Do Startups Have A Diversity Advantage?

We often talk with large employers about their diversity and inclusion initiatives — both their struggles and their truimphs — but what about small companies? Can smaller firms and startups afford to think about gender, race, diversity and inclusion?

Fairygodboss obviously began as a startup, so we have a visceral understanding that startups are in hyper-growth mode, focused on just the essentials, and often cash and resource-constrained. On the surface, it may seem therefore, that startups would have a harder time focusing on diversity than larger companies with massive budgets. However, there are several reasons to think that smaller companies and startups actually have an advantage (and possibly bigger incentives) in implementing diversity in their culture and policies.

1. Startup Success (and Survival) May Literally Depend on Diversity

Startups don’t have any laurels, historical brand, or client good-will to fall back upon. That also means that the quality of every decision is, by definition, critical to survival.

First Round Capital is a well-known investment fund that makes early-stage investments in companies. They analyzed their investments over the past 10 years, looking at 300 of it’s portfolio companies. What they discovered is that a team with at least one female founder did 63% better than teams with all-male founders, in terms of that company’s growth in valuation since investment.

In other words, gender diversity seems to lead to an improved bottom line. Why that’s the case is difficult to prove, but it accords with other research that shows that diverse teams correlates with better performance outcomes.

2. Start-ups Need A Lot of New Bodies

Sometimes once you realize there is a problem, it can take a long time to create meaningful change. This is not for lack of institutional will or effort. At the most simple level, you cannot just fire people in order to make room for new people, with more diverse backgrounds. Long tenure on boards, for example, is one reason that directorships of companies remain so stubbornly male. If there is not a lot of employee turn-over, there is no opportunity to put someone new in place.

3. Top-Down Control Over Culture

One of the reasons that start-ups end up looking less than diverse is that founders often rely on their immediate network for referrals and hires. In a typical company, referrals comprise 10% of new hires. At a startup that number can be a lot higher simply because founders look to their immediate network to solve immediate gaps in their teams and tend to be short on time and low on risk-appetite.

On the flip side, a startup is typically tightly controlled by a small management team (at least in the early years). This means that culture can be “monolithic” and less middle-management-dependent. This in turn means that a strong leadership team can really lead by example and effectively implement a culture with inclusive values. That’s why efforts like Project Include are so interesting. They are a non-profit whose aim is to improve diversity, with a focus on the management teams of early to mid-stage tech startups.

When you’re a rapidly growing company, it may be a challenge to focus distracting to focus on diversity, but at least you have the ability to make changes with literally every new decision, interview and new employee you hire.

Do you have ideas or opinions about how to improve diversity at in your workplace? Join the conversation in our community and share your perspective with other women in the workplace!

Fairygodboss is committed to improving the workplace and lives of women.