When Diversity Becomes a Problem in Start-ups

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In the modern business landscape, diversity is hailed almost as a universal good, so much so that organisations of almost every stripe and colour tout their diversity credentials, be it based on gender, age, ethnicity or sexual orientation. Supposedly, being an organisation that embraces diversity carries with it a slew of benefits, from improved productivity and creativity, to lower turnover and better access to a wider talent pool, and even better optics for the brand.

That may be so. However, this well-acknowledged consensus comes with it an important caveat: If not properly managed, diversity has potential to hamper decision making and damage organisational performance. That’s the idea behind the study “United or divided? Entrepreneurial passion and faultlines in new venture teams”, which sought to look at whether and how diversity affects the performance of teams in an entrepreneurial setting.

The paper was written by Dora Lau, Associate Professor (Teaching) at the Department of Management at The Chinese University of Hong Kong (CUHK) Business School, in collaboration with Prof. Qin Su at Xi’an Jiaotong-Liverpool University, Prof. Lingli Luo at Zhejiang University, and Prof. Bart de Jong at the Durham University.
Prof. Lau notes that, on the one hand, diversity in start-ups is believed by some to be generally beneficial as it enables a fledging business organisation to gain from the complementary skills and resources of its individual members. However, this very same diversity can also lead to the formation of a conflict-laden work environment that damages the ability of start-up teams to make effective decisions.

A Multi-Attribute Approach

Past research into the topic, however, has tended to focus on specific single attributes (such as gender, age or race), while failing to account for the fact that in an actual start-up environment, team members would differ in multiple attributes and that this jumble of attributes may align to create factions within the team. Prof. Lau says the majority of previous studies tend to neglect that the entrepreneurial process is dynamic in nature, with teams facing continuous evaluation and selection both from the market and investors.