Is diversity a luxury for scale-ups?
How often do you read about a new piece of research that proves the case for diverse leadership teams? Inclusion and diversity stats have become commonplace on news feeds and timelines, but that makes them no less compelling. Indeed, the findings are almost impossible to argue against: research published this year by McKinsey found that companies in the top-quartile for gender diversity and ethnic/cultural diversity on executive teams were 21% and 33% (respectively) more likely to outperform on profitability.
Whilst progress remains slow, the obvious benefits of diversity are seeing it gain an increasingly strong foothold on the agenda of many global businesses. So how does this translate for less established companies?
The metamorphosis from start-up to scale-up is often the point at which proven leadership talent needs to be brought in to drive the next phase of growth. The challenge is that this kind of experience is already in short supply and adopting diversity parameters can restrict the potential talent pool even further. For scale-ups, having the right leadership team is essential to their success but, with limited time and resources, is diversity a luxury (and, if so, is it one they can afford)?
Firstly, we need to move away from the notion that diversity is a laborious exercise in setting hollow quotas and drafting inclusion policies. Whilst targets and guidelines certainly have their uses, for more entrepreneurial businesses there are simple tweaks in mindset and approach that can significantly broaden the hiring strategy:
The best person vs the best team
We often talk about successful board/c-suite hires in terms of appointing the very best individual for the job – but this person doesn’t exist in a vacuum. By definition, the best candidate for a leadership role should be the one whose inclusion will fortify the current team and/or represent a key building block in its next iteration. As such, keeping the bigger picture in mind is vital when drawing up your ideal candidate profile. Scale-ups need to recruit for the business they want to be, not the business they are today.
Cultural add not cultural fit
To achieve this, it is important to avoid creating a homogenous leadership team that lacks breadth of insight and perspective. Historically, companies would make selection decisions based on whether a candidate shared traits and characteristics with the rest of its management, but we are starting to see a shift away from this desire for “cultural fit”. Instead, focusing on “cultural add” allows scale-ups to prioritise those candidates who, as well as possessing the required experience, will bring a new dimension to the team.
Look beyond usual hiring channels
It is perhaps unsurprising that, within the tech ecosystem, many senior appointments are still made through network connections. If you already know of someone who would make a good addition to the team, why waste time looking further? The problem with this approach is that it can nurture homogeneity: we want to hire people we know and like, and we tend to like people who share our point of view. Casting a wider net and looking beyond your immediate network can bring candidates into the process that will bring a fresh perspective – and prevent the boardroom becoming an echo chamber.
Talent strategy is often not high enough on the agenda of the time-poor scale-up leader, and can be more reactive than proactive. Having a clear yet flexible plan in place for the various phases of growth allows you to take more time over the recruitment process – meaning you aren’t forced to find people quickly or make snap decisions. In support of this, a robust succession plan can create internal hiring options – so diversity should be a factor at all recruitment levels to ensure those rising through the ranks will perpetuate the multi-dimensional leadership team.
Investors can lead the way
Investors often have significant influence over the senior hiring decisions of their portfolio companies but, as an industry, the VC community can and should be doing more to make their own teams more diverse. In their 2017 report, Diversity VC observed that women represented just 18% of investment professionals and 13% of decision makers in the UK venture capital market. As a result, they have set a goal to see women holding at least 20% of senior decision-making positions in UK venture capital by 2020, and are working with firms to set ambitious yet achievable targets.
Renata Quintini of Lux Capital says in the report: “Familiarity is part of survival. We’re wired to have biases for survival’s sake. That is why diversity is so important. By having people purposely [on investment teams] with a different make up, and with aligned incentives, we’re kept intellectually honest and our biases are checked. That is the best gift you can get in judgement.”
If VC teams are more diverse, we should see this reflected in the leadership teams they invest in and help build. Given the weight of evidence that suggests diversity engenders greater success, it is hard to view it as anything less than a necessity – even at the earlier stages in a company’s growth. With quicker decision-making and accelerated expansion, scale-ups have the agility to build diverse teams at a much faster pace than their corporate counterparts – and reap their rewards.