It’s Time For The Entrepreneurs And Tech To Get Comfortable With Diversity

The tech industry struggles with diversity. Many people in Tech espouse viewpoints or engage in behaviors indicating they prefer the Caucasian and Asian male-dominated status quo. Recent evidence for this includes numerous reports of male venture capitalists harassing female entrepreneurs and a notorious memo written by a male Google engineer arguing that women are less capable in technical positions than men. [Google soon fired the engineer for violating its code of conduct.] The entrepreneurial sector as a whole receives less scrutiny than Silicon Valley, but I suspect that these issues arise in entrepreneurial companies outside of the tech sector too.

It’s time for entrepreneurs and techies to get comfortable with diversity, for two big reasons. First, there is significant evidence that diversity is a good thing for firm performance, particularly as firms scale and evolve. For example, a McKinsey study of larger firms showed that firms with diverse management teams, on the basis of either gender or ethnicity, achieve better financial performance that firms that lack diversity.

A paper published in Harvard Business Review sheds light on how this works. Teams with diverse membership function better: their decisions are more fact-based, they process facts more carefully and they are more innovative.

Start-ups are often founded by a group of like-minded people and their initial success is based on the shared vision, close-knit execution and sheer guts and determination of this team. At the beginning, you hire only the people who buy into your passion for the business and can get you to market quickly. That may not result in diversity. As the business scales and the market evolves, however, a start-up has to adapt to new facts and circumstances. The objectivity and innovation boost that diverse teams provide increases the speed and accuracy of adaptation, which can be a big factor for long term success.

James Damore, the author of the Google memo, argued that women have characteristics that make them less suitable for the tech industry. Others have made similar arguments in the past. These arguments overlook the value of diversity for team performance. It’s not about individual characteristics. The key factor is the dynamics and resulting performance of teams.

Second, as companies grow into important institutions, they need a constructive relationship with the society in which they work. An “outlaw” or “whatever it takes” ethic can be powerful in the early days, but it does not work when a company achieves scale and attracts the attention of media, social activists and regulators. U.S. society is diverse and global markets are more diverse. They demand that leading institutions reflect the diversity of the society, or face increasing harassment and headwinds. Google has suffered criticism for its lack of diversity and has made a commitment to increase diversity. Google CEO Sundar Pichai’s response to Damore’s memo shows how important this has become: he cut short a family vacation to fly home and deal with the situation the memo created.

Uber is a good example of a company hitting this point in its growth. Early on Uber had to break rules to show the world, particularly city governments, how much citizens would demand its service once they could experience it. Uber needed an extremely brash, “do whatever it takes” culture to make that happen. Now Uber is the world’s most valuable private company and operates globally. Its actions and internal culture receive intensive scrutiny from media and social activists and it is far too big to fly under regulatory radar. This has caused a series of crises leading to the removal of Uber’s co-founder and CEO Travis Kalanick, who was unable to lead the needed change credibly.

Small entrepreneurial companies don’t receive scrutiny like an Uber, but they can suffer if at odds with the values of their community. In my home town, a specialty food shop prospered at first. The entrepreneur was an excellent cook and created an attractive retail experience. After a while, however, the community learned that he frequently harassed his female employees. The shop is gone now while other similar shops prosper.

Simply put, diversity is a vital ingredient of long term success, and entrepreneurial companies need to embrace diversity as they scale. If they do their chance of continued prosperity is greater, and life at work will be more interesting, too. Vive la différence.

First posted @ blogs.forbes.com/toddhixon on September 7, 2017.

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