Why diversity is important - even in early stage startups

01 Dec 2016

Laurence Cruse | Talent head & HR, Gyana Limited

Why diversity is important - even in early stage startups

These terms had little recognition in mainstream thinking (with businesses being particular offenders) right up until the civil rights movements of the 1960’s. Slowly, so slowly, we moved towards a more progressive society as these ideals began to gain coverage and proactive efforts were made to incorporate them into the economic and political landscapes.

Figure 1: Use of ‘inclusion,’ ‘diversity,’ ‘equality’ in books written in English,1800–today, source.

At first, it was done begrudgingly.

Business dragged their heels. Minimal effort was justified under the guise of ‘corporate social responsibility‘ or because it kept the PR managers happy. Female coders were actually on the up until the 80’s, then not so much.

Figure 2: % of majors studied by women in the USA, source.

For some, diversity was a gift, but not for the right reasons. Should you have found yourself operating in ‘ethically questionable’ industries, you now had a new and beautiful wrapper to present your company to the world with – one of tolerance, acceptance, and, heaven forbid, inclusivity. This was independent of how much you believed it would actually benefit your business.

Despite these questionable roots of progress, there was a silver lining. A very thick one as it happened.

McKinsey investigated the payoff from diversity. Their most recent (2015) report revealed that:

To reiterate:

  • Companies with top quartile gender diversity were 15% more likely to have financial returns above industry median.
  • Companies in the top quartile of racial/ethnic diversity were 35% more likely financial returns above industry median.

Yes, that’s financial returns. As in top and bottom line. As in statistically very significant.

Still not convinced?

The Center for Talent Innovation (CTI) surveyed 1800 professionals and found that those with 2D - Diversity were 45% more likely to report growth in market share, and a staggering 70% likelier to have captured a new market.

So what’s the reason for this?

They are many and varied of course. From a customer perspective, the CTI report concluded that diverse individuals more in tune with the unmet needs of consumers more like themselves. McKinsey found that diverse companies could source talent easier (by virtue of a wider candidate pool) and improve decision making (via greater variety of problem-solving approaches).

Now, these reports drew their data from large, publicly traded companies, so what are the implications for startups? Startups are defined in many ways, and we’re not going to get into which is right here. For the sake of brevity, we’ll go with Steve Blank’s version:

A startup is a temporary organisation designed to search for a repeatable and scalable business model.

The key words here are: repeatable and scalable. A startup, by its very DNA, dreams of finding that business model that works over and over, all over the world. So by definition, if your startup is not able to understand and empathise with customers all over the world, then your hyper growth ambitions have been successfully limited to friends and family.

Diversity brings more value than just customer empathy. A hallmark of a startup is the speed and creativity with which they can innovate – if the team is homogeneous then they’ll fall victim to the effects of groupthink and flounder with bias to non-confrontation and a lack of varied perspectives.

Whilst the word ‘disrupt’ has joined the highest ranks of startup clichés, it does encapsulate the impact of that savage and totally unexpected innovation that re-ordered an entire industry (think sharing economy, consumer 3D printers or MOOC’s) and made all the existing professionals wonder just what they’d been doing.

Many of these incredible ideas arose due to low associative barriers, defined by Frans Johansson as:

An ability to easily connect different concepts across fields. A person with low associative barriers may think to connect ideas or concepts that have very little basis in experience that cannot easily be traced logically."

After all, what do the experts know?

Startups are in an incredible position to make diversity a core component of their business strategy. By embedding this approach early, the foundations are set to grow in line with founder and investor expectations.

Diversity has its roots in appalling social injustice, yet we are now happily unsurprised that it is yielding tremendous business value to companies large and small. Finding a competitive advantage in our ever more globalised economy is an impossible task, that is of course if you choose to ignore what diversity can do to your bottom line.

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