Does Diversity Truly Help My Startup?

Over the past months, there’s been a lot of discussions involving the importance of diversity in high-tech, and especially in startups. It’s obvious that hiring more women, members of the ultra-Orthodox community, Arabs, and minorities is critical for an industry that desperately needs more high-quality personnel. Looking at the industry as a whole, diversity is a no-brainer. But what about individual companies? Does diversity help or hurt their business? Specifically, if I’m the CEO of a young startup, does diversity contribute anything to my organization?

I’ve come across lots of entrepreneurs who claim that there’s a clear upside to uniformity, referring to employees who served together in the same tech unit in the IDF. They’re all male, Jewish, roughly the same age, from similar backgrounds, and they share the same habits and interests. It makes everything so much easier. No long meetings, almost no need for synchronization, and fewer misunderstandings. They don’t even waste time deciding what to order for lunch…

It’s hard to argue with that kind of reasoning. At least in some cases, uniformity does indeed equal efficiency. However, it is my experience that the situation is somewhat different. From what I’ve seen, it’s actually the culturally mixed companies that tend to be more successful.

Early this year, McKinsey & Co. published research findings showing a direct correlation between the level of diversity in a company and its achievements. For instance, those that are ethnically diversified are 33% more likely to outperform their peers regarding profitability. At the same time, those lacking in ethnic diversity (or at a low level) are “punished,” and more likely to underperform compared to their industry peers regarding profitability.

One could argue that studies such as the McKinsey one will only apply to large corporations (which is what researchers tend to focus on, and most of the diversity leaders also tend to hail from large organizations), and that diversity is harmful rather than helpful in case of SMEs. It’s definitely more difficult to achieve diversity in small companies. Let’s face it — managing a homogenous group of 5–10 people is unquestionably easier.

As someone who sees companies develop from the seed stage onward, I must admit that there is something more effortless and even appealing about homogeneity during a company’s early days. Still, in my opinion, it quickly becomes clear that it’s just not good enough. There are two bottlenecks. Firstly, the recruitment process. If all your employees come from the same background, it will get really hard to bring new people on board down the line. A group of employees that are all male / Jewish / secular will start to max itself out. On the other hand, companies that are diverse from day one (for example, having women on the initial team), will manage to recruit new workers much more effectively, especially when the workforce grows aggressively.

The second bottleneck is the intellectual and creative deadlock. In general, people who are alike usually think alike, and people with similar backgrounds will bring similar cultural knowledge to their job. But when we are looking at an innovative, groundbreaking company, we see that employees with different backgrounds will be the ones with much higher potential to make a significant contribution than employees of the same background. Not necessarily because they work harder (or write code faster), but because they’re most likely to bring new values and ideas to the table that are much different from those of their fellow workers.

I’m proud to be part of the Power-in-Diversity initiative that strives to increase diversity in the high-tech industry and especially among startups in Israel. We all have a natural inclination to focus on larger companies. It’s really difficult to persuade the founders of young startups to put aside their daily work and focus on diversity, although I see that as missing a great opportunity. It’s much easier to build a diversified company from the onset than to try and diversify it a year or two later. At Glilot, we’ve invested in 20 companies so far, and 2–3 of the ones with the highest growth enjoy a diversified workforce from a very early stage on.

I haven’t researched the subject, but I have no doubt that diversity is key — not just at a macro level but also on individual company level; not only for large and established organizations but also for small and young companies. The more you invest in building a company the right way from the very beginning, the easier it will be to create a healthy work culture that translates into a successful business.

Do you have suggestions on how to encourage diversity in young companies? I’d love to hear them! Please leave your comments below.