Research

Why are Australian startups failing at gender diversity?

Women have been banging their heads against the glass ceiling for years, but when it comes to the nation’s startups they are struggling to get a foot in the door, even at ground level.

“Our current image of who is a successful entrepreneur, formed largely by the media and popular culture, conforms to a male ideal.”
– Harvard Business Review.

Startups have always been viewed as more than fledgling business ventures. Investors, in particular, have historically seen them as incubators for innovation and fresh ideas.

The world has watched numerous humble startups grow into global success stories, built around the strength of bright ideas and passionate founders.

The startup gender gap

The early days of a startup are when the magic happens and when key problems are solved, often on the backs of a skeleton crew driven by a shared dream, running low on returns and high on overheads. If the startup succeeds, a select few will earn the kind of respect that money can’t buy, as the ones who were “on board from day one.”

On a practical level, individuals involved in a company’s initial stages benefit from having an input into how the business is structured - from the ground up.

In this light, the reality that women are being under-represented in startups - from the point of inception and during key development phases - has emerged as a question mark over the nation’s efforts to address gender inequality in the workplace.

The annual Startup Musteri report profiles Australia’s emerging innovation ecosystem and identifies the challenges and opportunities faced by startups. According to the 2017 report, 57.3% of startup respondents had a workforce where females made up less than 30%, while 38.3% of respondents had no full-time female employees at all.

Australia’s companies generally implement female participation targets of between 30% - 50%.

A full reading of the report debunks any suggestion that the low female representation can be attributed to startups not hiring full-time employees. 58.5% of respondents had between one and five full-time employees and 12.8% had between five and 10 employees working full-time. This is just under the 17.4% of startups that had zero full-time employees.

The Startup Muster showed an incremental increase in the number of female startup founders – which has risen to 25.4%, up from 23.5% in 2016. The proportion of women among those considering launching a start-up was 37%, up from 31% in 2016.

One theory for the lack of startups founded by women places the blame squarely on a lack of Venture Capital (VC), with the bulk of funds going to male-led startups. It has also been noted that women are underrepresented in VC leadership roles, limiting their influence on decisions and policies.

According to the Harvard Business Reviewii (HBR), studies support the idea that a subconscious bias is at play in the VC decision making process, with laboratory experiments and actual pitch competitions showing that “investors preferred entrepreneurial pitches presented by male entrepreneurs compared with pitches presented by female entrepreneurs, even when the content of the pitch was the same.”

Another HBR article found that the biases were not only found in men, with women displaying a similar bias that favoured male VC pitches.iii

The findings suggest that simply increasing the number of female executives in the upper tiers of VC companies might not be enough to correct an imbalance. Structured gender inclusive benchmarks could help to redefine what business leaders regard as normal in the entrepreneurial landscape.

At the heart of the matter, prejudices in this arena are so ingrained that a fundamental readjustment of how society as a whole views the capacity of women to lead and innovate could be the only meaningful way forward.

Is lack of gender diversity bad for business?

Startups often face a host of challenges ahead of establishing solid ground for themselves in a marketplace. By neglecting the importance of gender diversity in their staff, they could be adding to their future obstacles.

A recent study by Morgan Stanley Research found that highly gender-diverse companies outperform their low gender-diverse counterparts.

The report states: “New research has found empirical data that shows gender diversity does make a difference, particularly when it comes to a company’s performance in that highly gender diverse companies have a better return on equity (ROE) and lower volatility than those ranked low in diversity.”iv

Put simply, highly gender diverse companies tend to outperform other businesses across a number of quantifiable areas including employee productivity, volume of customers, talent retention, and risk management.

For information on investment opportunities in emerging and innovative companies, please contact your Morgan Stanley Financial Adviser.

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