Diversity Matters for Entrepreneurs
[Originally published 2/7/00]
At the recent African-American Student Union (AASU) conference, many of the speakers and panelists discussed issues of diversity and the many challenges facing minority entrepreneurs. To enrich and continue the discussion started at the conference, the Harbus recently sat down with Professor David A. Thomas to further explore these issues. Professor Thomas is a member of the Organizational Behavior and Human Resource Management departments and is a noted authority on mentoring, executive development, and the challenges of creating and effectively managing a diverse workforce.
Do you feel that there is a level playing field for venture funding?
Everything that we know about decision-making under conditions of uncertainty says that people seek ways to become more comfortable with uncertain decisions. To do this, people generally seek to identify with the person on whom they are placing a bet. To the extent that the two people are similar, it will make the investor more comfortable making that bet - especially if there are large amounts of money involved. This supports the view that all things being equal, if a minority entrepreneur approaches an investor that doesn't know any other people of color, the investor will undoubtedly be more comfortable with someone with whom they can identity and may, therefore, not invest in the minority-run company.
In these situations, it is important to create some other type of connection with the investor so he or she can identity with the minority entrepreneur. Having both graduated from HBS is often such a connection. So is having a previous employer in common. For these reasons, credentials are often much more important for minority entrepreneurs than for their white counterparts.
Being involved in the same networks as investors is also important. Unfortunately, gaining access to certain networks is often very difficult for minority entrepreneurs. The venture capital networks do not go very deep into communities of color. So I think that's another part of the issue that doesn't make it a level playing field.
Part of your research focuses on managing culturally diverse organizations. How relevant are these issues in the early stages of a company's life - when the company has, say, twenty employees or less?
This is a great question. I think diversity should be on people's radar screens from the very start. In my research and the other work I do, I have had the opportunity to look at companies that have grown exponentially over a period of five to ten years and examine the issues that they encounter over time. One of the big differences that I have observed is that companies that started out with a founding group that possessed substantial diversity tended to grow into organizations that were much better able to attract and manage a diverse workforce. On the other hand, companies that started out with a homogenous founding group tended to encounter significant difficulties in this area later in the companies' lives. For example, in one company that I examined, the founding group consisted of five white men from Stanford. In the beginning of their company's life, they basically hired their friends - who tended to be more white men. As the company grew larger, though, they recognized the need to attract a much wider pool of talent to the company. The company is now two hundred people and their inability to manage diversity in the organization is just killing them. They have rapid turnover and they don't know how to think about it or how to stop the bleeding. So, in my view, entrepreneurs should begin thinking about diversity from the moment they think of their business idea, because what we know about firms is that the founding group puts a stamp on the firm that lasts a long time.
How should entrepreneurs approach the issue of diversity for their companies?
Entrepreneurs should establish a value for their companies that they want to be as diverse a group as possible along a host of dimensions. Race, ethnicity, culture, and gender are one set of dimensions to think about. More generally, I think entrepreneurs should bring together as many different backgrounds, perspectives, and life experiences as possible. This will enable the company to examine the challenges facing the business over time through many different lenses.
Along these same lines, I think it's important to think up-front about creating an environment in which employees can use their uniqueness to help the business. Whether you have ten employees or ten thousand employees, all of those people must feel comfortable bringing forward their unique perspective on a problem and explaining to others where that perspective comes from instead of hiding their true feelings. Their perspective could be grounded in something as simple as being from a certain community and realizing that people in that community will think about the company's product in a certain way. But if they have to hide that aspect of their background, the company can not be effective. So you need to create an open environment - and that's about diversity. You can't assume that everyone in the company is the same just because they share certain characteristics that enable them all to feel comfortable with their similarities.
What advice would you offer aspiring entrepreneurs?
My first piece of advice for future entrepreneurs at HBS is to begin early thinking how they can build an organization that has diversity as a natural strength of it. This goes back to the idea of wanting to create an environment in which each member can bring whatever is unique and particular about them to help the company do its work. The other thing that I would say to aspiring minority entrepreneurs in particular is to really take advantage of their time at the Harvard Business School to build a strong network. They need to keep in mind that even though they might be at a comparable disadvantage to their white peers in terms of the openness of the venture capital community to them, it's only a relative disadvantage. The advantage of being at HBS can go a long way to counter whatever disadvantage comes with skin color. But you have to work at building that network and this is a great time to do it. To the extent that HBS enables students to develop good relationships across lines of race, culture, and gender, students will export to the world a network of contacts that is already diverse. I think that has a lot of potential for shaping the future.
