We live in a world with a stereotypical representation of what a startup founder looks like, so it’s no wonder that a large portion of the population feels underrepresented. According to the EEOC, 83 percent of tech executives are white. A Gender Gap Grader study shows that women represent 9 percent of developers in the startup ecosystem. A 2020 article from the Next Web noted that almost half of Indian startups don’t hire women to save on maternity costs.
So, why should startup founders care about attracting and retaining a diverse workforce? Why should investors fund diverse startups and even encourage startup founders to diversify their workforce?
The benefits of building a diverse startup team are overwhelming; from increased creativity and faster problem solving, to a greater diversity of thought opening up new market opportunities and more revenue streams, to better understanding the customer base and building better products… the list goes on.
Here are 4 startup myths that hold innovation back
Myth 1: Startup founders are young
The myth of the young startup founder who built his app in his parent’s garage is everywhere. Although it’s a fascinating story, a 2019 influential academic study by the Kellogg School of Management at Northwestern University shows just how misguided this popular narrative is.
The economists who conducted the study analyzed administrative government data on the founders of all U.S. businesses that were started during a recent eight-year period (2007 to 2014). The authors calculated the average founder age at the time of founding, along with key startup characteristics (i.e. industry, financing, patenting, location) and outcomes (i.e. hyper-growth, acquisition, or IPO).
Below are the findings related to average founder age:
- All companies (with at least one employee): 42 years
- Fastest growing 0.1 percent of companies: 45 years
- High-tech industry: 43 years
- Venture-backed: 42 years
- Filed patents: 45 years
- Successfully exited (acquisition or IPO): 47 years
- Located in Silicon Valley: 42 years
- Located in an entrepreneurial hub: 41 years
According to this academic research, founders in their 20s and 30s are less likely to start high-growth companies. Conversely, founders aged 40 years and above are more likely to start high-growth businesses relative to their contribution of total companies founded.
The average age of startup founders is more or less around 40 years of age—far greater than the popular narrative of the mid-20s college dropout. Finally, the study shows that conditional on starting a company, the probability of achieving “high-success” (fastest growing 0.1 percent of firms or successful exit) is lowest for founders in their early-20s and increases in a linear fashion along with founder age up to the late 50s.
Myth 2: Startups founders are men
What are the first names that come to mind when thinking about startup founders? Mark Zuckerberg? Steve Jobs? Bill Gates?
According to a recent Crunchbase study, the number of companies founded by women doubled from 10 percent of global startups in 2009 to 20 percent in 2019. There’s also been tremendous growth when it comes to dollars invested in female-founded companies. At the same time, according to research by All Raise, only 15 percent of all venture capital funding is allocated to female founders.
A lot of this gender imbalance is due to unconscious bias at the funding stage. One 2018 study found that, during investment pitches, female entrepreneurs are more likely to be asked “prevention” questions, or those related to safety and potential risks and losses. In contrast, male entrepreneurs are more likely to be asked “promotion” questions, or those related to their hopes, ambitions and achievements.
However, the business case for female funded startups is clear: a Boston Consulting Group study revealed that for every dollar of investment raised, female-run startups generated 78 cents in revenue, whereas male-run startups generated only 31 cents. Women outperformed their male counterparts despite raising less money ($935K versus $2.12M).
Additionally, research from the Ewing Marion Kauffman Foundation found that women-led teams generate a 35 percent higher return on investment than all-male teams. This research clearly shows that women outperformed their male counterparts despite raising less money.
Myth 3: Startup founders don’t have kids
According to the aforementioned popular narrative of the young male startup founder in his garage, startup founders simply don’t have kids. This narrative clearly disregards some great examples of successful mom entrepreneurs and startup founders.
The Baby Einstein Company was founded by stay-at-home mom Julie Aigner-Clark at her home in Georgia. Aigner-Clark and her husband invested $18,000 of their savings to produce the initial product, a VHS entitled “Baby Einstein,” later sold as Language Nursery.
They saw the opportunity to develop products that assist in the intellectual development of a child from a very early age. Baby Einstein grew revenues from $1 million in 1998 to over $10 million just a few years later in 2000. This growth, rapid brand recognition, and the quality of the products caught the eye of The Walt Disney Company, which acquired the business for an undisclosed amount the following year in 2001. For about eight years following the acquisition, the value of the brand continued to multiply and was rumored to be valued at $400 million at one point.
While this is just one example, there are countless other mom (and dad!) entrepreneurs who bust this myth. The transferable skills from parenthood to entrepreneurship are many: the ability to multitask, to prioritize, and to be efficient with a limited amount of time are all critical skills for entrepreneurs that should not be underestimated by investors.
Myth 4: Startup founders are white
The current conversation around systematic racism is especially relevant in the startup ecosystem where non-white founders have long been ignored, under-represented and overlooked. The reality is that non-white startup founders not only exist but are extremely successful and should be highlighted more in the media, in the movies, in books and podcasts to share their success stories.
Take, for example, Emilia Makosa, a London-based entrepreneur who has answered the call of Black women struggling with hyperpigmentation. Her complete cosmeceutical skincare collection caters exclusively to Black skin, and Makosa founded her company to solve a problem she experienced with her own skin.
Entrepreneurs come in all colors, shapes and forms, and from different backgrounds. These underrepresented entrepreneurs often bring fresh perspective, open up interesting new markets and represent a unique untapped potential for the global economy and for their potential investors.
On the other hand, startup founders who fall into the majority can increase creativity and innovation by diversifying their workforce, and doing so as early as possible. Diversify as soon as you start building your team, because doing so will provide a unique competitive edge, increase innovation, open up new markets and set you up for success.
Investors and venture capital firms should prioritize funding startups founded by diverse funders, while also encouraging majority founders to diversify their teams in order to get better returns on investment. Diverse startups are the key to innovation, creative thinking and growth, which is now more critical than ever before.
Originally published Dec. 6, 2020.