To Stay Competitive, Startups Must Combat Gender Diversity Debt

Entrepreneurship is booming, but women are underrepresented among its founders, investors and employees. A recent study investigates entrepreneurship’s gender “diversity debt,” a demographic disparity that can be difficult and costly to remedy as an organization grows.

The study’s authors, Melissa Cardon, Haslam Distinguished Professor of Entrepreneurship and Innovation in the Haslam College of Business at the University of Tennessee, Knoxville, Yuval Engel (University of Amsterdam), Trey Lewis (Virginia Tech) and Tanja Hentschel (University of Amsterdam) found that when men far outnumber women at a startup, other women are less likely to apply. A gender gap in applicants can create a vicious cycle of diversity debt as startups scale their workforce.

“If startups have diversity debt in their early days, this disparity will only increase over time, making it even harder to diversify later,” Cardon says. “That compounds startups’ lack of access to the best talent available to fill their open positions.”

Gender Disparity Keeps Qualified Candidates Away

The researchers utilized data about tech and non-tech jobs at technology-based firms in several different industries. In one study, they assigned potential applicants to view one of two startup employer profiles. The employers were identical in every way except that one showed its gender composition as 5 percent women and the other showed 40 percent women. In a separate study, the authors analyzed more than half a million application decisions on a job-matching app for startups.

Controlling for skills, education and prior experience/qualifications of potential applicants, the study found that women were wary of entering candidate pools at companies that had little or no female representation. Men, the dominant majority in this context, were not similarly deterred.

The results were clear: for women, signs of diversity debt created worries about being singled out, disrespected, stereotyped, marginalized or mistreated. The more concerned women were, the more reluctant they were to apply, offering comments such as, “I immediately get ‘tech bro’ vibes from this place, and it is somewhere I am not interested in,” and “As a woman, I feel like I wouldn’t be taken seriously.”

Policy Makers Must Take an Active Role

Whether it stems from discriminatory hiring, the gender composition of the founding team or other factors, diversity debt is a red flag for many women, creating a wider gender gap in application interest for startups. Underrepresentation of women in entrepreneurship is a problem that has important implications for gender equity and inclusion, not only in growth-oriented startups but also in society at large, the authors say.

“Talent belongs to both men and women,” Cardon says. “When startups have diversity debt, which deters women joiners, those startups are losing access to some of the most qualified applicants for their jobs, which negatively impacts their ability to hire the best applicants and do the best work.”

The research team says that for startups to break the cycle of diversity debt as they scale, they will have to find proactive ways to become more attractive to women jobseekers and improve the representation of women in their hiring funnel from day one. Rather than struggling for years and spending resources on diversity initiatives that may not work, startups should hire and retain women early and reap the competitive advantage of larger, more diverse candidate pools.

“Signaling Diversity Debt: Startup Gender Composition and the Gender Gap in Joiners’ Interest” was published by the Academy of Management Journal in November 2022. The paper is available online.

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Haslam College of Business - To Stay Competitive, Startups Must Combat Gender Diversity Debt