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Posted On February 7th, 2017 by Crowded Ocean

When should your startup focus on diversity?

When should your startup focus on diversity?

How much should diversity figure into any startup’s mindset and business plan? This used to be a conundrum for founders and their backers: on the one hand, they could, to borrow from Spike Lee, ‘do the right thing’. On the other hand, they’re in business—and they’re now not just beholden to friends and families but to the VCs who just bankrolled their startup.

But whether the above conundrum was real or imagined, it’s in the past. Studies tell us that diversity is good business. It turns out that doing the right thing literally pays off because businesses with diverse teams make better decisions, according to survey data. Not only do diverse teams lead to better decisions and greater success, but companies that put women in leadership positions are more profitable. Why? Because different backgrounds and ways of thinking lead to better outcomes. Women and people of color bring different ways of thinking that improve problem-solving which can foster an environment where new ideas can prevail.

Diversity doesn’t just happen. It takes planning as well as a certain pragmatism. Which is part of the reason why we see established companies like Salesforce, Apple, Google and Facebook, and now private companies like Slack, publishing their “diversity stats”.

But how can founders of an early-stage company make diversity a reality when they are hanging on for dear life and trying to overcome the 75% mortality rate of startups?

The answer is it starts with the definition of diversity. “Diversity” these days is focused almost exclusively on gender. Which is how it should be, given how much talent has sat on the sidelines as the Nerds sat in their technology tree houses that had everything except a ‘No Girlz Aloud’ sign on it. But, for a company to be truly diverse—and to leverage that diversity into success—a broader definition (and a sequence of phases) to building diversity is required.

Phase one: A diversity of founders

The vast majority of founders of tech companies are engineers—not the most social or outgoing group on the planet. As one of our founders remarked: “How can you tell if an engineer is an extrovert? He’s the one who looks at your shoes, rather than his own, when he talks to you.”

As founders look to their core team—and VCs look to fund them—our strong advice is that there needs to be an outward-facing person (generally in the CEO role) and an inward-facing person (usually the CTO or product architect.) This diversity and complement of talents and focus is essential to early success for a startup.

Phase two: expand your core founding team with misfits and oddballs

If your startup is funded at the seed-round or Series A stage (or even bootstrapped like an early Atlassian), the goal of building a team that’s ethnically and gender-diverse should really be a longer-term goal, like profitability. In the early days, startup founders should seek out misfits and oddballs. It’s a given that your startup will struggle in the talent wars against companies like Google, Apple, and Facebook that can offer richer compensation packages. So in the beginning, early-stage startups should think about seeking out candidates who “think outside the box” (and are risk takers on compensation) to bring a diversity of thinking to the team, regardless of their gender or ethnicity.

One of the nouveau practices among corporate HR policies today is the idea of blind hiring. The effort to diminish the influence of a job applicant’s resume and to focus instead on their talents is in vogue to try to rule out bias and to foster more diversity in hiring. We would go a step further and recommend that startups seek out candidates with non-traditional career tracks who attended non-elite schools as well as job applicants with quirky personalities. To advance your disruptive solutions, a few disruptive-thinking employees (especially in the beginning stages) might just help you retain the new and creative thinking you need to achieve your goals.

Phase three: institute “the Rooney Rule” after the second year of life. Once you have (1) hired your founding team; (2) put your product in the hands of early customers, and (3) focused your team on customer development, re-think who you want at a manager level in your company. Now is the time to focus on building gender and ethnic diversity, not before. To support that goal, mandate that every short list of finalists for a position that manages a team include female candidates and candidates of color, aka The Rooney Rule. Be like Slack and make it an HR policy.

Part of phase three includes seeking out an equal blend of experienced employees and newbies. The only way to ensure you have a team that knows how to build and manage an operation at scale is to hire employees that can bring first-hand experience of best practices and processes at a large company. For many startups, this is an aspect of diversity not to be overlooked. In other words, startup experience is great, but if that’s the only experience a candidate brings, pass.

Decide up front who gets to be work remotely and who must be on site. To state the obvious, making your “virtual” policy explicitly in the beginning will help your team vet the right people for the right roles (which is part of building a successful and diverse team.)

Phase four: celebrate diverse cultures to make “going global” an early reality. Startups like Snowflake Computing (Sutter Hill, Redpoint) and Sumo Logic (Greylock, Sutter Hill) were founded by immigrants who, from day one, embraced their collective heritage of different cultures and ethnicities. The founders and their early hires reinforced diversity by sharing their own cultures and histories at internal company celebrations, office décor and even in company blogs.