Lack of Diversity Isn’t a “Pipeline Problem,” It’s a Network Problem
Recently, I was in Chicago for Paradigm IQ’s D&I Lab: Data-Driven Strategies to Attract & Hire Diverse Talent, a one-day workshop designed to equip attendees with new strategies for designing an inclusive organization.
In a room full of people with titles like chief people officer, director of diversity and inclusion, and director of leadership and organizational development, I stuck out a bit as a founder, entrepreneurial ecosystem fangirl, and former accountant rather than a human resources executive.
However, I was amazed by how much the concepts of building a more inclusive organization can apply to create a more inclusive entrepreneurial and investment community as a whole—a community that is near and dear to my heart, but horribly homogenous. I say that the community is “homogenous” based on the fact that I have closely analyzed diversity within Michigan’s entrepreneurial and investment community for the last five years and discovered that, both nationally and in Michigan, the startup and venture capital communities are comprised of approximately 85 percent white men.
During the workshop with Paradigm IQ, Tash Wilder lead a discussion on attracting and hiring more diverse talent. When they were speaking, I was struck by how easily these hiring strategies could be applied to attracting and investing in more tech companies led by diverse founders (women, people of color, and members of the LBTBQ community). I could write a book about the knowledge I gleaned from Tash during the conference, but for now, I want to focus on the part about growing our networks.
The entrepreneurial ecosystem has a crippling network problem
The primary reason investment portfolios are predominately male and Caucasian isn’t because there is a “pipeline problem,” it’s because there is a network problem. Research shows that your network predominately looks like and comes from a similar background as you. For example, I’m a white woman who went to Michigan State University. Most of my professional contacts are white, and pretty much everyone I know personally went to a Big Ten school. It’s not necessarily a bad thing that I am drawn to people that are like myself, but it is something to be aware of.
It’s important to be cognizant of the fact that your network predominately looks and thinks like you if you are utilizing your network to help source investment opportunities, weigh-in on due diligence, or get their input on the “vibe” of a particular company, because you’re going to end up with a pretty homogenous pool of investment opportunities and portfolio companies. (Case in point: Michigan’s venture capital community is comprised of over 86 percent Caucasian men, closely mirroring the demographics of CEOs at Michigan’s venture-backed companies). Additionally, if you get referrals for investment team candidates from your network, you’re also going to build a pretty homogenous team, further exacerbating the network challenge.
At this point, some of you may be thinking, “Are you expecting me to invest in companies just because a woman or person of color leads them? The only color I see is green, so I’m not going to lower the bar just to build a more diverse portfolio.” To this, I say:
—Widening your network has nothing to do with reducing your standards. Let’s all stop talking about “lowering the bar” as a method for building a more diverse portfolio or team. Let’s focus on strategies to widen that homogenous pool so it can accommodate more founders and talent rather than just throwing up our hands and saying, “Well, I guess there’s no one out there, so the only way I can attract a broader network of people is by lowering the bar.”
—Research shows more diverse investment teams and more diverse portfolios earn higher returns. So, continue seeing green, but remember it is often more profitable to invest in a broad array of founders because diversity of perspective leads to more innovation.
(Side note: If you really think you only see green, we should probably also have a side conversation about the pervasiveness of unconscious bias.)
Now that that’s been addressed, let’s move on a few simple strategies to build your network.
Building a more inclusive network
—Partner with organizations that support candidates from underrepresented groups, such as like 4Degrees, Management Leadership Tomorrow, Jopwell, Code 2040, National Society of Black Engineers, Lesbians Who Tech (the first summit is in mid-September), WeSolv, Noirefy, National Association of Black Accountants, and Grace Hopper Conference.
—Increase the diversity of your referral pool by explicitly encouraging people in your current network to refer companies led by underrepresented groups. Referral hiring can lead to a homogenous candidate pool, but encouraging your network to refer amazing founders from underrepresented groups can help. Someone who is similar to you might be the first person that pops into your mind, but if you ask your network if they know of any promising companies with diverse founders that are looking for investment, chances are, most people in your network could quickly think of someone.
—Perform an audit of your digital presence to ensure your firm is communicating an inclusive culture and investment strategy. Yes, you do have to navigate this one authentically, but inclusive language and photos say a lot about your organization. Attracting interest from companies led by an underrepresented group is easier when you are an organization that looks like one they could see themselves working with. If your website showcases your all-white, all-male team and your all-white, male-led portfolio companies, then you most likely won’t appear like a firm that would be a good partner to a portfolio company led by a woman or person of color.
—Grow your inclusion skills and ability to work through differences. Let’s say you follow steps 1-3 above and identify some great founders who belong to underrepresented groups. The diversity part is done, but now the inclusion part begins. At this stage, Trey Boynton, head of Duo Security’s diversity and inclusion team and one of EntryPoint’s advisory board members, offers sage words of advice: read, attend conferences, talk with diversity and inclusion leaders, and talk with colleagues who do it well. Then, apply your own spin on inclusion that will help you grow authentic supportive relationships with folks who are different than you. Investors partner with startup companies to grow something profitable and awesome, but inclusive investors just happen to change the system while doing it.