How Diversity Hiring is Like Startup Investing

Companies, particularly in the tech sector, have been promising to ramp up hiring efforts to recruit more diverse talent and to make their workplaces more inclusive. These promises became more urgent after the November election. It’s important not to frame diversity as a charitable endeavor, marketing, or as loss leader. Diversity hiring offers enormous returns to companies looking for talent in fields in which competition is now global. This means that companies must look for lessons from areas in the private sector that have realized human capital is more important than financial capital.

Startup investing offers a model for how to approach diversity hiring. Both venture capital and diversity hiring look to find untapped potential. The following lessons from startup investing can turbocharge diversity hiring:

1. Investing in information: startup investments succeed when venture capitalists obtain the best information hard-to-get information about the next generation of startups and, moreover, the next generation of entrepreneurs. In fact, information gathering gives venture capitalists their competitive advantage. Successful investors recount how it is the people not the businesses that they look for. It is also vital to identify talent early before competitors can close in. This is why venture capital is so involved in campuses like Stanford; investors want to find the talent while they are still developing ideas in the dorms. Mentoring budding entrepreneurs yields valuable information about talent prospects.

This translates into a several powerful lessons for diversity hiring: companies need to view recruiting as more than just gathering a pool of applicants when they have a job opening. Instead, companies need to cultivate talent and gather information on future talent over many months and years. This means active mentoring programs that start early and connect company leadership to college students and young professionals.

2. Investment Doesn’t Stop at the Investment: For venture capitalists, developing startups and entrepreneurs does not end with the initial investment of money. The “investment” is much more than the money. It involves intensive mentorship as the company and the entrepreneurs grow. This highlights the need for companies to look at diversity hiring as more than just the initial hire. In order to develop diverse human capital, companies need to think beyond merely “hiring the best.” They need to incubate talent with advice. Mentoring need not be touchy-feely. In fact, mentoring is a deadly serious matter if companies want to build their human capital and retain their best employees. Recruiting is expensive. When employees don’t succeed or leave, companies suffer. Moreover, diversity hiring and building inclusive workplaces cannot be separate. They need to be integrated projects that challenge employees and companies to reach their potential.

3. Iterations and Experiments: Startups and startup investing involve embracing failure, learning from mistakes, and experimenting again. This may be the hardest lesson for companies in recruiting. When a particular job prospect or diversity program doesn’t work, management cannot conclude that diversity and inclusion programs should be abandoned. Instead, they need to become a learning organization that gleans lessons from failures and uses them to build better programs.

This same mentality is critical even for companies that have succeeded in building diverse and inclusive workplaces. Silicon Valley and Route 128 in Boston are littered with the bones of tech companies that got fat and lazy and rested on their laurels. The next generation of companies with great ideas and great entrepreneurs stole their lunch. The race for talent is no different; it is rerun every year if not every month. The old saying still holds true: a company’s greatest assets walk out the front door every night. To make sure the best assets walk back in in the morning, companies need to continually improve and reinvent their diversity and inclusiveness initiatives. Learning and nimbleness must become part of human resources’ DNA.

4. First-Mover Advantage: To succeed, in startup investing venture capitalists need to outrace their competitors to find the next big idea, the next big company, and the next great entrepreneur. This means taking risk over-and-over again. To succeed in diversity recruiting, companies need the same mindset. Management needs to think about startup investing at hiring meetings when someone talks about a candidate being a “risky hire.” When high risk also means high reward, smart companies would take the bet. Smart companies would also be wise to be leaders and not laggards in building their diversity recruiting and inclusive workplace programs.

5. Critical Mass of Investors: Although there is a definite first-mover advantage in startup investing, the startup ecosystem depends on synergies and spillover effects that only come when a critical mass of investors enter a particular space. Moreover, as Brad Feld and David Cohen explain in “Do More Faster” innovation ecosystems such as Boulder thrive because of collaboration.

The startup experience yields an important insight for companies in diversity recruiting: collaboration with other companies, with experts and groups active in diversity hiring, and with groups of diverse professionals and students are not just feel-good endeavors. They are crucial for companies to learn about talent and ways to recruit and develop it. Developing untapped resources requires collective investments of capital of both the financial and knowledge varieties. This translates into a need to move beyond diversity challenges to regular meetings of companies in a particular industry or geographical location to coordinate investments and share lessons.

6. Hotspots: The geographic synergies that come from startup investment are well known. Cities and countries fantasize about becoming the next Silicon Valley, Route 128, or Boulder. In winning the diversity talent race, geographic hotspots will win. Cities and regions that attract diverse talent will attract more diverse talent as virtuous cycles begin to spin. Companies, universities, and the public sector will share knowledge on what works. Moreover, candidates will feel more at home in places where they are not extreme minorities.

Success will generate success. Risk-taking will generate returns. The only question is which companies, industries, and towns will lead.