Why This CEO Started a Secret Company to Compete with His Existing One

Eighteen months ago, FreshBooks CEO Mike McDerment did something that might blow your mind. In secrecy, he started a brand new company to compete with his existing one.

Finding Space to Experiment.

In my recent interview with McDerment, he described a moment in the winter of 2013 when he had been feeling uneasy about the steady growth of his business. Freshbooks, which had long been the darling of the DIY bookkeeping industry, needed to keep innovating to remain competitive.

The reality, which McDerment recognized, is that software products, by their very nature, are malleable and constantly changing. In today’s business landscape, consumers expect products to be constantly improving.

But how do you make major changes in a way that does not disrupt existing users? Especially when their livelihood depends on your product?

How does a company allow for the exploration required for innovation without screwing up what it’s already getting right?

McDerment asked himself these questions. And he believes he’d found the answer by rolling out an updated product, but not under the FreshBooks brand.

And so, he started BillSpring.  

Newcomer BillSpring could market its product as “in development,” thereby creating the space for experimentation and attracting new users with its updated design.

Sure, this strategy is logical, but it’s jarringly unconventional. However, McDerment says Freshbooks has sought to establish a culture of putting people at the center of every decision, so for him, it was an obvious move.

Being Human-Centered.

FreshBooks took the coveted first place spot in the highly competitive Great Places to Work survey. The secret sauce, according to McDerment, is the company’s ability to embody a human-centric approach to all facets of the business: from product development, to hiring and training.

Employees aren’t the only people who matter when it comes to making decisions at FreshBooks. Customers are in constant focus–a concept McDerment calls customer proximity.

To make sure that all team members understand customers, all newly hired employees spend a month in customer service. And this pitstop in customer service occurs without exception, not even for the new CFO, who had taken three companies public. Despite not having any customer-facing interactions, he too spent 30 days getting to know customers on the front lines of customer service.

As a result of this mentality, the company is hyper-sensitive to customer satisfaction. So in retrospect, the decision to create a completely separate brand is no surprise. In fact, it’s a considerate way of introducing change.

A Considerate Approach to Introducing Change.

Whether change is as simple as a minor feature update or something as significant as starting a whole new company to compete with, the consideration of the impact on all people involved should always remain at the forefront.

It’s not just what Freshbooks values, but as so many companies have proven, it’s just good business. 

Eighteen months after the experiment, Billspring had shown improvements in business performance and customer satisfaction, exceeded those of Freshbooks. At this point, McDerment finally decided it was time to come out of hiding, dissolving the Billspring brand and merging the products back under Freshbooks. 

“When we launched we didn’t want our users to worry. So if they said ‘you know what? It’s great but not right for me’ then they could return to Freshbooks classic,” McDerment says. “We did everything in our power to not destabilize our users’ business, and so the vast majority of people recognized that and chose the new version when they had the chance.” 

The Takeaway: Create the Conditions for Innovation.

The extreme stealth-mode approach may not be the right answer for other companies looking to navigate change and growth, but creating the conditions for change and growth is–for the organization and, more importantly, the real people they serve.

Despite the radical time and cost investment, McDerment stands by his 18-month experiment to deliver positive outcomes for its employees and customers. Ultimately, affording the freedom of time and space is what has enabled the award-winning success that the company enjoys today.

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Stella Densmore