There are many factors that determine whether a new company will be successful: the core product idea, the management team, the go-to-market plan. At Golden Seeds, we believe very strongly that gender diversity is one of these key factors, and an important one. It’s been one of our core tenets for the past 15 years.
In fact, our investment thesis is that gender diversity is crucial for a company to be successful. It’s critical at the earliest stages to think about corporate culture, what you’re trying to build, who you hope to attract – and how all these things will impact the organization. Research has continuously proven that gender diversity in management teams and boards of directors leads to more success. This makes it ever more important for companies to consider gender diversity as a core value when assembling a team. Let’s consider why.
Diversity attracts and retains talent
Harvard Business Review’s research article, When Gender Diversity Makes Firms More Productive, lays it out in stark relief: diverse workplaces attract top talent.
This has been the case for some time. When I worked at American Express in the 1980s, the company was beginning to develop a reputation as an organization where women were promoted and thrived professionally. There were quite a few talented women in senior roles and many more were advancing through the corporate ranks. We never felt like “token females” hired only to meet a quota. We felt respected and heard.
Unlike some other women’s experiences in corporate American during this time, I was rarely the only female in a room. And because we felt supported — both by our fellow women and by leadership in general — we weren’t afraid to speak up and offer ideas. We never questioned whether we were being heard or if we could succeed there. This culture attracted more women as a result.
The takeaway? If you want to attract more talented employees, make sure you’re attracting the most candidates by creating a gender-diverse workplace. Diversity breeds more diversity.
Diversity encourages innovation
Knowing that gender diversity helps organizations attract and retain the best talent, it makes sense that companies that value diversity will be more innovative and create better products. Gallup’s The Business Benefits of Gender Diversity report gives us some guidance to get there.
To start, ignoring half of the potential workforce across the world is obviously bad business. As more companies recognize this and hire more women at all levels, diversity tends to build upon itself. With a greater number of leaders with diverse backgrounds and experiences, environments are created where new and inspiring ideas are given true consideration. And diverse teams also mean more common experiences with potential end users.
This leads to more innovation at all levels and better products. For example, Cadenza Innovation (a Golden Seeds portfolio company) develops technology for lithium ion batteries. It was founded by Christina Lampe-Onnerud, who previously founded Boston Power. While everyone else was squarely focused on technology and science, Christina thought it was important to focus on safety. And that’s what she did – built a solution and a company that focuses on technology, science and safety.
Let’s also consider the role female founders have had in the shared economy. Robin Chase founded Zipcar, a car-sharing membership, Jennifer Hyman and Jennifer Fleiss founded Rent The Runway, an online designer dress and accessories rental boutique, and Emily Wiess founded the wildly popular Glossier.
Women clearly played a role in advancing the shared economy, which by its very definition is an innovative twist on the way our economy was used to renting and buying cars, clothing and cosmetics. These women founders have changed the face of modern industry in many ways.
Diversity demonstrates good management
We’ve seen that gender diversity helps companies attract the best people, ones who go on to innovate and create better products. The next takeaway is: gender diversity isn’t just good for your company, it’s good for your investors.
According to HBR, investors are more likely to value diverse companies highly. This isn’t just theoretical, research shows that a 10% increase in gender diversity (as measured by Blau’s gender diversity index, which measures the ratio of men and women at a firm) leads to an approximately 7% increase in a company’s market value. More anecdotally, research has also shown that a company’s stock price tends to go up after winning an award related to diversity initiatives.
In 2005, when Golden Seeds became a member of the Angel Capital Association (ACA), it had a board of directors that was made up of about 12 people, all of whom were men. At that time, only 5% of the some 200,000 angel investors in the country were women, but women were rapidly starting to become angel investors, so we felt it was the right time to advocate for adding women to the board. Golden Seeds Founder, Stephanie Newby pointedly asked them to add women to the board and, in a matter of days, Golden Seeds member Liddy Karter was elected. To their credit, the ACA acted very quickly to add women to their board, and today, six of the board’s 15 members are women. And the board make-up is a direct reflection of the increased number of women who have become angel investors, a number that has grown to nearly 100,000 – 30% of all angel investors – during this time. Both in the boardroom and as general investors, women have become increasingly involved in angel investing in the past 15 years.
Diversity drives financial performance
Finally we arrive at the bottom line. When all is said and done and all factors are considered, companies with diverse leadership – including gender, cultural and ethnic criteria – perform better financially, according to McKinsey’s groundbreaking delivering through diversity research study. They are more profitable and likely to outperform their margins.
In my experience, the most talented managers endeavor to create teams with diverse backgrounds and points of view. These managers will not only allow, but encourage open conversations that highlight their differences for the good of the company. This is true with gender diversity, as well as with multicultural teams.
Looking for numbers? The study shows that, worldwide, companies in the top quartile based on executive-level gender diversity were 21% more likely to out-perform their fourth-quartile industry peers based on EBIT margin. They were also 27% more likely to outperform those fourth-quartile peers in longer-term value creation. This isn’t a small study, either. It covers over 1,000 companies in 12 countries – diversity is an asset no matter where you do business.
Gender diversity is good for business. We’ve recognized this at Golden Seeds since our beginning in 2005, and third-party research continues to support this thesis. So, make sure to consider it when you’re getting your company off the ground. Your team, your products, and your prospects will be better for it.