Interview with Mike McDerment, CEO FreshBooks

As a former accountant, I know how important it is that client billing is done correctly. I have read a lot of positive stories about FreshBooks and wanted to find out more about the tool. I gave Michael McDerment, FreshBooks CEO a call. We discuss the tool, why FreshBooks is better than the competition, and some tips for entrepreneurs and what’s necessary for success.

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Click the start button below to begin the audio interview (or download the mp3):

Below is a partial text transcript of the audio interview. Please listen to the audio for the entire discussion.

Allen: Can you provide a brief background about yourself?
Mike: My name is Mike McDerment and I am the CEO of Freshbooks. We are an online invoicing and billing service. I am an entreprenur and FreshBooks was technically my 3rd business. We made a transition from a web design consultancy, to FreshBooks, an application service provider. My background is in business.

Allen: What would you say is the hardest part about working for yourself?
Mike: I really like working for myself, my mom started buying me entreprenur textbooks when I was in High School. I started out working independently. The challenges change as you change and evolve. The hardest in the beginning was trying to set some discipline in terms of the work day. I really tried to not work on weekends and after 7pm and cleaned my desk off at the end of the day. When you work for yourself you can think that you need to work 24 hrs a day. But you lose out on the ability to be refreshed and focused. I had to teach myself and I didn’t have a mentor. I think that was hard in not having people around you to show you the way.

Allen: Who are the competitors in your space that you consider real competitors and why should I use your tool over a QuickBooks, Quicken or Money?
Alex: I think there are two classes of competitors. There are traditional accounting software providers. The other group is other startups like BillingOrchard and BlinkSale.

I think reasons you would want to choose Freshbooks over other traditional accounting software providers. In QuickBooks you have to jump through a lot of hoops, it is a formal accounting software. This is what we need, but this is not what we need. We want to make things simple and quick for ourselves. We get a lot of people coming over from QuickBooks because they feel like it is a pain and their staff does not use it. I like to say that FreshBooks is so easy to use, people actually use it.

Other reasons would be personalization and customization – you can brand FreshBooks to look like your web site and brand. And it helps small companies to look more professional.

Now versus the other startups. I like to believe we have done a good job between what you need and what you don’t need. We have customers coming from other services say that we have the right amount of features and functionality. I think we deliver things like sending invoices via email and by the postal service. Some clients like to receive invoices via hardcopy.

We also have a lot of really exciting things in the pipeline.

Interesting note, that more people are using Word and Excel to create their invoices than QuickBooks.

Another things that differentiates us is our customer service. We are old school in our thinking that you should have good customer service. If you call during our business hours, you will speak to someone. If you email us, we will send a detailed reply. We have also done a lot of work around management of data and encryption, backing up and versus others we have done more due diligence than they have. This is reflected in both what customers are saying plus what the competitors are saying in some cases.

Allen: How does the payment process work for my invoices? Is it paypal or another credit card method?
Michael: That is a very interesting point. I think as it stands today we integrate with 9 or 10 services including Verisign, Paypal, Paypal Payments Pro, etc. If you have an account with that company, you add it to your FreshBooks account. And then you add a checkbox to your invoice and clients can then pay the invoice via the online payment processor you have selected.

Allen: I think customer service is of the utmost importance. Where do you place customer service in the value chain?
Mike: For us it is not an even an option to do things any other way. I think that it keeps us very close to our customers and close to our core principles. We get a lot of word of mouth referrals and they are happy to recommend us. Online, all your PR and press are just a click away, just do a search for FreshBooks and you will see what people think of you right away. If you don’t server you customers well, people will find out. I think you need to be good to people to be able to be sustainable and build your business. For any business, especially if you are online, it is vital to being successful.

Allen: How do you market FreshBooks – you mentioned in another interview that a recent PR campaign didn’t work out as well as you wanted – what have you learned from that experience?
Mike: It wasn’t recent actually in November 2004. We learned that we were ahead of the curve. Web 2.0 wasn’t a common term at that point. We basically had nothing to show for it. We decided to focus on this Web 2.0 thing. Emily Chang’s eHub had just launched. And it was around that time that we ended the engagement with the PR company.

Allen: Can I export your reports into my tax accounting software or import my customer lists?
Mike: There are a couple different ways to do that. One of the most common ways people use FreshBooks is in addition to a regular accounting software package. They will still use QuickBooks with us, but use FreshBooks for the invoicing because that’s where the painpoints are. And then at the end of the reporting period, you can export your revenue and taxes in 2 easy reports and put those numbers into your tax program. And of course your accountant can access your FreshBooks account.

Allen: Do you offer any services for international clients? Any expansion plans on the horizon?
Mike: It is a funny thing that you say that. We are going to change our registration form to allow people to identify your currency. A lof people think the service is only for USA or Canada but we actually have clients in over 90 countries. It is totally international in being able to set it up.

Allen: Any thoughts about tying into other Web 2.0 apps like 37signals basecamp?
Mike: We do some integration right now and what I can tell you is that we having some interesting things coming together for people like designer and developers. We are in the final process of redeveloping our timesheet tool. And we have had so much feedback. So you can go and track your time and there is this one area of creating a project that is revolutionary. It is the ability to invite people and staff to projects and we are now going to let clients add freelancers and consultants to be part of a project but stay within their own account. Because freelancers typically work on multiple accounts at one time. This is kind of like a socialization of timesheets. I am really excited about this whole new dimension of the way people work.

We are going to put time against working to integrate other Web 2.0 services soon.

Allen: What are the most important things that a startup must have to be successful?
Mike: Good question. Maybe I will steal from Paul Graham. He says that you have to build something that people want. You have to have a good product. You have to be good at it. Another guy named John Jantsch who runs a site called DuctTapeMarketing talks about referrals. He talked about being worthy of referrals. If you are building something that people want, then you are worthy of referrals. The most fundamental thing is to build something people want.

I think the other thing is that you have to love what you do. It is going to take energy and time. You have to learn from your customers and your competition and keep innovating within your business.

Thank you Alex for spending the time with me today. I am going to have my mom try goowy next time I see her. Maybe we can finally get her away from AOL :)

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