thing that separates you and differentiates you from the larger companies, or the airlines, of the world. Who, for the most part, make it seem like they don’t really care about their customer. I want to repeat that and double down on it. To that end, my question of the week for you is going to be similar to last week. Which is, what can you do to improve your customer service? Or, what do you want to do to improve your customer service? Do you want to implement a ticketing system or do you want to offer phone support? I know that is something that I don’t necessarily want to do, but if my customers ask for it I would do it. It’s me just being me, email is better. I don’t have a support team. But what are you going to do to improve customer support? Let me know via e-mail at Joe@HowIBuilt.it or on Twitter @jcasabona. I want to thank my sponsors once again, they are Plesk, Castos and Pantheon. You can find the show notes for this episode over at How I Built.it/110. If you liked this episode, be sure to leave us a rating and a review on Apple podcast or wherever you listen to podcast, it really helps people discover the show. And until next time, get out there and build something.