Every Wednesday, Mike McDerment, the co-founder and CEO of FreshBooks, a Toronto-based online accounting service, has dinner with an aspiring entrepreneur he thinks he can help. There are rules for these meals. One, the entrepreneur gets to pick the restaurant (though it has to be a place that McDerment hasn’t eaten at before), and two, McDerment picks up the tab. He’s been having these dinners ever since he stopped organizing Mesh, the annual Canadian digital conference he helped start seven years ago. “It’s one person at a time,” he says, “but sometimes, if it’s a good match, it can have a real impact.” The dinners are less of a time commitment than Mesh, and they’re a great way for McDerment to keep his fingers in the local innovation pie. But he also admits he’s driven by a more selfish motive. The more startup successes there are in Canada, he argues, the more rapidly the tech community—and thus his own tech business—will grow.
The lesson of McDerment’s success is that tech companies, and particularly Internet-based ones, can pop up anywhere. But the Canadian experience has been that founding a startup in Canada hasn’t necessarily meant keeping it here for the long term. Observers have proposed many reasons why companies decamp, ranging from unadventurous investors to high taxes to simple Canadian meekness, but there are some promising signs that the exodus could finally be slowing.
McDerment, who is 36, started FreshBooks with two other partners in 2003. At the time, the Queen’s University commerce grad ran a four-person Internet design and consulting company called Anicon, and he was searching for a more efficient, reliable way to bill clients. The solution he came up with, and coded himself, took a year to get to market. During several more years in the wilderness—at one point, the company was located in his parents’ basement—FreshBooks grew only incrementally. “From an external viewpoint, we were failing miserably,” McDerment says. “But internally, we enjoyed what we did, we could see the progress, and that was enough to keep us going. When you’re starting out with something, it’s really important to establish your own measures of success.”
Over time, those internal and external measures came into alignment. Today, FreshBooks has five million online subscribers, from freelance journalists to lawyers and plumbers, most of them paying $19.95/month and up. The company bills itself as the world’s No. 1 cloud-based accounting specialist for small-business owners. It has nimbly blended web 2.0 principles, strenuous attention to customer service, and a friendly, intuitive (and frequently updated) interface. Forbes called it “one of the stars of Canada’s high-tech sector,” and the company has grown to 100 employees occupying a 23,000-square-foot office complex filled with the requisite dot-com features like video games, pet dogs and no dress code. McDerment is tight-lipped about precise revenue numbers, revealing only that, “we help people like you collect billions of dollars.”
Those people also include a lot of Americans, and with such robust metrics, it’s no surprise that a company in FreshBooks’ position would be targeted for takeover, consider decamping to Silicon Valley or cashing out. None of those options appeal to McDerment. “We’re not interested,” he says simply. “I have way too much left to do, and I don’t know how that would facilitate the things I want to get done. I want to build a world-class technology company in Toronto, with a known global footprint. It gives me great satisfaction to grow the company here.”
McDerment’s rationale might be personal, but he’s quick to cite other reasons that other tech companies would want to stay in Canada: excellent universities, smart talent, government financial support like tax credits for R&D, and cheaper employment costs. One of the complaints often levelled at Canadian companies—inadequate competitive drive—turns out to have a silver lining for firms like FreshBooks, since employees stick around longer at successful, ambitious companies. “We’re getting targeted all the time by people trying to poach our people,” McDerment says. “But in Silicon Valley? I don’t know how people sleep at night.”
Andy Yang, the “chief innovation hunter” of Extreme Startups, an accelerator lab in Toronto, argues that FreshBooks is a perfect example of what’s achievable for tech startups in this country. “There’s lots of positive momentum,” he says, pointing as well to the recent $80-million venture capital investment by OMERS Ventures and the American venture fund New Enterprise Associates in Desire2Learn, a global provider of online education platforms, based in Kitchener, Ont. “Access to capital is a struggle for everyone,” he says, “but if you’re talented and persistent, it’ll come.”
Desire2Learn CEO John Baker has said that VC money will help him hire top talent, perhaps the biggest challenge that McDerment says FreshBooks faces as well. As any local tech company grows, it must eventually confront the fact that the Canadian talent pool, in terms of both executives and engineers, is much smaller and less educated than those in Silicon Valley, Seattle or New York. “That starts to become your rate-limiting factor,” McDerment says.
Roger Martin, dean of the Rotman School of Management at the University of Toronto, has been studying this phenomenon in frustration for years. He’s concerned that policy-makers mistakenly continue to cultivate scientific and technical expertise at the expense of managerial skills: “Companies are going to continue to move to the U.S. to access the managerial talent they need to grow their technology businesses. We’ve been showing this data since 2005, and little or nothing is being done in Canada to help it out.”
For his part, McDerment has been able to capitalize on Canadian talent that’s gone abroad and now wants to return home, often for reasons—they want to be near family, or they don’t want to raise their kids in the U.S.—that are as personal as McDerment’s are. He also maintains that FreshBooks’ corporate culture has been key to attracting, and retaining, that talent. “You’re not just building some technology in the bowels of some mega-corporation that may or may not see the light of day. And if you’re working in a high-performing team with a bunch of top performers, why budge?”
This is the second in a series of articles about how Canada can take the lead in global business. For more, come to the 10th Annual Canadian Business Leadership Forum on Oct. 23 in Toronto. For details, visit www.canadianbusiness.com/leadershipforum