From Think Like a Founder by Jothy Rosenberg

Think Like a Founder is full of dozens of insightful and intriguing anecdotes taken from Jothy Rosenberg’s experience as a technology entrepreneur. Part memoir and part survival guide, it covers everything that a new founder/CEO needs to prepare for.

This is not the typical technical book that Manning normally publishes. This is a business book which I wrote because it is the book I wish I had to refer to as I set out to found and run a series of nine startups from 1988 to the present. I’m not sure if I made more mistakes than other founders/CEOs but it sure seems I really did have a lot of what we euphemistically refer to as “learning experiences”.

What I found out over the course of all my startup experiences is that there is an incredible amount to know and perhaps now—but certainly not when I began my run—the entrepreneurial business schools only cover some of this. I think we have all learned that what we learn in school is super helpful and useful, but it is nothing like what we learn once we get out in the real world. Besides, when someone gets an idea and they strongly believe it has the potential to be the basis of a new company, this person may not have gone to business school yet or might never want to. But I did not want to write a textbook or even a “Startups for Dummies” type of book. I had really good luck with a memoir about personal challenges I had in my life which I related to readers where I hoped the things I learned the hard way could help them short-circuit all the intermediate steps and get them right to the result they needed. I wanted to do that same thing here but instead of challenges of dealing with being an amputee athlete, these are the challenges of dealing with being a startup founder and/or CEO.

Therefore, I decided to write this as if it was my “business memoir”. So that means it is in the informal first-person style of storytelling because that is precisely what I am doing here—telling stories about what happened to me in certain startup situations that are common and should provide a roadmap for those who follow me and read this book. The reason I call them anecdotes and not chapters is because my goal was for each one to a) stand-alone—you can read them in any order you like and you can go refer back to one when you need that information, b) they are short—usually 6-8 pages or so, and c) they are focused on one very narrow topic or lesson. There is almost always a bit of didactic information in each anecdote so to keep the story-telling flow uninterrupted I put the didactic information in a clearly delineated callout. Each anecdote also ends with a special section called a moral that sums up the important learning contained in that anecdote. We believe there may be times when someone skims through the book only reading the callouts and morals which is just a fine way to consume the information.

Entrepreneurs who start company after company tend to acquire the moniker “serial” entrepreneur. So why am I using “incorrigible” in the subtitle instead? One hint is the definition of incorrigible in Merriam-Webster: (of a person or their tendencies) not able to be corrected, improved, or reformed. In other words, regardless of the outcome of any particular startup, I just went from one to the next getting to nine (so far). Don Marquis, a humorist born in 1878, has a dark, but tongue in cheek, quote about the word: “If a child shows himself to be incorrigible, he should be decently and quietly beheaded at the age of twelve, lest he grow to maturity marry, and perpetuate his kind.” It is the “not able to be corrected” and just a touch of the dark comment of Don Marquis that moved me to use the incorrigible moniker instead of serial.

Putting anecdotes, incorrigible, and entrepreneur together, as I have in the subtitle, describes this book as being the opinions and learnings of an entrepreneur (me) who has gone back to start company after company and each time I have made some new mistakes (and done many things right as well) and in the process has learned a lot which I would like to share with you in an informal, memoir style book.

Since all of my startups were technology companies, the experiences in these anecdotes will be from technology companies. I do not believe this means that the book is only for someone who is or might become a founder or CEO of a tech startup. I know lots of non-technology startups who go through all the same types of formation, financing, building culture, people issues, board dynamics, and so on. But I do not think this book covers the issues of starting a grocery store, a franchise business, a family business, or lots of other types of startups.

In terms of required knowledge to understand this book my goal is to not require any (because I didn’t have any when I decided to do my first startup). Having said that you do need to have an interest in starting a new business either as its leader or as part of the founding team. Or perhaps as an employee of a startup company while you learn what a startup feels like on the way to doing your own at some time in the future. So, you, the prospective reader ideally is a current or future founder or is a senior person working at a startup. You may have designs on the CEO role and want to explore what that might be like. There are anecdotes about raising money, about financing terms, and about things like cash burn rate but none of these are handled at the level a CFO would require. Instead I assume you are not the CFO (well, if you are the CFO, your interest in this book is for a future role where you are no longer the CFO) but that you have an accountant, controller, or even a CFO who does the heavy lifting while you have to know enough on these topics to make the critical decisions and to know what is important and what can wait until later.

