Recently, Mike McDerment, CEO and co-founder of cloud accounting software FreshBooks announced something different for his company. FreshBooks has raised $30 million in venture funding — it’s first ever — from major investors Oak Investment Partners, Atlas Venture and Georgian Partners.
Observers, like Alex Conrad of Forbes, have ascribed various motives for FreshBooks finally taking outside funding after 12 years.
In an email to customers and others, McDerment admits he’s always been conflicted about it, fearing investors would change his company’s culture or its ability to serve customers. But in the end, McDerment cautions other startup CEOs like him to focus on three major priorities over all other concerns when it comes to making such tough calls.
Define Your Vision and a Logical Way to Reach Your Goals
Most entrepreneurs have probably heard of this priority before. But, McDerment stresses that knowing where your company is headed and how to get there comes down to both seeing the big picture and also taking a narrow focus.
“There are 60 million small businesses in the English speaking world and only about 17% of them use accounting software. The rest mostly use Word and Excel. Consider the implications. We know using FreshBooks helps owners save an average of 16 hours a month. Using back of the envelope math, Word and Excel use is costing the World almost 10 billion hours annually.”
However, looking at this from another perspective, McDerment also observes:
“Now, 60 million businesses is a lot to serve. We don’t believe you can be the best at anything if you try to serve everyone, so FreshBooks is designed exclusively for client service business owners—people who send invoices and get paid for their time and expertise. No retail. No manufacturing. No restaurants. We believe this difference matters, and we are the only accounting software company in the world solely focused on serving this market.”
So on the one hand, McDerment has identified a big need and how to serve it. But on the other, he is being realistic. He is reasoning his company may falter if it tries to serve all the many kinds of small businesses out there.
So instead, he has narrowed his focus. He has chosen a niche he believes his business can serve. And from here on in, every decision he makes about his business can be based on that well-defined vision.
Build the Kind of Team that Can Make Those Goals a Reality
We’ve all probably heard this one before as well. Growing startups need a team. And a team needs not only followers – but leaders. McDerment describes the team he is building in FreshBooks’ hometown of Toronto as comprised of both kinds of people. He writes:
“Over the last 18 months we’ve created a world-class executive team—recruiting top talent from Toronto, Ottawa and Silicon Valley. This team now leads over 150 FreshBookers determined to build a global leader headquartered in our hometown, Toronto. Having these people on-board has transformed FreshBooks, and on a personal note, changed my work-life balance, setting myself and our whole company up for our next phase of growth.”
Building a team takes not only leadership and skill. It also takes resources. As this team grows, so will your business and (hopefully) your revenue. But in the beginning, you’ll need something to get you started. This leads us quickly to the last priority.
Make Sure Your Bank Account Can Help You Fulfill Your Vision
Though for many, the decision of whether to take venture capital funds (or any other loans or funding for that matter) can be difficult, McDerment insists it need not be. Entrepreneurs must simply keep their priorities in mind. He explains:
“When we started in the basement, I built a tool for myself. It suited my purposes and my clients liked it. Since then FreshBooks’ vision and ambitions have grown. Realizing our vision and feeding our ambition requires capital. So – we’ve raised it.”
For years, McDerment says he’s been speaking to investor groups but never asking for money. Those interactions were all preparation for the present and he says his company finally raised venture funds to further its company culture and client service goals, not to hinder them.
Your business doesn’t need to take venture funding, of course. It may not even be in the position to do so – now or ever. But whether you bootstrap, take out a loan, or borrow from friends and family, be sure you make financing and all other decisions with these startup priorities clearly in mind.
Focus on your vision and what’s needed to build the team and create the bank account that can make that vision a reality.
“Word and Excel use is costing the World almost 10 billion hours annually” – I never looked at it this way. I come from a world where double ledger was done on huge “boards” with carbon paper in between sheets and where you had to hit the right line. Too long a story to relate today and here. But: when spreadsheets came along, that “back then” was a revelation. The problem is though, that most people do not understand accounting, like they also don’t understand the car they drive. But while they would never service their car themselves because of it they think they should do their own accounting. Which gives them no or warped key performance indicators. Which is one reason so many start-ups fail in the first two to five years and a lot of the “survivors” struggle because – well, they may not even have heard about that gear-shift, to stay with the former metaphor.
Thanks for the post Shawn.
I love Mike’s ideas! Define Your Vision and a Logical Way to Reach Your Goals is my favourite. There is so much to do at the start that you can lose vision and end up wandering down a path of zero productivity!
I like to be constantly revisiting my end goals and making sure that everything is in line.