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Shalini Lal

Dr. Shalini Lal is the founder of Infinity OD, a boutique consulting firm enabling Organizational Transformations. Before this she was Director HR, Deutsche Bank and CHRO, Escorts Agri-Machinery. She has a PhD from UCLA, and is an IIM-A and St. Stephen’s College Alumnus.

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Searching for Diversity in Startups

Research shows that when founders have worked for a common organisation in the past, they start off with a shared language and common mental maps.

You know the stereotype? That all start-ups are founded by young men in their 20s and 30s… Well there may be some truth to it. I recently spoke to several tech based start-ups to understand their experience through their early years*. It was a sample of convenience, and as I interviewed the founders two things stood out. First, yes they were all men; and second yes -- “like attracts like”.

Of course, none of this should be completely surprising, yet it did strike me as being interesting enough to warrant some investigation. What brings co-founders together? And what are the implications of their similarity (or lack of diversity)?

When asked, it turned out, most co-founders had met each other long before they had started their start-up. Very often they had met in college, or perhaps as colleagues at an earlier workplace. After all, founding a start-up is an intense experience. And who doesn’t need a partner who one can trust and who thinks similarly.

The relationship between co-founders reflects an intensity different from most work relationships. In the words of one founder:

“The foundation of the company rests on the relationship of the co-founders. But this happens at two completely different levels. The first is about getting the product together, getting the idea executed. You should ideally have complementary skills so that everyone brings the right skills. The second is (pause) this journey is a very lonely one. It gives you a partner to share the journey with.”

The support provided by co-founders works at many levels. The most obvious being division of labour and complementarity of skills. With different talents and skills, the founding team becomes far stronger than single founder could have been.

But then there is another perhaps less spoken of need —that of companionship. The early years are difficult, uncertain, and full of highs and lows. Who wouldn’t need another person one connects with to share this with? Ideally someone who cares as much and with similar stakes.

Research on the composition of founding teams in the US, finds that one of the strongest factors in play is in fact Homophily— or the tendency to enjoy working with others like oneself. _ Hence the similarity in backgrounds, gender, and often age. And perhaps the far fewer women in tech start-ups the wold over.

Similarly, research shows that when founders have worked for a common organisation in the past, they start off with a shared language and common mental maps. This common understanding then helps them in exploiting opportunities with speed. In contrast when founding teams brings together varied backgrounds, they first need to work to create these common mental maps . This takes longer. And could potentially be frustrating.

So with all these reasons in favour of co-founders coming from similar backgrounds, and being a team of like-minded individuals, is there any cause for concern? Well it turns out that there is.

In fact, a recent study of over 400 new ventures in Sweden showed the pitfalls of this approach—teams comprised of strongly homogenous founders (by age/sex/work experience) don’t do as well over the long term (5 years) as do teams with greater diversity . What diverse teams may lose in speed, they have the potential of making up in being more innovative and unconventional. Their different backgrounds allow them to tap into the wisdom of different worlds, drawing upon very different networks of resources and connecting the dots in ways that are far more novel.

Like many other studies of the effect of diversity on performance, in start-ups too, over time the advantages of diverse perspectives do outweigh the initial ease of team formation, and the easier camaraderie. Today the most novel work happens through a creative synthesis of ideas to opportunities. For this it really helps if ideas from one field can be applied to the other . Having co-founders with diverse backgrounds provides just this advantage.

In the end the choice is not simple. Similarity provides speed, trust and companionship. Diversity provides the potential for greater innovation and business success. Immediate connect versus the prospect of greater success over time.

I wager we will not be seeing diversity in start-up founding teams for a long time.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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