The 44 anecdotes contained in the book are grouped into six parts:

  1. First Time Leading a Startup
  2. Raising Money
  3. The Artifacts and Strategies You Need to Be Successful
  4. Management Challenges You Need to Be Prepared For
  5. Your Team: Building It, Sizing It, Aligning It
  6. There Will Be Speed Bumps Along the Way

One of these parts or all of them may be beneficial to you. Perhaps only some are beneficial to you now and some will only be beneficial later when you have had some experience.

About Founders

The word founder is the last word in the four-word title of this book so of course it is a very important concept for the book. When you think about starting or running a company really understanding all the implications of how founders do and should think will be critical. Indeed, in the previous section I established that you, dear reader, are someone who expects to be a founder, or perhaps you are on a path to be CEO of a startup where, if you are not going to be a founder yourself, you will certainly have to work with someone else who is. In fact, get near a startup and you are very likely to hear the term founder thrown around quite a lot. And you may detect a tone of reverence, respect, admiration, or, on the other hand, maybe even jealousy. That tone of jealousy might come from someone who is not a founder hearing everyone else express reverence, respect, or admiration for anyone with founder next to their name. One manifestation of this jealousy is that some startups have a whole lot of people jockeying for the founder title to be attached to their name.

To get the necessary understanding of founder I’d like to start with a list of questions the answers to which will reflect my views on founders informed by having been a founder myself at seven of the nine startups I have been part of. All nine startups had founders I had to interact with and try to manage (try being a critical word), and some were led and driven by the founder or founders, while others were mortally wounded by founders gone awry.

  • What is a founder?
  • How do founders found a new startup?
  • How and when do people get the title founder?
  • What is the role of a founder in a startup?
  • Why is there usually reverence, respect, or admiration for them?
  • Why is there sometimes jealousy towards them?
  • Can founders become a negative force within a startup?
  • Is there some sort of legal component in their title or role?

What is a founder?

I will start with a somewhat formal definition of what a founder is. According to the Oxford Dictionary of English, a founder is a person who establishes an institution or settlement. In our case the institution is a technology startup. Think of the proverbial couple of guys in a garage. That is literally how Apple got started, with two founders, Steve Wozniak and Steve Jobs, working away in their garage. The couple of guys in a garage metaphor is used often because it was true, frequently, that a small number of people did get started in someone’s garage (or maybe basement). These are people with a strong vision of a need they think the world has for which they believe they have a solution. They are risk-takers, creators, they build things, and they typically have a big vision.

I have observed in my own startups and countless ones that I was not part of, that founders get fired up when they see a problem, gap, or unfulfilled need in a market for which they visualize a solution, and they want to take this idea and build structure around it that allows it to become a product or service being sold into some very large market or markets. For that they are willing to forego personal saving for retirement, the stability of a job at a big company, and perhaps any salary at all for the initial phase of their new startup. None of this would happen of course, if these sorts of people had not seen founders of successful startups get very rich; that financial reward highly motivates prospective founders to trade the risk they are willing to take with the potential for large financial reward. They are keenly aware of the risk reward tradeoff and structure their “deal” such that if the startup is successful, they will be financially very well rewarded.

How do founders found a new startup?

Before they even bother calling themselves founders of anything, they are still trying to see if the idea they have really has merit. For most tech startups that means they are building out some sort of proof-of-concept product and showing it to some prospective customers to get their reactions and feedback. Once convinced, then they are ready to start doing all the things that are required to create a new company formally and legally. Someone quickly has to be anointed as the CEO (short straw?) and that person has to do things like create a whole raft of legal documents, file papers with the appropriate secretary of state, open a bank account, set up payroll, establish a base set of policies, and find some space to rent where they can continue their operations (or they might just remain in the garage or basement for a while). The group that has been in the garage building the product, testing the market, doing market research, and formally setting up the company, quite naturally are the founders but not necessarily.

How and when do people get the title founder?

This is the time when there will be a lot of discussion about who will be the founders of this new enterprise. If there is a group of very senior, experienced people, and a group of very junior people joining them, will the junior folks also be founders? Tough decision. Financially this decision matters a lot. In my most recent startup, founders, of which there was one (me), plus five co-founders, received 540,000 shares and even director-level people hired very early on only received 30,000 shares. Justifiably, founders are treated differently by investors, by fellow employees, and by acquirers, because they were first, the core ideas were theirs, they are the most experienced, and they took the most risk. There is a very legitimate question about whether founder is really a title someone should put on their business card and LinkedIn profile. I have seen most people do so for the first few years of the startup’s life. It is added to whatever other title they have such as Founder & CEO, Co-founder & CTO, or Co-founder & VP Engineering. Co-founder is used a lot when there is one real founder, but a core group really wants to be part of the founding team and would be de-motivated without the co-founder moniker. In other cases, when there is not one central founder, everyone in that initial group uses co-founder. Four or five years in, these founder-monikers tend to disappear as they have mostly historical significance at that point.

