Feb 12, 2019

The Link Between Diversity and Financial Performance

Entrepreneurs have historically been a homogenous bunch. When the Harvard Business Review conducted their landmark diversity study, the prevailing profile that emerged was a white male. This result should come as no surprise, as the cards have been stacked in favor of this group for centuries.

For example, venture capitalists invested $85 billion in American businesses in 2017. Companies led by men received 98% of that money. And things aren’t any easier for those of ethnic and racial minorities. When they go looking for a loan, their application is 3 times more likely to be turned down than an application from a white entrepreneur.

But a new breed of entrepreneurs is rewriting history. They’re not letting traditional barriers prevent them from realizing their dreams. According to Entrepreneur.com, women represent 40% of new entrepreneurs. And that percentage will continue to grow, because female entrepreneurship is increasing by 10% worldwide, easily outpacing the 5% growth rate of male entrepreneurship.

As more minorities find access to resources and capital, they have also seen their numbers swell. Statistics show that 7% of U.S. small businesses are owned by blacks, 10% are owned by Hispanics, and 4% are owned by Asians.

If you’re curious about how rising diversity in the business world is affecting the bottom line, the answer is quite well. When the Boston Consulting Group conducted a survey to gain additional insight into the trend, they discovered that companies with more diverse teams have 19% higher revenue.

“There is a business case for diversity,” says Richard Warr, a co-author of the research. “It’s not just about trying to be nice. It’s good for business. It not only helps in terms of perception. It actually produces better outcomes.”

To gather their data, the Boston Consulting Group looked at 1,700 companies of all sizes in 8 different countries. They found that more diverse companies are hotbeds for innovation. First off, when a team has people with a wider spectrum of backgrounds, experiences, and interests, they’re better able to relate to potential customers and solve problems. Moreover, these benefits are sustainable because companies with diverse teams are more likely to attract and retain additional diverse talent. The magnet of diversity doesn’t only attract minorities. Top performers who happen to match the aforementioned profile of white males will often be attracted to companies that make diversity a priority.

To attain these desirable levels of diversity, you’ll likely find it’s less effective to focus your efforts on one specific element of diversity. Rather, try to hire more women and minorities so they can enrich your teams with multiple areas of diversity.

Here are some ways to make that happen:

The Boston Consulting Group suggests it doesn’t take dramatic action to start seeing the benefits of diversity. Even small changes to your leadership team can spur innovation and produce higher earnings margins because each diverse person you hire represents one more unique perspective that can help you find novel solutions to problems, reach your customers in new ways, and adapt more quickly.

“This finding is huge for tech companies, start-ups, and industry where innovation is the key to growth,” reports Forbes.com. “It shows that diversity is not just a metric to be strived for, it is actually an integral part of a successful revenue generating business. Of course, this makes sense because diversity means diversity of minds, ideas, and approaches — which allows teams to find a solution that takes into account multiple angles the problem, thus making the solution stronger, well rounded, and optimized.”

If you’re wondering how to gauge the diversity at your company, a simple first step is to take a photo of your team. The camera doesn’t lie, and you’ll be able to get a basic idea of how diverse your company appears to the outside world. Identify the areas where you have strong diversity, then decide where there’s room for improvement.

Armed with the visual representation from your photo, you’ll be able to target your efforts. If you already have strong representation from women, perhaps you should make a goal to develop the racial minorities you currently employ and also hire more in the future. The point is, every company is different. But the more you can do to bring diversity to your team photo, the more your company will stand out in positive, meaningful, and lucrative ways.

It takes a little cash to change the world.

So what are you waiting for?

About the author

Grant Olsen
Grant Olsen
Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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