At the recent African-American Student Union (AASU) conference, many of the speakers and panelists discussed issues of diversity and the many challenges facing minority entrepreneurs. To enrich and continue the discussion started at the conference, the Harbus recently sat down with Professor David A. Thomas to further explore these issues. Professor Thomas is a member of the Organizational Behavior and Human Resource Management departments and is a noted authority on mentoring, executive development, and the challenges of creating and effectively managing a diverse workforce.
Do you feel that there is a level playing field for venture funding?
Everything that we know about decision-making under conditions of uncertainty says that people seek ways to become more comfortable with uncertain decisions. To do this, people generally seek to identify with the person on whom they are placing a bet. To the extent that the two people are similar, it will make the investor more comfortable making that bet - especially if there are large amounts of money involved. This supports the view that all things being equal, if a minority entrepreneur approaches an investor that doesn't know any other people of color, the investor will undoubtedly be more comfortable with someone with whom they can identity and may, therefore, not invest in the minority-run company.
In these situations, it is important to create some other type of connection with the investor so he or she can identity with the minority entrepreneur. Having both graduated from HBS is often such a connection. So is having a previous employer in common. For these reasons, credentials are often much more important for minority entrepreneurs than for their white counterparts.
Being involved in the same networks as investors is also important. Unfortunately, gaining access to certain networks is often very difficult for minority entrepreneurs. The venture capital networks do not go very deep into communities of color. So I think that's another part of the issue that doesn't make it a level playing field.
Part of your research focuses on managing culturally diverse organizations. How relevant are these issues in the early stages of a company's life - when the company has, say, twenty employees or less?
This is a great question. I think diversity should be on people's radar screens from the very start. In my research and the other work I do, I have had the opportunity to look at companies that have grown exponentially over a period of five to ten years and examine the issues that they encounter over time. One of the big differences that I have observed is that companies that started out with a founding group that possessed substantial diversity tended to grow into organizations that were much better able to attract and manage a diverse workforce. On the other hand, companies that started out with a homogenous founding group tended to encounter significant difficulties in this area later in the companies' lives. For example, in one company that I examined, the founding group consisted of five white men from Stanford. In the beginning of their company's life, they basically hired their friends - who tended to be more white men. As the company grew larger, though, they recognized the need to attract a much wider pool of talent to the company. The company is now two hundred people and their inability to manage diversity in the organization is just killing them. They have rapid turnover and they don't know how to think about it or how to stop the bleeding. So, in my view, entrepreneurs should begin thinking about diversity from the moment they think of their business idea, because what we know about firms is that the founding group puts a stamp on the firm that lasts a long time.
How should entrepreneurs approach the issue of diversity for their companies?
Entrepreneurs should establish a value for their companies that they want to be as diverse a group as possible along a host of dimensions. Race, ethnicity, culture, and gender are one set of dimensions to think about. More generally, I think entrepreneurs should bring together as many different backgrounds, perspectives, and life experiences as possible. This will enable the company to examine the challenges facing the business over time through many different lenses.
Along these same lines, I think it's important to think up-front about creating an environment in which employees can use their uniqueness to help the business. Whether you have ten employees or ten thousand employees, all of those people must feel comfortable bringing forward their unique perspective on a problem and explaining to others where that perspective comes from instead of hiding their true feelings. Their perspective could be grounded in something as simple as being from a certain community and realizing that people in that community will think about the company's product in a certain way. But if they have to hide that aspect of their background, the company can not be effective. So you need to create an open environment - and that's about diversity. You can't assume that everyone in the company is the same just because they share certain characteristics that enable them all to feel comfortable with their similarities.
What advice would you offer aspiring entrepreneurs?
My first piece of advice for future entrepreneurs at HBS is to begin early thinking how they can build an organization that has diversity as a natural strength of it. This goes back to the idea of wanting to create an environment in which each member can bring whatever is unique and particular about them to help the company do its work. The other thing that I would say to aspiring minority entrepreneurs in particular is to really take advantage of their time at the Harvard Business School to build a strong network. They need to keep in mind that even though they might be at a comparable disadvantage to their white peers in terms of the openness of the venture capital community to them, it's only a relative disadvantage. The advantage of being at HBS can go a long way to counter whatever disadvantage comes with skin color. But you have to work at building that network and this is a great time to do it. To the extent that HBS enables students to develop good relationships across lines of race, culture, and gender, students will export to the world a network of contacts that is already diverse. I think that has a lot of potential for shaping the future.
posted by gnp at 10:52 PM
0 Comments:
Post a Comment
<< Home