Movers and Starters is an exclusive series that profiles the individuals who drive Toronto’s startup community.

In 2003, Mike McDerment was working to invoice one of his returning clients. In an effort to save some time and effort, he decided to update a previous invoice and save it as a new file. Instead, he accidentally saved over the existing invoice, deleting an important business document in the process. For those that have ever had to do their own bookkeeping, that scenario and its associated frustrations should be familiar territory. For McDerment, it was the tipping point, and so he decided to build the platform and company that would make small business accounting easier. Ten years later, the company he created to solve that problem, FreshBooks, is one of Toronto’s largest startup success stories. I sat down several weeks ago to chat with McDerment about FreshBooks’ humble beginnings in his parent’s basement, the importance of company culture, and his outlook on VC funded startups.       

Tell us a bit about yourself.

I am an entrepreneur who built a simple service to invoice my customers, and I’ve turned that simple service I built almost ten years ago into a market-leading cloud-based financial accounting service. 

From what I understand, FreshBooks was born out of a very specific moment of frustration where you got fed up with traditional accounting software and decided to build something better. For those that don’t know, can you tell us a bit about that moment and how it led to you starting FreshBooks?      

In 2003, I was running a small design agency. At the time, I was using Microsoft Word and Excel to bill my clients because I found traditional accounting software too cumbersome to use for a small shop like mine. One day, I accidentally saved over an invoice. I had opened up an old invoice because it had my client’s address on it. I updated the invoice, saved it, and forgot to rename the file. 

I basically snapped at that point and said, “There has to be a better way to do this.” I had a bunch of other problems at the time, too. I was doing this thing I liked to call called forensic accounting. I would have to figure out how much money people owed me, if that money had arrived, and if I had taken it to the bank. It was a time consuming process that was running in the background of my brain all the time. FreshBooks is built to solve all those problems. 

Joe Sawada and Levi Cooperman were the first to join you in building FreshBooks. How did they end up joining FreshBooks?  

In January of 2003, I hacked together the first version of FreshBooks by myself, for myself. A month later, Joe joined me–at the time, Joe was doing some contract work for me and a couple of other firms. I told him about FreshBooks and he just took a genuine interest in it. Together, we spent the remainder of that year working together on it as a side-project. We didn’t really know what the hell we were doing, but we were very passionate about it, so we put all our available time into it. 

The following year, Levi joined us–he and Joe were best friends from out in B.C., and both of them had moved to Toronto after university. Levi had been working at this consulting company up in Burlington, and he was ready for something new. At the time, he had been helping with the software side of this big online invoicing project for Canadian Tire. For whatever reason, he decided to make the leap and join Joe and I before we had even launched our inital product or gotten a single customer. 

About a month after Levi joined, we actually moved into my parent’s basement. We didn’t get out of there for another three-and-a-half years, and by the time we did, there were six people showing up every day to work in my parent’s basement. The rest, as they say, is history.

In researching for this interview, I found a blog post you wrote in 2008 called “7 ways I almost killed FreshBooks” that I wanted to ask you about. I got two key points from that post: one, the founder of a startup can sometimes be its own worst enemy; two, it stressed the importance of having co-founders like Joe and Levi. So what I would like to talk about is whether you believe the founder of a startup can be its worst enemy, and the role your two co-founder have had in helping you steer the company in the right direction.

That statement is definitely true. It takes a village to raise a child, right? Joe and Levi are the foundation upon which FreshBooks stands.  

To answer your second question first, though. First of all, I wouldn’t be here without Joe and Levi, and I think one of the critical things about that is that the three of us together are so much greater than any one of us alone. We all have our respective strengths and weaknesses, but we also have a natural fit. We’re kind of like a technician, a manager and an entrepreneur, and those are the three kinds of profiles you need to start a company. There’s also a great values fit amongst the three of us, and I think that’s a foundation for FreshBooks, because, as a company, we’re all about our culture. I truly believe that culture is strategy. 

As for the first question, I think a better way of saying that is that it’s really hard to build a business. Sometimes you don’t know which way to go, and, as with any company, there are opportunities to go wrong at every step. So you can either say that, as entrepreneurs, we’re the worst enemy of our own company, or that you were lucky and made all the right decisions. 

But the mistakes I list in that blog post are just some of the paths we went down. None of them were bad enough to kill us. I guess the point is that you’re going to make a lot of mistakes, but that’s okay: you just want to make mistakes that you can survive. 

