3 Reasons Why a Diverse Team is Crucial to a Startup’s Success
Workforce diversity is a hot-button issue, but the tech world is still failing to keep pace. Here’s how a diverse team drives company performance, brand awareness, and long-term security.
Over the past few years, diversity has become a hot-button issue for businesses of every size. More brands have been putting a spotlight on diversity, whether it’s through hiring female CEOs or creating advertisements focused on social issues.
Yet despite all of this attention on diversity in the workplace, companies, and startups don’t seem to be taking action to create more diverse teams. A recent Recode report found that The percentage of venture capital funding going to startups with at least one woman founder has stagnated at 10 percent since 2016, and funding for all-female founded startups remained at a dismal 2.2 percent in 2018. Meanwhile, only 13 percent of minority-led businesses received funding from VCs in 2017, which could be a result of the fact that less than three percent of VCs have black or Latino investment partners.
Why is there such a huge gap between this talk of corporate diversity and actually implementing it within VCs and startups? The fact is, there are plenty of research-backed reasons for startups to truly embrace diversity in their teams and, in the process, help society advance.
Also Read: 3 Ways Technology Can Help Promote Diversity in the Workplace
Diverse teams help startups reach the customers of tomorrow
The U.S. has always been acclaimed as a melting pot of races and ethnicities, and the country’s population is only getting more diverse: By 2055, the U.S. will have no racial or ethnic majority group. Women also currently make about 75 percent of consumer purchasing decisions, and nearly 40 percent of the employees who make enterprise purchasing decisions are women.
To reach these diverse customers of tomorrow, it’s helpful for startups to have a diverse employee base who can come up with the products of tomorrow — i.e., products that will benefit a diverse range of people with different needs. There are some products that may only be thought of if the startup has a diverse team. For example, Daye is a “femtech” startup founded by Valentina Milanova, who developed a pain-relieving tampon designed to ease menstrual cramps and discomfort — something that most men probably don’t think about on a daily basis. Speaking about the role of diversity in her startup, Milanova said, “I guess the role of technology and entrepreneurship in femtech is to have a level of empathy that you can only have if you’ve experienced these issues yourself.”
By employing a diverse team, startups can develop early-stage ideas and products into incredibly useful ideas — ideas they may not have even thought of if they didn’t have a diverse staff to bring in unique perspectives and avoid groupthink.
Diverse companies outperform non-diverse companies
Simply put, diverse startups consistently generate more financial success than their non-diverse counterparts. Report after report has shown that gender-diverse teams yield more revenue and profits for their companies.
The Boston Consulting Group recently discovered that startups founded and co-founded by women generated 78 cents for every dollar funded, while male-founded startups generated only 31 cents. In their groundbreaking report, McKinsey reported a significant relationship between a more diverse leadership team and better financial performance. In their study, McKinsey found that companies in the top quartile of gender diversity were 15 percent more likely to have financial returns above their national industry median, while companies in the top quartile of racial/ethnic diversity were 35 percent more likely to have those above-average returns.
And after studying some of the most successful and least successful startups, the Traction Gap Institute found that team and culture matter most — meaning that this should be every startup’s key priority as they grow their company.
Modern consumers support diverse, socially-aware companies
Modern consumers are now more conscious than ever of companies that are non-diverse or don’t support diversity. Take Chick-fil-A, for example. Years after its 2012 revelation of several donations to anti-gay marriage organizations, the national fried chicken chain is still receiving backlash. Although much of the noise and protests of the chain has died down recently, not everyone has forgotten the controversy: The chain was denied its proposal to build a restaurant on the campus of Fordham University after a huge amount of backlash from student groups in support of LGBTQ rights.
It’s not surprising that it was a college group that hadn’t forgotten about Chick-fil-A’s controversial past: The next generation of consumers are more socially conscious than ever. 81 percent of millennials expect their preferred companies to make public declarations of corporate citizenship, according to a Nielsen report. And as consumers, 60 percent of Generation Z will support a brand if it advocates for equal rights and diversity in sexual orientation and race.
Many bigger brands have taken notice of this in the past year alone, creating new social ads and marketing campaigns based on social causes: Gillette released a highly controversial ad borne from the #MeToo movement, while Nike has released ads both in support of Black Lives Matter and another titled “Dream Crazier,” aiming to support women who are labeled as crazy for showing their emotions.
Also Read: 3 Ways Workforce Analytics Can Help Improve Diversity
While these brands have also caught some backlash for “woke washing,” or creating the appearance of caring about social causes to make more profits, the truth is that most of the younger generations still want to see brands paying attention to and supporting social issues.
Startups can take the lead from brands like Nike and Gillette by ensuring they become corporate citizens, supporting social causes and hiring diverse teams that show the public they don’t just talk the talk of diversity — they walk the walk. If startups can use these three strategies to maintain a diverse and socially conscious business, they’ll find success in today’s new melting pot of the corporate world.
