Source | Entrepreneur
urning a startup into a successful high-growth business is a constant race against time. The entrepreneur is driving to achieve the milestones that make the company profitable as investors and board members seek levers to help the company scale. Everyone knows that superior execution depends on the creativity, tenacity and experience of the startup team.
That’s why greater diversity of all types holds so much potential for entrepreneurs and investors.
Diverse companies exceed industry standards. Racially and ethnically diverse companies are 35 percentmore likely to outperform industry norms, and gender-diverse companies are 15 percent more likely to outperform.
Here’s a jaw-dropping stat from McKinsey & Company’s Why Diversity Matters: For every 10 percent increase in racial and ethnic diversity on a senior executive team in the U.S., earnings before interest and taxes rise 0.8 percent. Why wouldn’t startups and VCs want to take advantage of that?
Diversity also brings a competitive advantage to sales. Scaling a startup is all about breaking into new markets and signing up new customers. A team member who shares a client’s ethnicity is 150 percent more likely to understand that client. Maybe that’s why companies with the highest levels of racial diversity bring in nearly 15X more sales revenue than companies at the lowest levels.
Greater diversity can make a difference in deal flow, too. Women own about one-third of the businesses in the U.S., but they usually account for less than 10 percent of the founders of high-growth firms. The number of minority-owned firms is growing faster than non-minority firms, but most of the business are Main Street. Imagine the impact if we could attract more of that energy and talent into starting and scaling up high-growth companies?
Diversity isn’t limited to gender and race. It’s about experience, ethnicity and much more. Consider veterans, a diverse population in so many respects. A quarter of vets want to start or buy their own companies; since 2007, half the veteran-owned businesses formed are owned by women and minorities.
Both entrepreneurs and investors need to be on board and engaged to benefit from the impact of diversity. Here are five tips to help move the needle faster.
1. Embrace diversity as a competitive strategy.
Diversity drives revenue. Listen, really listen, to what the data is telling the industry; Use what you learn to impact your bottom line or ROI.
2. Expand access through inclusion partners.
Why is there a lack of women and minorities creating and building high-tech companies? The reason may be simpler than you would think. Women and minorities are not in the networks that typically fuel startups. They just don’t have the same contacts and connections.
If you’re a company founder who recognizes diversity as strategy to outperform your competitors, or if you are an investor searching out the best deals, go where the people you are looking for already are. Tap into minority and women grassroot organizations and initiatives that exist in your own backyard.