You would think that the group of founders would be well-established right at the time the company is formally formed, and it is cast in stone as in once a founder always a founder and no one can be added as a founder at some later time. But the title is so alluring and desirable that I have seen people come into a four-year old company demanding to be anointed as founders.

What is the role of a founder in a startup?

Founders were there at the start and in most cases are the creators of the product and the vision for the company, so they are naturally going to be leaders of the company. They also tend to have critical operational roles such as CEO, CTO, or CMO so that further cements their leadership roles. When there are problems that need to be solved whether they be in the product, in the messaging, in anything strategic, the CEO and the board, and even the investors, will naturally want to hear what the founders think about the situation. There is another role they have that is non-operational: they need to provide trust and stability. These are the people that should be the last to lose faith since this is “their baby.” So, none of them should leave early. What I have observed time and time again if the company starts to struggle, is that it is the founders who get together to figure out what needs to change and then to lead the rest of the company in effecting that change and doing some sort of pivot.

One way we tend to keep founders “feet nailed to the floor” is the way their stock is treated. Founders get stock they purchase very cheaply but it is reverse vested over four years (typically) which means if they want to keep all of their stock, they cannot leave the company for four years. A pretty safe assumption is that after four years the company will have matured to the point where the loss of a founder is not going to be a mortal wound. Founders who do decide to leave early regardless of the financial hit they are going to take, are quite frankly dangerous out in the wild. They know everything about the company they helped found and if they chose to ignore their non-compete (assuming they signed one), they could join a competitor and really hurt the company they founded.

Why is there usually reverence, respect, or admiration for founders?

The other employees, board members, and investors would not have this startup to work at or expect a financial return from if not for these individuals. Their vision, ideas, designs, and the product itself all originated from them. They are the creative force that created something brand new from whole cloth as the expression goes. They tend to be “the smartest person in the room” until the company grows a lot when the original concepts have been expanded and changed by a lot of really smart people added to the team since the time when the founders first started their explorations. As previously mentioned, they are leaders in the company and, like all leaders, they tend to engender respect.

Why is there sometimes jealousy towards founders?

As in any situation where there are very smart people whom everyone else reveres, there are others in the organization that wish they were in those shoes and want to be the ones who are revered. And in a case of right place wrong time, they wish they had been part of the original founding team. These same people may not want to grant that these people should have a so much larger stake in the company then they do. That is the inevitable financial jealousy component.

Can founders become a negative force within a startup?

Yes, I have seen founders become a very negative force within a startup company. Whether it is because of the pressure on them to lead or because they feel entitled to be part of the official management team, they can become so disruptive that the CEO has to fire them. This then rattles the other founders as well as the rest of the company. This inevitability creates a huge headache for the CEO. I had to fire founders twice at two different companies and it is one of the toughest decisions I ever made. While my normal philosophy is “hire slowly, fire quickly” I do not follow that when it comes to founders. I do not fire quickly. I try extremely hard to fix whatever is wrong, I exhibit extreme patience, and I spend huge amounts of time with the rest of the founders trying to get everyone to help with the situation. Ultimately, it is only when the entire founder group agrees the outlier is not fixable that I will pull the trigger.

Is there some sort of legal component in a founder’s title or role?

