Intro to diversity and inclusion for startups


This is an introduction to diversity and inclusion—and yes, it’s suitable for startups. Let's get started!
Starting a company from scratch is the chance to rethink the status quo in more ways than one, including not only how you think about diversity and inclusion but how it actually shows up in your business. And, as with everything that may not seem business-critical at first glance, you may be inclined to put this off until later, relying on the vague non-action of goodwill to carry you through while you go about focusing on bottom-line, get-it-going priorities. 

But, a solid diversity and action plan from the start prevents having to backtrack to solve issues that compound, like the well-known lack of a diverse pipeline, a problem that’s rooted in having intent and not much else to create the strong headwind needed to rewire business as usual. 

So here we go: this is an introduction to diversity and inclusion—and yes, it’s suitable for startups.

The case for diversity and inclusion for startups

Diversity and inclusion is good for business—let’s start with that. For startups whose aims include innovating, trying to keep cash flowing, and keeping employees productive and engaged, with all of that hanging in a delicate balance made of risk and volatility, diversity and inclusion makes an even greater business case.

Diverse workplaces make more money: A McKinsey study found that diverse companies make as much as 35% more than industry medians. Innovation is perhaps subjective, but diverse workplaces tend to be more innovative too, especially when it comes to challenging the norms and paying attention to what people actually want and sometimes can’t articulate themselves yet. Going from idea to business requires a deep understanding of the customer, and with many businesses no longer facing geographic borders, diverse workplaces rise to the challenge much better than homogenous workplaces: A Harvard Business Review study found that when at least one team member shares a client’s ethnicity, the team is twice as likely to understand a client’s needs.

Not only does it lead to better performance and increased innovation, but many employees now cite workplace diversity as an important factor when considering employment opportunities—67% of job seekers, according to a survey by Glassdoor, and that number is even higher for minority job seekers. Meaning, that in order to have a diverse workforce, you need to show candidates that you’re a diverse and inclusive company. It’s a bit of a chicken or egg challenge, isn’t it? 

But you probably knew all that. Had a sense of it, at least. The challenging part is, depending on what stage of business you’re in, where you fall on the spectrum of volatility and risk means you likely don’t have a lot of time and energy to focus on diversity and inclusion until the problem becomes glaringly (and visibly) obvious. But that’s not news: it’s the case for so many companies regardless of budget, time, and scale. If you’re reading this, look around: is that where you’re already at? What about the startups you know? Established corporations aren’t doing so hot. On just one of the most obvious and talked about measures of diversity, gender: there are more men named Michael and James than there are women CEOs total on the S&P 500 as of 2020.

But what you might not know comes down to one of the greatest challenges of the modern workplace, startup or not: employee engagement, which impacts the bottom line in all sorts of ways from recruiting timelines to productivity levels to turnover rates. Engagement is rooted in a sense of belonging. Belonging is sometimes added to the diversity and inclusion equation to represent the feeling and outcome of a diverse and inclusive culture. A sense of belonging is a must in a startup environment where there won’t be formal managers to play the part; that’s up to you the founder to build in from day one.

How to create a diverse and inclusive startup culture from day 1

Set D&I metrics and goals

What doesn’t get measured doesn’t get better. You may think that setting metrics this early on is a lot of effort for too little payoff, but doing so when you have so few people on the team could help you spot any glaring issues before they compound. While things like lack of diversity may be more visible, pay equity (see below), a very important part of building a culture of belonging, could be the issue that compounds without keeping a close eye on metrics. Metrics help identify where exactly the issues lie: for example, during the recruiting process, is there a particular step where candidate diversity tends to drop off? As you bring on team members who may become involved in recruiting, metrics help align expectations and track progress.

Tip: When setting metrics and goals, think of diversity beyond just race and gender. These things are important, but diversity means so much more, including diversity in abilities, experiences, perspectives, and personalities.