Going back to Joe and Levi, the two of them are such solid and upstanding individuals that I feel lucky and honoured to have gotten a chance to work with them. They kept things fun, and helped me not worry about things that didn’t matter. Those are the kind of things that really matter when you’re just getting going, because you’re not making any money, there’s no hope for the future, and you’re terrified that a competitor is going to come and take you out. I made mistakes that Joe and Levi could have been bitter about, but they weren’t. Instead, we learned from them and kept going. 

Part of the FreshBooks team that won an IxDA (Interaction Design Association) award for the company’s iPhone app

One of FreshBooks’ mottos is that culture is strategy. Can you tell us a bit about the culture at the company, and how that culture has helped make it a success?

Fundamentally, if you take care of your team, your team will take care of your customers, and then your customers will take care of your business. For me, part of taking care of my team is making sure that they love coming in to work on Monday morning. That’s the critical metric, and I think we’ve had an amazing track record in terms of having people that are just fired up to come in on Monday morning. Of course, life’s not perfect and things sometimes get in the way, but, by in large, I think we have a team that is full of incredibly strong, talented, and passionate individuals. And the way to make sure that people love coming in on Monday morning is to enable them to work with other people who are passionate, smart, and talented; the most talented individuals want work with other talented people. 

However, as we’ve hired those individuals, we’ve also been mindful of the fact that it’s not just about skills the person has. You need to hire for two things. First, you need to hire for skills; second, you also have to hire for cultural fit. When I say fit, I don’t mean that everyone working with me is the same. I think it’s important that people working with you are different–that is, they should have different political views and come from different backgrounds–so it’s not about having homogeny in your company, but it is about identifying a layer below all the stuff and finding out what people’s real values are. 

It’s my belief that you only need two things to be successful in business. One, you need shared values; two, you need an alignment on where you are going. You can’t comprmise on fit and culture or bad things will happen. 

During the first 18 months of FreshBooks’ life, the company famously only made about a $100 a month. Emotionally, what was that like for you?  

It’s funny: on the one hand, that was a really hard time. When you looked at what the actual numbers were, and if you measure yourself by those things, you would have said, “Wow, three dudes that are at least academically smart have started a company and, through two years of their effort, they’re bringing in $100 a month. What a terrible failure.” 

But the thing is that we didn’t it look it like that at all. We were more guided by our passion for building something, the fact that we enjoyed each others company, and that we enjoyed showing up to work each day. We loved our customers and we loved serving them.

That said, it’s not like there weren’t days where I almost started other businesses. I’m an entrepreneur at heart, and so unless there’s a lot going on I’ll create problems to solve. When we were barely progressing at the start, it was hard for me. I remember one day looking over to Levi, and thinking, “Man, we should just stop this and work on this other idea I have that I know we could execute on because I know there are customers who are interested in it and would pay us more for it.” 

But then I looked at Levi. He had this smile on his face while he was programming, and he was bobbing his head while listening to some tunes. He was totally oblivious to what I was thinking. I looked at him and thought, “He’s loving it, I know he is.” 

I realized that if I asked him how were doing, he would say, “Mike, we signed up 30 people yesterday. That’s amazing, right?” And so I think it was that positivity and encouragement–even though we were going nowhere fast yet–that helped me get through the tough times. 

I remember thinking if we could just sign up three customers a day we will have made it. We’ve probably signed up three customers since we started this call. It just goes to show you that when you’re starting a company, you need to have these sort of small goals that you work towards. I’m still in awe of what we’re doing, and I think that’s part of what makes it fun. I still feel like we’re just getting started. Honestly, we’re nowhere yet and we still have all kinds of opportunities. 

Although it’s not unique to FreshBooks, one of your company’s mottos is that there are no silver bullets. That said, I’m curious if there was a specific moment where, after that tough 18-month period, you could start to see the signs pointing towards FreshBooks becoming a sustainable business venture?  

There are no silver bullets… 

And I mean that: there are no silver bullets. But I will say this: I remember talking to our customers one day. I was doing some research, so I was calling our customers and asking them these survey questions. While I was on the phone, I was standing in my parent’s furnace room because the office was busy. The celling in their furnace room was about 5’10 and I’m 6’2, so I’m hunched over on a cordless phone. I was talking to the CTO of this company, and if he could only see me he would think what an incredible joke all of this was. I asked him one question, which was, “In your opinion, what is the single greatest benefit of our service?” 

