Build diverse teams

  • 5 minutes

This unit will explore how inclusive hiring can be a source of competitive advantage for your startup.

We'll look specifically at gender diversity, ethnic diversity, neurodiversity, and people with differing ability. But the concepts that we'll discuss are intended to reflect a focus on diversity in the broadest sense.

Gender diversity

In the United States, only 20 percent of seed-funded startups have a female founder. Startups founded by women receive only around 2 percent of all venture capital invested.

One of the reasons for those low numbers is that only 8 percent of partners at venture capital firms are women, and three-quarters of US venture capital firms don't have any female partners. It's been shown that bias, unconscious or otherwise, has a dramatic effect on investment decisions.

Nevertheless, a recent study by BCG found that venture-backed startups with women founders generated more than twice as much revenue per dollar invested than startups founded by men.

Ethnic diversity

According to a recent study by Kauffmann Fellows, founders and executives of US startups are 79 percent white, 16 percent Asian, 3 percent Latinx, and 2 percent black. Yet the same study found that ethnically diverse startup founding teams raise significantly more money per startup from investors and generate greater returns.

Again, bias has been shown to play a large part in this discrepancy. A study by Paul Gompers and Sophie Wang from Harvard Business School showed that investors are 39 percent more likely to invest in startups founded by people who share their race. At the same time, only 2 percent of venture capital investors are Hispanic, and fewer than 1 percent are black.

The reasons for greater performance by ethnically diverse teams include greater diversity of ideas and perspectives, greater objectivity in decision-making, and less susceptibility to group-think. For more information, check out Why Diverse Teams Are Smarter by Harvard Business Review.

Neurodiversity

It's estimated that around 17 percent of the population is neurodiverse. This definition includes people with autism (2 percent of the population), ADHD (4 percent), and dyslexia (10 percent).

According to Perrine Farque, author of the book Inclusion, neurodiverse people can excel in thinking creatively about problems because they've had to adapt to difficult situations and solve problems in their own lives.

Also, many on the autism spectrum can sustain focus over longer periods of time compared to neurotypical employees. They can also pick up patterns and connections especially well. These abilities make them valuable in roles that involve pattern recognition or data analysis, such as software QA, image analysis, or cybersecurity.

For these reasons, large companies such as SAP, Hewlett Packard, and Microsoft have created programs to attract neurodiverse employees. In numerous examples, participants outperform other employees by as much as 30 percent.

People of differing ability

One in four adults in the US has some type of disability, which includes challenges with mobility (14 percent), cognition (11 percent), hearing (6 percent), and vision (5 percent).

The inclusion of people with disabilities in product development has been shown to greatly improve companies' success in building products that need to be accessible by those with disabilities. Building accessible products is becoming not just desirable, but mandated in many settings. It's much easier to achieve if your team includes people with a disability.

Research has also shown that teams composed of people with disabilities make better business decisions and develop products that are more in tune with customers' changing needs. This leads to revenue increases of up to 19 percent.

Yet workers with disabilities represent a large, underutilized talent pool. In late 2020, the unemployment rate for workers with disabilities was twice the nationwide average.

Other types of diversity

As noted earlier, this unit sets out to cover diversity in the broadest sense. Examples of other types of diversity that you should consider include:

  • Religious beliefs
  • Age
  • Socioeconomic status
  • Former incarceration
  • Sexual orientation
  • Gender identity
  • Cultural identity

How and why to build a diverse team

Here are some of the ways in which startups can benefit from building teams that embrace diversity and inclusion:

  • Greater diversity of ideas and perspectives.
  • Avoidance of group-think caused by team homogeneity.
  • Greater employee job satisfaction, trust, and engagement.
  • Enhanced team decision-making.
  • Stronger corporate practices in social responsibility.
  • Better reputation and goodwill in the community in which the company operates.
  • Higher sales conversion rates. (Research has shown that consumers are more likely to purchase a product if they perceive the company to be diverse or inclusive.)
  • Better understanding of diverse customer groups, reaching product/market fit faster.
  • More authentic communication with diverse customer groups.
  • Ease of recruiting candidates from diverse backgrounds.
  • Ease of recruiting candidates for whom a diverse workplace is an important consideration. (A survey by Glassdoor found that 67 percent of candidates consider workforce diversity when evaluating a job offer.)
  • Minimized staff turnover caused by lack of diversity in the workplace or a lack of consideration for the needs of diverse employees.

It's clear that creating a diverse team can be a massive competitive advantage for startups. A diverse population is a highly skilled but underutilized talent pool. Startups that can attract and retain the right candidates can use this enhanced talent to their advantage and outperform companies with less diverse teams.

Calendly is a great example of a company benefiting from a focus on diversity. It has implemented diversity programs to encourage and support employees from diverse backgrounds, including programs specifically for women of color. It's become recognized as a highly desirable employer, with 93 percent of employees reporting it's a great place to work compared to a US average of 59 percent of employees.

Attracting and retaining diverse candidates requires creating a work environment that allows them to deliver their best work. Companies need to think about how to achieve this before recruiting. For example, there's no point in recruiting a candidate with autism unless you've understood their needs (which might include minimizing visual and auditory distractions) and created a work environment that allows them to be productive.

How you go about building a diverse team depends on where you're starting from. As a rule, what you start with scales. If your founding team lacks diversity by the time it has around 12 people, that level of diversity is likely to remain static as the company grows. That tendency is largely due to the influence of unconscious bias in hiring decisions. A company that has a homogenous founding team whose networks lack diversity will need to take deliberate steps to broaden its reach and overcome unconscious bias in hiring.

On the other hand, if you have a high level of diversity by the time you reach 12 people, there's a much better chance that you'll be able to attract and retain a diverse workforce as the company grows. And it will take only a modest amount of extra effort.

Here are some practical tips for inclusive hiring, based on lessons from founders who have successfully built diverse teams:

  • Understand the makeup of your existing team and acknowledge any lack of diversity from the outset.
  • Consider taking unconscious bias training. It might reveal biases that you or your cofounders weren't aware of and help you to overcome them as you grow the team.
  • Develop a strategy for inclusive hiring and publish it on your website. Avoid diversity theater and ensure that your hiring decisions match what you say in your strategy.
  • Review all your communications, including website, social media, and email campaigns. Reflect on whether they represent the diversity that you're seeking to achieve within your company.
  • If your team is still small, consider enlisting a group of peers from diverse backgrounds to sanity check your diversity plans, communications, work environment, and hiring processes.
  • Appoint someone within your team (ideally a founder) to lead diversity and inclusion, and attach performance metrics to the achievement of agreed diversity goals.
  • Reach out to programs that support the development of diverse communities and look for ways to tap into their networks.
  • Connect with other founders who have successfully built diverse teams and seek out their advice. Some of them might also act as a referral source for great candidates.