Is Diversity an Advantage for Start-ups?

Team composition is a highly discussed topic in entrepreneurship. In a Deloitte report, executives were asked to evaluate the connection between team diversity and venture performance – 90% agreed that diversity is a critical factor as it can lead to harder decision processes. Other studies (e.g. HWWI Research, Paper 3-11, 2007; Jayne and Dipboye 2004) show mixed results. Richard Branson has recently stated in an interview on Entrepreneur that diversity is an advantage at Virgin Group – consisting of more than 400 companies. He states that diversity within a company helps “to spot opportunities, anticipate problems, and come up with original solutions before your competitors do.” (Interview with Richard Branson, March 2014).

What about the diversity of Swiss founding teams?
In this regard, the Swiss Start-up Monitor asked the question whether educational diversity matters for start-ups’ innovation power. Therefore, the educational heterogeneity of 203 startups represented in the Start-up Monitor’s database was examined with regards to the number of their filed and pending patents. In doing so, heterogeneity concerning the educational background was measured using the Blau’s index, which considers the number of different educational fields within a team.

First of all, team foundations (n=95) have been found to have more filed and pending patents than individual foundations (n=108). The average amount of patents of these two groups is significantly different from each other – whereby the average number of patents is higher when a company is founded by a team rather than by a single person. Second, a comparison of the more homogenous (low Blau’s index) and the more heterogeneous (high Blau’s index) teams concerning their average patent numbers shows a significant difference indicating that more diverse teams have more patents. 

Thus, yes – diversity matters and yes – educational diversity, too! The first analyses towards a positive relationship between the educational diversity and the number of patents indicates that a more diverse team is likely to be an advantage for the start-ups’ innovation power. One explanation could be that different educational backgrounds, in terms of different perspectives and views, create a variation of information sources (range and depth of information use) leading to new information combinations and fresh solutions to old problems (e.g. Shin and Zou 2007 ; Kaiser and Müller 2013). A more diverse team is also likely to have a more diverse network fostering the input of a wider spectrum of information type into the new venture.

However, there is also the downside of diversity, i.e. a higher likelihood of affective and cognitive conflicts, higher coordination costs, or more agreement difficulties (e.g. Ensley et al., 1998 ; Ensley et al., 2001 ). Is there an optimal heterogeneity level after which the positive effects start to decrease? This is one of the questions the Start-up Monitor Team intends to research on in future projects.   

About Swiss Start-up Monitor
The Swiss Start-up Monitor is a joined research initiative of the University of St.Gallen, ETH Zurich and University of Basel supported by the Commission of Technology and Innovation (CTI), Gebert Rüf Stiftung and AVINA Stiftung. The main goal is to build up an exclusive panel of Swiss start-ups in order to foster entrepreneurship on a micro- and on a macro-economic level. This aim will be achieved by collecting and analyzing data of Swiss start-ups on an aggregate and anonymous level, providing high data security and user controllability at any time. The recent sample size is 1500 in the public directory and 376 in the private area for registered user. Visit the Start-up Monitor Homepage to get more information: www.startupmonitor.ch.