Don’t forget about pay equity

D&I efforts aren’t really complete without equity. See: the updated acronym DE&I for Diversity, Equity, and Inclusion (not to be confused with equity equity ). Having a diverse team is just one step. Belonging is shattered when compensation is inequitable, intentional or not. 

We wrote an article on coming up with a compensation strategy and figuring out what to pay employees , but facing the facts, women make 83 cents for every dollar a man makes in the same job in the U.S. and that disparity is even more pronounced for women of color. You can’t have the benefits of diversity and inclusion without actively working against the systems that drive and perpetuate pay inequity, including the fact that men ask for raises more often than women, get higher raises when they do, and are more likely to apply for jobs they’re not qualified for. Pay transparency works to combat pay inequity, and it works for startups: compensation app Figures conducted on 500 high-growth startups, and found that pay transparency does indeed reduce pay gaps (a 3.5% average pay gap for non-transparent companies vs 0% for transparent companies). 

You can create a payscale that creates structure around how compensation is calculated as well as to minimize bias in how performance is measured, how raises are distributed, how equity is distributed, and how promotions happen. Use this payscale to systemize pay across your company based on the role and performance regardless of previous experience or compensation. (In case it has to be said, never ask about previous compensation.)

Doing these things upfront avoids one of the biggest costs later on: trying to make up for pay discrepancies across a much larger team and realizing that it hasn’t been properly budgeted for. And by the way, this payscale doesn’t necessarily have to be fully transparent: you can share salary grids and levels without showing each employee’s actual salary.

Diversify your cap table

One of the biggest challenges in overcoming systemic inequities is wealth creation and how it tends to flow in the same circles, among the same groups of people. Startups, in best case scenarios, become wealth-building vehicles. When they’re successful, whoever’s on the cap table wins—and right now, the numbers are alarming. Women-led companies make up only 3% of all venture capital investments, they hold just 8% of board seats on startups of tech companies, and only 3% of VC investors are Black, just to cite a few of the many more statistics that can be used to illustrate the point. 

Diverse and marginalized investors are more likely to fund companies by diverse and marginalized founders, and companies that succeed, in turn, become part of the wealth creation vehicle. Then, whoever is on their cap tables, founders and otherwise, often end up investing in other companies. Your cap table includes cofounders, investors, advisors, and sometimes early employees. If all goes well, who will be rewarded? Because whatever that looks like has the power to continue to perpetuate the system of wealth inequality—or change it.

Get uncomfortable

Because our biases are so deep-rooted that in most cases, they aren’t intentional, it takes getting uncomfortable to combat them. You have to ask hard questions like:
  • What have the teams you’ve worked on historically looked like?
  • How do you define diversity? 
  • Are you tokenizing certain groups of people with your “diversity hire”?
  • Who’s running meetings and who’s always taking notes? (Women are more likely to take up administrative work on top of their jobs, even in leadership roles.) 

It starts with you as the founder but from early on, you can start to hold your team accountable for helping to build and foster a diverse and inclusive culture. When you notice discrepancies while tracking metrics, will you call it out and work together with your team to address them? Will you prioritize D&I as a business goal and not just good-to-have?

Lead as the founder

OpenComp surveyed 500 executives at high-growth companies to uncover the biggest challenge in addressing pay inequality. The top answer was “lack of resources”. In digging deeper to determine what these resources are, the executives cited pay range data, information on best practices, and automated tracking on metrics. These are all things that theoretically can be done for free—so what does lack of resources really mean? It’s just another way to say it’s not a business priority.

Startups are driven by their founders. And that in itself is a built-in barrier to diversity and inclusion: without both intent and action, founders tend to hire people they like, and the people they like are more likely to be people that are most similar to them. It’s just psychology. This is how human beings have been wired to build interpersonal relationships.

But the work you put in upfront will pay off in the long run when these early stage hires become leaders, and you won’t have to spend “resources” on becoming diverse and inclusive; it will just be a part of how your business operates, as natural and as built-in as every other business priority. 

And if you’re on board with all of this and still having trouble with attracting diverse candidates in your hiring pipeline ? Let’s tackle that next.
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