By Scott Meacham
Companies that are more diverse produce better financial results — much better, according to the most recent report in the McKinsey & Company series “Delivering through Diversity.”
In the McKinsey report, companies in the top quartile for ethnic/cultural diversity on executive teams were 33% more likely to have industry-leading profitability. Moreover, companies in the bottom-quartile performance on diversity were 29% less likely to achieve above-average profitability than were all other companies surveyed.
While not causal, the research indicates “a real relationship between diversity and performance that has persisted over time and geography.”
Only 1% of venture capital dollars went to Black startup founders in 2018, according to a study by Silicon Valley Bank and others. Why? A big part of the reason is that just 3% of the partners and 4% of employees in the VC workforce are Black according to the most recent NVCA-Deloitte study on diversity. Additionally, fully 93% of the surveyed firms did not report having any Black investment partners.
As an industry, we are missing the boat.
Recently, we had a discussion with Kevin Moore, a former i2E venture adviser, who is a venture capitalist in Oklahoma City. I asked Kevin, who is Black, how we can increase the number of Black entrepreneurs.
“The biggest problem, not just in Oklahoma but around this entire country,” he said, “is the idea of broken networks or the lack of networks for people of color. Investors rely heavily on referrals from their own networks — these are dense networks, deeply embedded with high levels of trust. Everyone knows what everyone else knows and things can get done quickly. However, the problem is that there is little or no opportunity to bridge network gaps and this led to the erosion of long-term performance.”
Those gaps are filled with the talented, diverse people with great ideas for new companies — the kind of companies that power innovation economies and create most of the net new jobs in this country.
It’s time for action, time to acknowledge that there is a systemic issue keeping Black founders out. I asked Kevin for steps that could be undertaken to address this problem.
“Investors in this industry need to set specific goals and specific metrics,” he said. “For example, we are going to invest in ‘X’ Black entrepreneurs this year. A large part of being able to do that is recruiting Black partners who have the ability to make investment decisions.”
And how to build a diverse deal pipeline of fundable ideas and talented entrepreneurs?
“Investors should attend events comprised of diverse people,” Kevin says. “If you attend organizations that are different than the ones where everyone looks like you, you will find diverse entrepreneurs. There are many of them out there. The idea is to dig deeper. Expand your own network. Most colleges and universities have a Black student association and Black student clubs with smart, ambitious people with great ideas.”
Like so many fundamentals of business, the idea of diversity is not complicated.
It is a matter of making diversity and inclusion a priority and putting metrics and measurable actions in place that work. The payback? Engagement with new markets and customers. Access to overlooked talent. Increased margins and profitability.
What is our industry waiting for?
Scott Meacham is president and CEO of i2E Inc., a nonprofit corporation that mentors many of the state’s technology-based startup companies. i2E receives state appropriations from the Oklahoma Center for the Advancement of Science and Technology. Contact Meacham at i2E_Comments@i2E.org.