How this online accounting service reinvented itself on the fly to secure $43M in funding
Cloud-based accounting software service FreshBooks, recently announced that the company had raised $43 million USD in Series B funding led by existing investor Georgian Partners. The announcement predictably attracted widespread attention in the media.
The platform also previously raised $30M USD in institutional funding back in July 2014. The success of the service is highlighted by its 10 million users across 160 countries. But, there is much more to this story once you scratch beneath the surface.
Freshbooks was released back in 2003. Although it might be difficult to comprehend in this digital age, SaaS didn’t even exist as a concept, and neither Uber or the so-called gig economy had arrived on the scene yet.
However, the Canadian startup began its journey in the CEO and Co-Founder, Mike McDerment’s parents’ basement. He set out to create a solution for small client-service businesses that send invoices to clients and get paid for their time and expertise.
Despite experiencing incredible success, within just a few years, it quickly became apparent that a lengthy tech upgrade looked inevitable. Making changes to legacy technology platforms are notoriously difficult and the reason why so many IT projects are destined to fail.
The airline industry which is recently experiencing more and more plane grounding outages is an excellent example of what happens when new shiny solutions are built on top of aging technology. Most businesses do not realize this until it’s too late.
However, McDerment had the foresight to see what would happen to his business in ten years if he did not act sooner rather than later. A radically different approach to avoid problems in the future beckoned, so he created a secret company within a company to completely re-platform their product as well as up their game.
The plan was to run the two platforms side by side until the right moment arrived to switch them over. The inspirational story behind FreshBooks captured my attention. Recognizing that his business would need to adapt to be compatible with future technologies is a story that we seldom get to hear.
The new FreshBooks was designed to be easier, simpler and modern, with the benefits of natural collaboration and faster product improvements. Mike McDerment, co-founder, and CEO at FreshBooks.
Having the foresight several years ago to predict that his platform would need to be simplified to be intuitive and easier for future audiences is the first of its kind that I have heard. McDerment also shared his journey and vision for the future of FreshBooks on my podcast recently.
McDerment proudly advised “Our mission is to reshape the world to suit the needs of self-employed professionals and their teams. Building a global technology company in Toronto and launching the new FreshBooks platform helps us live the mission.”
However, McDerment was very careful not to upset his existing members by enforcing widespread changes to users who were quite happy with their current platform. There was no forced migration, but a much friendlier option to migrate over to the new system when they were ready.
Those that didn’t like the new system were also allowed to migrate back to the previous version. Essentially, Freshbooks made their customers a number one priority.
Since relaunching its accounting platform and adding more funding, the team will be looking to improving its product innovation for billing, reporting, accounting, and partner integrations. But, it’s McDerment’s vision and carefully orchestrated masterplan that is now paying dividends.
Building an entirely new version of a core product was a radical move indeed. However, it was this proactive rather than reactive approach to business that went along way to securing this latest round of funding.
Any company that plans on sticking around for the long haul will need to start thinking about the future rather than waiting until it’s too late to pivot. All too often we judge a success story of where they are now, but rarely take notice of the game changing decisions along the way.