He said, “You know, your software has changed my behaviour.” That was a terrifying comment to me, because at the time I didn’t believe software should change people’s behaviours, but I didn’t say anything, and I just sat there and listened. He went to say, “Yeah, your software has changed my behaviour. Instead of waiting until the end of the month to send my invoices, your software is so fast and easy to use that I send my bills out as I finish my work, and, because of that fact, I don’t forget the work that I did. That’s made my cash flow more even and I get paid sooner.” 

It was on that call that I was like, “You know what, I don’t know anything except that we’re on to something.” It was calls like that were the fuel that kept me going. Forget about the dollars, I’m not motivated by money: I’m motivated by making a difference and helping people, and it’s that DNA of helping people that is still very much a part of our culture here at FreshBooks. 

We have a support representative who is currently in Singapore. She had dinner with a bunch of our customers last night, and she sent me a note this morning about what they had said to her. Half the group she had dinner with called themselves FreshBooks groupies. FreshBooks enabled those people to start their own businesses and pursue their dreams. You can’t put a price on that. I’d like to enable even more people to purse their dreams. 

Is entrepreneurship something that you always saw as a career path for yourself?

Quite the opposite, I don’t think I saw it as a career path at all. When I was growing up, it wasn’t even clear that being an entrepreneur was a career option. When I was going through school, you never got the opportunity to identify yourself as an entrepreneur, or be put in a place where you might use and realize the qualities of associated with an entrepreneur. So, no, this wasn’t on my radar. However, I will say that my mother in her wisdom bought me a book on entrepreneurship for one Christmas. At the time, I had no idea why she was giving me this book, so I hid it in my room for maybe ten years. When I started FreshBooks, I remembered I had that book hidden somewhere and just laughed. She had figured it out a long time before I did. 

Anyway, I think I’m wired for it; in fact, there’s no question in my mind about that. Ultimately, though, I had no idea this was an option or what it would look like if I decided to pursue it. The truth is that it’s entrepreneurship: You don’t learn it at school, you just have to start building something. I dropped out of business school in my 4th year, started two businesses, and built and ran them. At the time, I didn’t know that I was behaving in an entrepreneurial way–I was just doing what was interesting to me. 

Speaking of your parents, they seem extremely supportive. Beyond letting you stay in their basement for three-and-a-half years, what support did they provide? 

I have a wonderful set of parents that are fundamentally supportive. That said, my mom and dad are not the kind of parents that are happy with their kids doing whatever they decide to do. Early on, my parents made it clear that three things I needed to know about life: one, there’s going to be taxes; two, you’re going to die; three, you’re going to university and you’re going to do well. Those were the expectations set by my family. 

In that my dad set a wonderful example. He was a corporate lawyer, and he worked incredibly hard to support us all, especially through some extremely stressful times. I’m incredibly lucky with the amount of support they provided me, and I never for a day questioned that my parents would be there to help me. There’s lots of people that can’t say that. 

Having said that, I think they were wondering what the hell what was going on with me when I moved the business into their basement in my late twenties. 

The reason I came back to their place was because I was living at High Park at the time, and the people that I sublet my apartment from decided to move out. My parents were going to be away for the summer, so they said, “Why don’t you come back and watch the house for us?” We left three-and-a-half years later. 

What do you think they thought about the whole situation at the time?

To be honest, I think they were probably really worried about me. It’s not like I was working a stable nine-to-five job in the corporate world. 

That said, when we moved home, I think there was a big change in our relationship because they were offered the opportunity to watch us work and see how dedicated we were. They got to see the small milestones and bits of improvement, so that by the time we left they were really excited for us. They loved the team, especially Joe and Levi, but also all the other folks that were there too–Jeff, Daniel, and Kathy. I think my parents saw the quality of people and that they were showing up every day. Like I said, we wouldn’t be here without what they had done for us. 

At this point, you’re the elder statesman of the Toronto startup community. Having this wealth of experience and having done it different than most entrepreneurs, what would you say to someone in the early stages of building their business? 

I’ll tell you something scary: knowing what I know now, I would have probably never started FreshBooks. Now, forget what I just said…

My advice is this: just start! It’s the contemplators that drive me crazy. Start an hour a week, then move up to two hours a week after a couple of weeks. Once you’re building your business and getting some traction, you will find the time to invest in it. 

If you’re a Toronto entrepreneur: build your damn company here. I can’t stand people that aspire to build something just to flip it quickly, or move down to the Valley or what have you. What I would like to see is us build a strong, healthy community with a series of large successes here in Toronto. 

