This week on BNN’s The Disruptors, I paid special attention to Bruce Croxon’s chat with Freshbooks CEO Mike McDerment.
Being an entrepreneur that has bootstrapped a company from nothing, looked for financing, and was eventually acquired, I could relate to Mike McDerment’s described path to building Freshbooks.
Croxon stated in regards to McDerment’s initial reluctance to taking Venture Capitalist (VC) funding that “he’s either very conservative, or very smart.”
I would say the latter.
Freshbooks eventually took VC funding from Georgian Partners, and as McDerment said, the timing needed to be right.
From MediaMiser’s experience and from other companies I’ve talked to, many VCs view words like “customer” or “professional service” as a red flag. Many of the VCs we talked to focused only on scalability and saw customer and professional service as a barrier to rapid growth.
This was one of the points Mike McDerment made.
Both Freshbooks and MediaMiser are software-as-a-service (SaaS) companies. We are highly prized in the investment world, because of our recurring revenue.
And it’s tough to have a successful recurring revenue model without great customer and professional service.
In fact, the father of SaaS — Salesforce’s Marc Benioff — touched on this in his book, “Behind the Cloud: The Untold Story of How Salesforce.com Went from Idea to Billion-Dollar Company-and Revolutionized an Industry,” when he said his company landed Fortune 500 firms as clients thanks to great customer service.
In our case, some of MediaMiser’s best salespeople have been our customers through word of mouth. In a sense, our clients make MediaMiser scaleable from a sales and marketing perspective, and McDerment has a similar story.
Does this mean companies should avoid VC-based financing?
No. But as McDerment said, the timing needs to be right.
And remember, ultimately your company exists because of your customers. If you don’t have customers, all the investment in the world won’t help you and eventually most investors, especially VCs, will abandon you.