Building an inclusive startup: Your burning questions, answered.

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Dorm Room Fund

|January 11, 2021
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There’s no shortcut to achieve cultural competency and mitigate implicit biases. As an individual, it’s necessary to learn about race, gender, sexual orientation and people who aren’t the same as you. But as a student founder, your responsibility spreads further into workplace leadership, and cultivating inclusion and diversity into the company you’re building. Why should this matter to you? Because more and more investors care. Alongside First Round Capital, other firms including Greycroft, Maveron, SVB Capital, Harlem Capital, Fifth Wall and Plexo Capital recently committed to a Diversity Rider, which promises to place inclusivity and representation high up into standard term sheets.  

We talked to experts for some candid answers to questions you may have as you grow your team and raise funds: Why should this matter to you? What works and what doesn’t? Will this impact my ability to fundraise? What do you really need to do, and what should you avoid? 

Chelsea Roberts manages partnerships and programs at HBCUvc — an organization which is developing the next generation of venture capital leaders to increase opportunities for Black and LatinX founders. Dr. Derrick Gay is a diversity and inclusion strategist who consults with organizations in the US and abroad. He supports companies to cultivate organization-specific business rationales to align D&I with business strategy and value proposition. 

Photo by Kaleidico on Unsplash

I’m a founder. Should my first hires be people from underrepresented communities? 

Answer: Be intentional in hiring but make sure you have cultivated an environment for diverse hires to thrive. 

“Excellence is equally distributed across people, but opportunity isn’t,” says Dr. Gay. “So if you want the best people, and you’re only getting them from one type of person, you are necessarily missing out on the best talent.”

As a founder, you have the unique chase to create a team from scratch and integrate inclusion and diversity into the DNA of your company. Both Roberts and Dr. Gay pointed out that diversity isn’t a proxy for historically marginalized groups — diversity means differences, which can be in skills, backgrounds, race, gender or anything else. But it’s also important to be cautious, and make sure you’re hiring to retain: Inclusion must precede diversity. 

“If you’re starting with a company that’s all white American men from Ivy League schools, you cannot all of a sudden say ‘now we’re going to bring in women and people of color,’ and think they’re going to have a satisfactory experience,” says Dr. Gay. “You have to begin by first cultivating the mindsets of people who are there around cultural competency and around unconscious bias so that when you do begin to deepen your diversity efforts, those people are actually able to stay. We’ve seen this time and time again, think about the United States from the education perspective — when we first had some of our schools like Harvard, Columbia, and other places that were all male universities admit women, it was a disaster with sexist men.” 

Do workplace diversity trainings really work? 

The answer: It depends. 

The National Academy of Sciences published the results of a field experiment which tested whether an hour-long, science-based online diversity training could change attitudes and behaviors toward women in the workplace. Subjects were randomized into three experimental conditions: gender-based, general-bias (which together formed a single treatment condition), and a control training. The study found that subjects who already supported women showed a [positive] change in both attitude and behavior, but those who were already less supportive to begin with did not show a change in behavior. The study suggested that on-off trainings aren’t a great way to promote workplace equality — especially considering they don’t work well on the right target group. Read the full study here. We promise it’s interesting and you’ll learn lots about how they measured workplace attitudes and behaviors towards gender and race!

Now that the science is out of the way, does that mean companies shouldn’t have diversity training? Not necessarily. According to Dr. Gay, leadership needs to set a foundation for why training is important. When a training is non sequitur and erratic, it’s unlikely that employees will understand its value and view it as something which will enhance their collaboration or productivity at work. 

Tl;dr: The biggest no-nos to steer clear of are perfunctory pre-recorded videos where it’s clear to team members that they’re doing them for compliance, and not because they’re aligned to business rationale. 

“One pitfall that I consistently see is that some people — particularly people from historically marginalized groups — try to advance this work through the moral imperative only. And the moral imperative is not universally understood or universally viewed as a motivation,” explains Dr. Gay. “So there has to be a business alignment. Everything in a business aligns to the business rationale.”

Why should I care about diversity in my company? 

The answer: It makes your team more successful.  

This is a business — it doesn’t need to reflect my personal opinions, I need to do whatever I can to build a successful team, and diversity can come later, right? No. Wrong! Diversity is part of building a successful team. Like Dr. Gay explains, not only for moral imperitive, but for business rationale. 

This Harvard Business Review article tells you why diverse teams are smarter. Here are 3 key points from the article to show you how diversity is vital for your company: 

  1. Diverse teams are more likely to constantly reexamine facts and remain objective — and at the same time, they’re also more likely to introduce new innovations.
  2. A (slightly dated, but still relevant) McKinsey report showed that public companies in the top quartile for ethnic and racial diversity in management were 35% more likely to have financial returns above their industry mean. Here’s an updated version of their report with similar, but more recent, figures. 
  3. An analysis by Credit Suisse showed that companies with at least one female board member yielded a higher return on equity than companies without women on their boards. 

According to Roberts, integrating diversity isn’t just a strategic opportunity for a business: failing to do so — and forgoing diversity of perspectives, ideas and risks — is a strategic liability. “Smart businesses realize how this relates to their bottom line, and research is conclusive,” she says. “More diverse companies longitudinally have higher returns.” 

