The Business Case For Diversity In Tech Scale Ups

Simplifying the Path to Diversity for SaaS/AI Tech Founders

The typical SaaS/AI tech founder I work with is often time-poor and under pressure to manage funding rounds and expand the business. Despite these challenges, they usually possess strong ethics and a genuine desire to build more diverse teams. However, many are unsure how to achieve this while juggling their numerous responsibilities.

To make this process easier, I want to highlight why diversity is a competitive advantage and how you can start your diversity journey with three key steps.

The Competitive Advantage of Diversity

Firstly, it can be a competitive advantage. A 2015 McKinsey study found ethnically diverse companies were more than 35 per cent more likely to outperform their industry counterparts. Even more significantly, each 10 per cent increase in racial and ethnic diversity on the senior executive team yielded, on average, a rise of 0.8 per cent in earnings before interest and taxes (EBIT).

Similarly, for gender, a Credit Suisse study found that companies with higher female representation at the board level or in top management exhibit higher returns on equity, higher valuations, and higher payout ratios.

Starting Your Diversity Journey: Three Key Steps

Given the advantages, the next step is to take actionable measures to enhance diversity in your organisation. Here are three strategies to consider:

1. Set Clear Diversity Goals

Define specific, measurable objectives for improving diversity within your company. This could include targets for hiring, promotions, and retention rates across different demographic groups. Clear goals will help guide your efforts and track your progress.

2. Implement Inclusive Hiring Practices

• Bias Training: Provide training for hiring managers to reduce unconscious bias. This ensures fairer evaluation of all candidates.
• Diverse Panels: Ensure hiring panels are diverse to provide various perspectives during the recruitment process. This can help in making more balanced hiring decisions.

3. Increase Diversity in Candidate Shortlisting

If your diversity audit reveals a bottleneck in candidate shortlisting, consider these techniques:

• The “Two in the Pool Effect”: Research featured in Harvard Business Review found that when the final candidate pool has only one minority candidate, he or she has virtually no chance of being hired. However, if there are at least two female candidates in the final candidate pool, the odds of hiring a female candidate are 79 times greater. Similarly, if there are at least two minority candidates in the final pool, the odds of hiring a minority candidate are 194 times greater. Hence, the “two in the pool effect.”

By following these steps, you can begin to build a more diverse and inclusive organisation. These strategic changes will not only help you attract and retain top talent but also position your company as a leader in innovation and ethical business practices. Embracing diversity is a journey, and with these actionable steps, you can start reaping the rewards.