FreshBooks CEO Mike McDerment on never getting complacent about success

The founder of the Toronto-based cloud software provider explains how the company fosters a culture where innovation is the norm

FreshBooks CEO Mike McDerment in the company's Toronto head office. (FreshBooks)

FreshBooks CEO Mike McDerment in the company’s Toronto head office. (FreshBooks)

Innovation is often borne of necessity. Coming up with a new way of doing things, or a groundbreaking product or service, is a requirement when a startup is striving to make an impact—or when the core offering of an established business just isn’t working any more.

It’s an entirely different proposition when a company is doing just fine. Thriving, in fact. By all key measures (sales growth, customer satisfaction, market penetration), Toronto-headquartered FreshBooks was a very successful business when it made the decision to overhaul its entire cloud-based accounting software platform two years ago. But CEO Mike McDerment still felt compelled to change things—in a big way. The firm invested some some $7 million and countless employee hours in the year or so leading up to the launch of the totally revamped FreshBooks platform in September of 2016.

McDerment sat down with Canadian Business to talk about why he decided to fix something that wasn’t broken, how that decision “elevated” employees and what he thinks creates cultures in which innovation is a perpetual process—not a destination.

What made you decide to overhaul your core offering when it was working well?

It was an interesting time. We had the market-leading product, with very high customer satisfaction. But we’d started the company a decade before. It’s a tech company, and as I looked into the future, I said to myself: “We might be leading today, but you know, there is quite a bit that has changed since we started. New technologies are available that are really powerful and help people do things better. Consumer expectations have changed, when it comes to what best-in-class looks like. If we want to win in five years, I don’t think we can keep doing what we’re doing.”

Was there a clear moment that crystallized that it was time to make a change, or was it more of a gradual realization?

I think it gnaws at you. I’m a founding CEO; I spent three and a half years in my parents basement building this business out at the start. I really care about it, and I’m a really long-term, customer service-focused thinker. And so for me, these decisions are very base and instinctual.

Sometimes you don’t have the data that suggests you need to do something; you just have to take a leap. But that’s hard. I suppose I have an unfair advantage in that I’m a founding CEO, so I have the moral authority to sort of make these calls. It wasn’t unilateral, but sometimes when a decision like this needs to be made, it needs endorsement from whomever is at the top of the food chain.

Once you made that call, how did you proceed? Was it an “all hands on deck, we’re shifting course!” kind of situation?

We made a decision to work on a pet project, and see if that wouldn’t turn into, frankly, a complete reimagining of our product. And it turns out, it did. What we launched in September is a completely reimagined version of our product.

But it started out as sort of a skunkworks, a side team. Then that team grew, and the last little while before we launched, the majority of people in the company were working on it in some way. But it wasn’t like we threw everyone on it on Day One. That’d be a really good way to mess it up.

You say it’s a “completely reimagined” version of the FreshBooks platform. So, did it involve a complete rebuild?

It did. It’s interesting: a lot of the innovation—not all of it, but a lot of it—was on the UX, front-end side of things. We were able to use some of our existing back-end capabilities. Not all. We reworked a bunch of those, and in interesting ways, because the back-end is very important for delivering a great front-end customer experience. But really the drivers [of the overhaul] was what people would see and experience and use in the product, because that’s the part that customers are exposed to.

You mentioned the project, ultimately, affected everyone at FreshBooks headquarters. From your vantage point, what effects did the process have on employees?

What really blew me away was seeing how folks elevated while working on a project of this scale, with no guarantee that it would actually succeed. They really raised their game and delivered a whole new level of performance, which I found completely inspiring. People grew. They found new ways to do things that we didn’t think could be done before. That was an unforeseen benefit of doing something so ambitious. All kinds of good stuff has come out of that.

What did that teach you, as a leader, about using an ambitious organizational goal or project as a way to elevate employee performance?   

Sometimes people think that having a vision, something that’s ambitious and a challenge, is all it takes to get these kind of results. It’s easy to talk about visions and goals, but it’s also easy for people to not feel connected to them or believe in them.

I think there’s a whole cycle of starting to believe. In our case, it sort of built. It was “We’ve had some successes over here,” then “Whoa, there are some more successes,” and then “I think we can do this!” which leads to “Oh my gosh, there’s a deadline, let’s get there.” So it started from a place of “We don’t believe we can do it” and lead to “We’re gonna nail this thing and it’s going to be great.” If you believe it’s going to be great from Day One, you’re probably starting off in the wrong mindset.

The revamped platform has been in the market for more than six months. What are you doing to maintain the spirit of innovation that led to the overhaul?

I think two of the values of our company encapsulate what we’re going for here. They’re printed on banners that almost 100% of employees walk by several times a day. The first is “Strive.” This really centres around the idea that good enough is not good enough. There’s an expectation that even though you did something and got it done, you still have a responsibility to make it better. It never ends. We’re constantly working on our craft and we’re passionate about that. I don’t want to say we’re never satisfied—I think it’s important to take a break and celebrate successes—but it’s also important to follow with “That was nice, now what are you going to do?” I think that kind of thinking is baked into the culture here.

The second core value is “Change,” which is about believing that change brings learning, growth and progress to ourselves and to the business. We are open to it, and embrace it. If people have that drive, and the openness to not squash it in others or within themselves, that helps create the will to start going further.

My thinking is that if teams are clear on what success is, and accountable to delivering against that, and lack infinite time, you can start to create the conditions where good things start to happen.

We have a lot of work left to do. We can’t sit on our laurels; we have to keep going. Better for that to come from inside the building than from outside, if you ask me.

The overhaul took a up a lot of time and money. Are you confident that it will pay off?

You could argue we’d be in a better place today if we’d spent all that time and money and effort behind the scenes working on the old platform. But it’s about winning in five years, not about winning this year. That’s how you have to make decisions. That’s how you stay alive in an industry that’s changing as quickly as ours is.