Do investors care about diversity? 

Answer: Some do, but you should. 

BLCK VC put it simply and clearly in this article: If investors aren’t investing in diverse founders, they’re bad at their jobs, and are missing out. But they pointed out a key statistic, which is that 80% of venture capital firms don’t have a single Black investor, and institutional racism has long made venture capital “homogenous and exclusive and racist.” 

But it’s no secret that individuals and companies are thinking more about race following the murder of George Floyd. Some experts are optimistic that venture capitalists are realizing that diversity brings a value proposition to society, and to their workforce, but according to Roberts, it’s important to understand how to define diversity from an investor’s perspective.

We already pointed out the Diversity Rider — which is a clear indication that firms are making tangible moves to expand their commitment to representation. The language of the rider reads: 

Diversity Rider: In order to advance diversity efforts in the venture capital industry, the Company and the lead investor, [Fund Name], will make commercial best efforts to offer and make every attempt to include as a co-investor in the financing at least one Black [or other underrepresented group including, but not limited to LatinX, women, LGBTQ+] check writer (DCWs), and to allocate a minimum of [X]% or [X] $’s of the total round for such co-investor.

The Diversity Term Sheet Rider 
Photo by Christina @ wocintechchat.com on Unsplash

“People from different backgrounds working together for a common goal are more effective — and investors like to see it because they care about their investment. It isn’t a nice to do, it’s a need to do,” says Roberts. “But doing it only because you think you’ll raise more money isn’t OK, the right reason is if you want skills different from yours. It doesn’t matter if you’re a technical founder and hire a technical founder who has the same skills and background as you and is black. That isn’t what we’re talking about when we talk about diverse teams. Be mindful of what diversity actually means from an investor standpoint.”

How can I diversify my talent pipeline? 

Answer: Think about how you’re attracting, recruiting and interviewing people.

There are data-driven ways to improve your hiring practices. It’s important to recognize why your company isn’t hiring diverse candidates: Is there a lack of reach to different communities? Is there a barrier in your process that you aren’t aware of? Do you have an adequate evaluation process? Are you specific in what you’re searching for? 

In this article, the PGA of America conducted surveys to grapple with these questions — golf is often viewed as a primarily white sport, so this was a way for them to understand how to change public perception and diversify their audience and pipeline. You probably weren’t expecting recruiting advice from a golf association, but their research helped them pinpoint key gaps in information, obstacles and solutions moving forward. 

One of their findings was that once they explicitly stated that they wanted to recruit professionals from various backgrounds, their surveyed subjects’ likelihood of applying jumped from 46% up to 64%. “If you have a strategic goal like ‘we’re looking for women,’ you need to be explicit. You can’t create a goal around that and say we’re looking for ‘diversity,’” says Dr. Gay. 

Referrals are often an important way to source applicants, but if your network is just more people who are similar to you, be purposeful about expanding. 

“Look outside your own school, university or neighborhood. Join organizations and try to be intentional and thoughtful about talking to different people, and stretching yourself to be uncomfortable in new situations,” advises Roberts. “Diverse people to me are different from diverse people from you, so if you have people in your network who you trust, ask them to bring you into their networks. Look and start to build those relationships. At HBCUvc, we love when allies and partners want to work more with our students, engage thoughtfully and build long-standing relationships. Those are the people we want to allow into our community — so build trust first.” 

Sourcing is important, but it’s important to mitigate unconscious bias in interviews by standardizing your process. Ask yourself whether you have a rubric everyone follows, a set of questions to ask or avoid, a panel to divide evaluations and a people from different backgrounds speaking with candidates. 

How can I make sure my startup is inclusive? 

Answer: Source feedback and provide resources.

How do you know if your company is inclusive? Statistics definitely don’t always show the whole picture, so how can you actually gauge the temperature within your team? We can tell you what not to do: Don’t rely on your employees to tell you. 

“‘She’s going to tell us’ is not a strategy,” explains Dr. Gay. “You could ask her, but you need capacity and relationship and social capital. There’s always a power dynamic if the boss goes and asks the new person. Have periodic surveys anonymously where people share their sense of belonging and inclusion and a third party to speak with folks to provide an opportunity to share if they are feeling included or not.”

You want your employees to stay, do well and thrive — and one way to do this, according to Roberts, is by providing resources. This could mean giving them resources to join BRGs or internal affinity groups. It might also mean, for example, if you hired a Black person, to hire not 1 but 2 Black people or to encourage your new employee to bring in someone from their own network or community as the next hire. 

Phew. You made it to the end of the article. This has been a lot! The good news is that getting through all this text shows that you’re willing to learn more and take the first steps towards increasing representation and equity in your company. 

To make things easier, there are plenty of resources to help you. Here are some, which we referenced above: The Mixed Effects of Online Diversity Training, Why Diverse Teams are Smarter, McKinsey & Company’s Delivering Through Diversity, If you’re not investing in diverse founders, you’re a bad investor, The Diversity Rider Program, and A Data-Driven Approach to Hiring More Diverse Talent

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