Toronto is going through a transition where the growth and health of this city is going to be determined in large part by companies like FreshBooks. It’s our responsibility to create jobs here. We’ve had three companies come out of FreshBooks, and people will see more of that in the future. Despite what people in the technology world tell you, you don’t have to move out of Toronto to find success.  

If possible, I’d like to hear you exactly articulate why you’re weary of these entrepreneurs that want to flip their company quickly or move to the valley to star their business.

I think it comes from having built my company from my parent’s basement, where I come from, and serving customers. Your customers don’t care where you’re based. Most companies are built outside of the Silicon Valley. The myth of Silicon Valley looms large. Yes, it’s true that there’s a lot of talent there, and you do have to learn how to manage the talent gap, but Toronto is a big city with a lot of smart people living in it. I personally see it both as a challenge and an opportunity to build a company here. I want to do it here and I want to keep everyone under the same roof, because that’s important to our culture. 

I’d also like to give something back. I feel incredibly privileged to have grown up in this country. We get so much here that many take for granted. I’d like to think that when its all said and done that I’ve given back to this city and country. 

Correct me if I’m wrong, but FreshBooks has not received any sort of venture capital? Is that because the opportunity never arose, or because you were fundamentally against taking VC funding?

When we started, I fundamentally believed that a venture capitalist would not believe in customer service like I did. Our culture is built around serving customers. I didn’t want someone who understands life through the lens of a spreadsheet to tell me, “Why don’t we outsource our service department?” or “Why don’t we automate some of our services?” 

I will say it certainly wasn’t a question of opportunity, because we’ve had–and continue to have–lots of opportunities to secure venture capital. I put my own money in FreshBooks, and my parents put about $10,000 way back when, so we’ve certainly taken small investments along the way to help us grow, but, fundamentally, I believe that who you choose as an investor is as important as who you decide to hire. It’s not just about the money, it’s also about finding VCs that fit with your company’s culture. I will say that the venture community has come a long way in understanding the importance of customer service in the time I’ve been an entrepreneur, but I’ve just never wanted to put my business in a place where we would jeopardize our ability to deliver the kind of experience that our customers deserve. 

Are Toronto’s entrepreneurs too quick to give up part of their company? Should more entrepreneurs seek out other options before asking a VC for funding? Obviously that’s not always possible, but is that perhaps the ideal entrepreneurs should be striving towards?

Obviously, the ideal is going to vary. I will say that starting a company is a bit like growing up, I don’t even know if FreshBooks is a teenager yet. I see a lot of startups accept this template wisdom that’s handed down to them, as opposed to getting to know themselves and what matters to them. We’ve been lucky in that we’ve had the time to figure out what we’re all about and, as a result, we’ve become very disciplined in choosing our path. I don’t like to walk through doors unconsciously. 

For a lot of new startups, I think they think success is raising money. In reality, that’s just the start of the job… It’s the not the finish line, it’s a starting gun. I don’t know what it is about money that people are so crazy about it. If money helps me serve more people, then, yeah, I’m all for it, but that’s not the lens to look through it. People want to raise money to keep working on their idea, but that’s not enough. 

I think I know the answer to this question, but I’ll go ahead and ask it anyway. Do you think this company would be where it is today had it accepted VC funding?

We would not be here today if we had raised venture capital. I promise you that. We would be out of business, and that’s the other thing I don’t think people understand. They think they’re going to be the next thing that goes off like Facebook. The fact is that many of the most successful Internet companies today have been around for years. Other times, it’s someone’s third attempt at building a company, so they know how to do it better, faster, and smarter. In contrast, now there’s people that are 18 months into the process, are just out of school, and have $2 million in capital, but don’t know what to do. And there’s a ticking clock on their business. They don’t have a predictable way to grow their business, so that they can’t return the capital to their investors in 5 or 7 years. As a result, they start doing a bunch of irrational things to try to hit a home run. Listen to me, I’m starting to use the language. I mean there’s a certain truth to it, but there’s people that are brandish about these terms and really don’t understand them. 

Going forward, what’s next personally and professionally?

Everything is ahead of us. All the best, smartest, most driven people will work for FreshBooks, and we’ll take over the world from Toronto. 

Anything to add?

I will say this: we’re hiring and we’re going to be for a long time. Check our website.  

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Igor Bonifacic is a writer working for the Toronto Standard. You can follow him on twitter @igorbonifacic.

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