Testing and Reinventing Your Product: What Works For Freshbooks Co-Founder Mike McDerment

Tara McMullin
Oct 2, 2018 · 4 min read

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. That way, the team could experiment and test out their ideas to see if they worked. And it did. They knew it once they got the first email from a FreshBooks user requesting to close their account. They were moving to Bill Spring.

Culture based on strong value set, including honesty

“We’ve built a strong culture on a value set called CORETRUST. That’s an acronym for our nine values. Among those are things like honesty which is not so much the word that matters, it’s how you define it which is: we’re straight forward and we communicate directly. Inside the building, we value people speaking their minds. It doesn’t need to have a lot of drama associated with it — it’s just: what are you thinking?” — Mike McDerment

At the end of the day, FreshBooks wouldn’t be what it is without a strong culture and value set. With honesty at the forefront of their company values, it encourages staff to be open and direct about their thoughts — and it’s encouraged — because that’s what results in a better product. And no doubt, as Mike mentions in this episode, has contributed to making FreshBooks better over the years — with the best up ahead.

Listen to this episode to hear more from Mike McDerment, FreshBook’s cofounder and CEO, about why he started the company, how he structured his agency to create more time for side projects, and much more.

What Works

What Works is honest conversation about running & growing a…

What Works

What Works is honest conversation about running & growing a small business today. We seek out the thoughtful, intentional, and unconventional ways small business owners make it work.

Tara McMullin

Written by

Building stronger businesses at What Works. Producing standout podcasts at YellowHouse.Media. Podcaster, writer, community builder.

What Works

What Works is honest conversation about running & growing a small business today. We seek out the thoughtful, intentional, and unconventional ways small business owners make it work.

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