The Nitty Gritty

* How Mike transitioned from growing his design and marketing firm to creating FreshBooks, an invoicing software tool for small business owners

* How a strong value of honesty seeps through the company and results in an open and transparent team that makes the product better

* Why Mike created a pretend competitor to test new product features, how they tracked that project’s milestones, and when they knew that their new version would be a success

If you’re a small business owner, no doubt that you’ve heard of FreshBooks. In fact, you might even use the software to bill your clients. But what you might not have heard is how FreshBooks came to be and how it’s improved over time.

Mike McDerment, FreshBook’s cofounder and CEO, joins the podcast today to talk about how he structured his design agency to create more time to work on FreshBooks, why they used a secret company to test new features before launching them to the FreshBooks customers, and how important strong values are to create a strong company culture.

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Creating time to develop your business’ side project

“I built my firm in such a way that I got a lot of time back. I helped curate the work of my team members and push them to do as much of the client engagement work as I can. That’s the one thing that I felt that I was still involved with and should be — but I wanted to just show up to meetings and grooming work.” — Mike McDerment

For the first two years, FreshBooks made only $100 a month in revenue. That meant Mike and his team needed to get creative. Mike started by pivoting about 80% of his time from the firm to FreshBooks, which at the time was an unnamed side project. The rest of it was financed by agency staff who, when they had extra time, put that into FreshBooks. “That’s how we financed it without being explicit about it,” Mike explains. “We would have that company running and we were paying those employees, but more and more of their downtime was working towards the side project.”

Soon enough, FreshBooks started to take off — a founder bought in and so did his mom: she wrote him a $10,000 check to invest in FreshBooks. At that point, Mike knew it was time to start firing clients from the design firm to work on FreshBooks full-time.

Testing and changing your product by pretending to be a competitor

“How are we going to figure out if this is a better experience for people and know that conclusively from a business results standpoint? We had a variety of other considerations but it basically led us to: how do we test it before it’s live? But, I was also thinking: we’re doing this to build something that’s a step change for us in a our business that helps us move faster and get ahead of the competition. If they’re able to watch us work along at this, that’s not very helpful or very stealthy — and we don’t get the benefit of being ahead.” — Mike McDerment

Creating a secret competitor — a company they called Bill Spring — isn’t the average way to test new features or products. But that’s exactly what Mike and the team at FreshBooks did. “We used that as a petri dish,” Mike says. “That was a very important thing and I’ve learned a lot about innovation.” Particularly, he adds, how larger companies sometimes lack the ability to innovate because it’s too big of a risk.

But they wanted to take huge risks. To get around that, they created a logo, website, and articles of incorporation for Bill Spring — but there were no legal ties to FreshBooks....

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