Inclusion in Tech Entrepreneurship: Meritocracy or Myth?

Opinion

We’ve been hearing a lot about how the high-tech industry has been working to recruit more underrepresented minorities and women into its ranks, without much early success. Less than 2 percent of the employees at Facebook, Google, and Twitter are African-American, according to the companies’ Equal Employment Opportunity reports for 2014, released earlier this year. Seven out of 10 Google workers are men. According to a recent article in The New York Times, employees at Amazon follow a code, which includes “to rip into colleagues’ ideas, with feedback that can be blunt, to the point of painful.” The number of women in top management positions: zero.

The startup culture, which remains at the core of these now tech giants, has long espoused the theory that entrepreneurship is a meritocracy, with the best ideas and teams rising above competitors who are less nimble. Yet there’s increasing evidence that some people never make it to the starting line, let alone have a chance to participate in the race to the top.

At the Council for Entrepreneurial Development, the nation’s largest and longest-serving entrepreneurial support organization, based in the Research Triangle region of North Carolina, we’re increasingly being asked about the ethnic and gender diversity of startup teams. In particular, local leaders want to know, can regions outside Silicon Valley do a better job of including a broader spectrum of players in these emerging economic sectors? And if so, how?

The companies featured at the CED Tech Venture Conference, Sept. 15-16 in Raleigh, NC, show some reason for optimism. Twenty-six percent of the 96 presenting companies have at least one woman or ethnic minority on their founding team. While it’s difficult to know how this percentage stacks up nationally, it’s a sign that at least the door is open to new perspectives and contributors.

The troubling reality, however, is that good intentions alone are not enough to move the needle significantly. Economic and cultural factors tip the scales against low-wealth individuals, who are more likely to be female and non-white, in starting their own businesses. And in some of the highest-growth startup sectors, that disparity may be even more pronounced.

Take student loans, for example. In the technology sector, the overwhelming majority of company founders have at least some college education. As the rate of growth in student loans outpaces inflation, there are real consequences for entrepreneurship. The 2014 Gallup-Purdue Index found that 26 percent of students who left college debt-free in the past 10 years have started at least one business, compared to only 16 percent of those who graduated with more than $40,000 in student loans. Students with high levels of debt typically come from lower-wealth families, meaning they have a harder time getting enough capital after college to launch a business while paying off the cost of their education.

How else might initial income disparities persist in the startup world? Students graduating without debt are more able to take an unpaid internship for work experience. They can work for equity, a common practice in a cash-strapped startup, rather than take a salary. They may face lower expectations for contributing to the overall financial health of the family. Admittedly, these choices are not easy for anyone—but they may be outside the realm of possibility for a recent grad who needs a steady income.

The high cost of living in places like California and New York no doubt adds to the barriers for low-wealth individuals entering the startup world. That’s where places like the Research Triangle may have a real advantage, especially if housing costs remain affordable. Even now, though, cheap housing is growing scarce as downtowns rebound from the recession—yet another reminder that larger economic trends can narrow the field of startup participants.

We lose a lot from excluding entire groups of the population from this dynamic sector of the economy. According to Kelly Hoey, the speaker, strategist, and investor, who will be among the featured speakers at the CED Tech Venture Conference, “For anyone who is building a founding team, studies of the tech industry show that if you’re just trying to create the minimum viable product, having a team that thinks alike and works as one brain may be fine for a narrow moment in time. But if you want to grow and scale, you need a diverse team of problem solvers at the table.”

Fortunately, being aware of the obstacles offers the opportunity to remove some of them. Policies encouraging financial literacy and access to lower-cost lending for education, low-cost skills training, affordable housing, and reliable transportation are activities that many local governments already engage in. Focusing attention on how the public and private sectors might work together to open the door to a more diverse group of startup founders is one place to start ensuring a future that really does function like a meritocracy, without the hidden high cost of admission.

Joan Siefert Rose is the president of the Council for Entrepreneurial Development (CED) in Durham, NC. Follow @CEDNC

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