Operationally, no, the concept of founder has no legal standing. Their other title is what determines that. If they are an officer or are on the board, they have well-defined corporate roles, obligations, and liabilities. But what founders do usually have is special founders stock which does differentiate them from other employees. It is not just because they are there first, and they have the ideas and vision that created the company, it is because they get a different structure of stock. It is still the common class of stock but unlike employee stock options, their stock is purchased at a very low price and then has reverse vesting applied to it. Normal forward vesting, such as for employees, says that each year or each month, the employee vests, or can claim, more of their original equity grant. Typically, over a four-year period they will have vested 100 percent of the grant (in other words 1/48 of their total grant vests per month). But after vesting still don’t own the equity yet. For that they need to exercise their options which are technically “options to buy” shares in the company. The price of these options is better than what investors pay but is much more than what founders pay. For example, at a recent startup of mine founders paid one-hundredth of a penny per share whereas employees were paying 50 cents per share. Employees vesting is called forward vesting because as time moves forward, they can claim more and more of their total grant. In contrast, founders get reverse vesting which means that if they leave the company before the full four-year vesting period is up, they are required to sell back to the company, at the de minimis price they paid, the portion of their stock they did not vest in. The very significant benefit founders accrue is that technically they have owned those shares from the beginning and after one holds stock for a year any gains you make on it are considered capital gains not income. In today’s set of rules, capital gains tax is a lot less than income tax. So founders win on the price of their shares, on the amount they get, and on the tax they have to pay on their gains. No wonder so many entrepreneurs want to get the moniker ‘founder’.

Hopefully, you now have a pretty good idea who, what, why, and how founders become founders. And you should have a clear sense of how they think, how they operate, and what is expected of them. You also can see how well they are compensated through equity. Most importantly, you should be clear-eyed if you see yourself being a founder whether or not you are also CEO. Either as CEO or not, the rest of this book is all about how to think like a founder and either be the CEO or support the CEO through all the challenges startup teams go through.

What will you learn from this book?

This book will teach you the skills that you need to:

  1. Become a first time CEO
  2. Raise money from various types of investors
  3. Learn how to develop a go-to-market strategy
  4. Understand how to create a strong positive culture
  5. Gain a really good understanding of what makes a VC tick and things to avoid in raising a round from them

About the author

Jothy Rosenberg is truly an incorrigible entrepreneur, who has founded and led nine startups, two of which had exits over $100 million. His startups were in a variety of areas, most recently cybersecurity where Dover began as the DARPA CRASH program after which he incubated it with major support from the Draper Laboratory CEO from where Jothy spun it out as Dover. Jothy led Dover through harrowing times including the pandemic causing him to transform it into a DoD business. Recently he transitioned to Executive Chairman and hired a CEO out of a major defense contractor. Jothy also joined BBN/Raytheon part-time to be part of their Embedded Entrepreneur Initiative (EEI) to guide their DARPA Searchlight program from research to a new commercial spin out.

Prior to his 10-year journey creating and running Dover, Jothy started and ran startups in the Supercomputer, Internet infrastructure (Webspective sold for $106m or 30X ROI), TV broadcast, Web browser security (GeoTrust sold for $125m or 8X ROI), and Hollywood special effects markets. In the early 90s he ran the most profitable division of Borland International as VP and BU Manager responsible for four major products servicing four million customers and a $300 million profit and loss center.

Jothy created the Can Do Productions TV production company that created three full episodes of a reality TV show called Who Says I Can’t, episodes of which are now on YouTube. Jothy founded and runs The Who Says I Can’t Foundation, a 501(c)3 charity that focuses on restoring the self-esteem of young people who become disabled by getting them adaptive equipment they need to participate in their desired high-challenge activity such as a sport.

Jothy has a PhD in computer science from Duke University and a BA in mathematics from Kalamazoo College. He had a five-year appointment teaching computer science at Duke with a joint appointment at the Microelectronics Center of North Carolina (MCNC) where he was a co-founder, and where he turned his PhD research called Vertically Integrated VLSI Design, into a product used by the MCNC community consisting of the five major universities in central North Carolina including Duke and UNC Chapel Hill. It was a NASA research project he had at MCNC that led him into the entrepreneurial world as he was determined to turn the supercomputer he designed for the Space Shuttle into a new startup in Sunnyvale called MasPar.

Jothy served on the board of directors for Piers Park Sailing Center, Lesley University, The Who Says I Can’t Foundation (current), Sheep Dog, and Dover Microsystems, Inc (current).

He has authored six books including How Debuggers Work, J. Wiley; Securing Web Services, SAMS; Who Says I Can’t, Self; The Cloud at Your Service, Manning; Think Like a Founder: Anecdotes of an Incorrigible Entrepreneur, (under contract) Manning, and Adventures on the Can Do Trail (ages 4-9), Self. He has also written chapters in several books and numerous articles and white papers. He is the inventor on three patents.

He regularly delivers corporate keynotes including at Mass General Hospital, First American Title Insurance, US Naval War College, ESPN, Netflix, Lesley University graduation, Boston University Drench lecture, Vertex Pharmaceuticals, and San Jose Sharks, to name a few.

If you want to learn more about the book, check it out here.