Thinking about the competition often keeps business owners up at night. Will someone else find a way to copy your product? Will they lure customers away? Will they make your clientele happier?

It’s the stuff of nightmares.

Mike McDerment, the co-founder and CEO of FreshBooks, decided that he didn’t want to waste time being afraid of his competition. Why wait for someone to figure out how to do your business better? So he decided to do something about it now—and created a strong competitor.

“Hey, we’re having great success. Our customers are very happy. They’re the biggest driver of the growth of our business. But if I look into the future, you know, five or 10 years, I’m concerned that the technology we’re built on is not going to set us up to win in that future time period and future state. And so the question becomes do you do something about that now, or do you just keep trying to figure it out as you go? And what we decided was let’s do something about that now.”

Mike created a second business within his business to pilot new ways of meeting his customer’s needs and keep up with emerging technology. He knew that he needed to examine his core product and make some fundamental changes, however, as a flagship company for cloud-based accounting, Mike also wanted to make sure that his team could take risks without feeling like they would be endangering the information of their hefty client list (over 20 million people have used FreshBooks in the past ten years). He created a new company, with its own website, branding, and legal name, and he and his team used that as their “petri dish” to take risks and set FreshBooks up for future success.

It wasn’t just a pet project, though—everyone on the team knew that the stakes were real, and the project could be scrapped if it didn’t meet benchmarks. But the excitement was infectious, and Mike soon found himself with a new, thriving start-up that he couldn’t help but be excited to report was stealing away his customers.

It was an unconventional move, but effective. Using everything they learned in their mini-startup, FreshBooks was able to make a smooth transition to their new platform and learned valuable information about their customers in the process.

Join me as we discuss customer proximity, being a partner with your clients, and how Mike went from being a marketing consultant to creating a valuable cloud-based accounting software (despite not being a programmer).

The power of disruption. Isn’t it beautiful?

Listen in the player above, or download the episode on iTunes. If you like what you hear, leave me a comment! And since the year is wrapping up, why don’t you let me know which episode this year was your favorite? I’d love to hear your thoughts.

Takeaways from this episode:

  • Careers are often not as linear as we think they will be. Mike went from college to creating an Ultimate Frisbee League, as well as an event business, which led to his creating websites (which other people then wanted to buy), which led to his becoming a consultant, which ultimately helped him create a product that small businesses love.
  • Sometimes mistakes can lead us to greater solutions. If Mike had never made the mistake of saving over an important invoice, FreshBooks (and all its success) would not exist today!
  • Sometimes you need to examine your core business and not just look at what will make you successful today, but what will make you successful in ten years. Be willing to make changes if you don’t like what you see.
  • Having constraints, such as internal deadlines and benchmarks with real consequences, can help spur us on to greater creativity. Mike’s team knew that their business-within-a-business could be axed for not meeting benchmarks early on, but they were excited about the potential and willing to take risks.
  • Innovation usually requires risk. It is a leader’s job to create an environment where employees know they can take risks and be supported.

Links Mentioned in this Episode:

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