The discussion on the importance of diversity in companies, and startups in particular, has gone on for years. Studies by McKinsey have shown that diverse companies are more successful. Harvard Business Review has shown that diversity leads to healthy disagreement that makes teams better. We even have evidence that startup teams with female founders perform better than all-male teams.
Despite this evidence, there are still often questions about why diversity is important as an early-stage startup founder and when founders should start worrying or thinking about diversity in their company.
The answer? Founders should consider diversity from the very beginning. Here’s why:
- It’s easier to address diversity, equity and inclusion (DEI) at the onset of developing your startup. Founders are usually strapped for time and money with competing priorities of startup development, but addressing DEI at the beginning will prove to create a winning culture in which everyone can thrive and feel supported. When building a winning culture, looking through the lens of DEI offers a competitive advantage in helping startups make better choices earlier on. If you build with this in mind from the beginning, you won’t have to chase it later or change more people’s mindsets and course correct. Starting from the onset establishes culture with DEI in mind, and your team will feel more included, bringing more of themselves to work.
- Diversity can make it easier to find product-market fit. We have covered in previous articles that successful startups focus on market before solution. Having a diverse founding team means that you get a diverse set of experiences, opinions and assumptions. This makes it easier to understand multiple market segments, pivot and find the path of least resistance for your startup. The faster you can get through this process, the less time you spend in the “valley of death.”
- If you don’t think about diversity, you may not have the best team for the job. When founders form startups, they tend to draw in people from their network as they create a team. If you lack a diverse network and end up with a founding team that thinks and acts the same, and has the same general life experiences, you are most likely not building the best product possible and are producing groupthink that leads to less innovation. Founding a startup is an inherently uncomfortable process. You’re taking a large leap of faith that your idea is the right one for the market, so it can be comforting to have people around you that you get along with. It is easy to get myopic as a founder. You need people on your team who will challenge your key assumptions. This is more likely to happen in a diverse team, and the result is a better product.
- You could lose key team members. If you fail to create a welcoming, diverse environment from the outset, you create an additional business risk that is hard to mitigate later. Everyone who has founded a company knows that once your company is off the ground, you are juggling a million things. We have seen several companies of all sizes lose talent by ignoring the role diversity plays in a company’s culture. For early-stage startups, losing talent can be a killer.
- If you’ve built a team that is mostly homogenous, it’s not too late. As our society’s diversity increasingly grows, a focus on diversity will make your business more sustainable in order to compete in the market. A focus on building talent escalators to advance diversity, even when you’re not hiring, will make it easier to have a great, diversified talent pool of candidates on hand when you are ready to hire. The shift in our nation’s demographics will call us to think not only more broadly on who comprises our internal teams, but our external teams as well. Our advisors, service providers and contractors can also be areas of focus in diversifying our team overall and attract investors and customers who value diverse teams.
There are many other reasons to focus on creating a diverse team. Studies by McKinsey prove why diverse teams are smarter, with companies in the top quartile for ethnic and racial diversity management being 35% more likely to have financial returns above their industry mean and those in the top quartile for gender diversity being 15% more likely to have returns above the industry mean.
The rest adds up to this: if you, as a founder, fail to focus on creating a welcoming, diverse environment as you build your company, you are doing a disservice to your company that could result in failure. Of the many failure modes that startups face, you have control over this one. A focus on building diverse teams from the onset has proven to bring about much value.
Looking for more startup tips or support to launch your venture? Entrepreneurs gain access to funding, strategic guidance, mentorship, connections and more when working with the University at Buffalo’s Business and Entrepreneur Partnerships team. Learn more about startup support at UB and inquire today.