Startup Culture's Lack Of Diversity Stifles Innovation

Startups disproprtionately create apps for the young and well-off... and they're missing out on profits and innovation by ignoring other groups.

If you're young and poor in America, odds are you use a smartphone. Back in 2010, Nielsen found that the majority of Americans 34 and under who made less than $35,000 owned smartphones. These smartphones, it turns out, are also the main way many users access the Internet. But despite the fact that tens of millions of American Android and iPhone owners are struggling to make ends meet—and that there are even more who are senior citizens, who live in rural areas, lack college or high school degrees, or are financially excluded—startups disproportionately target the young, suburban/urban, and middle-to-upper-class. Because of that, the technology world is missing out on a lot of innovation—and, even more importantly to the companies behind technology, missing out on potential profits.

In May, George Packer wrote in The New Yorker about Silicon Valley's class divides and the strange echo loops created by the young, driven, and geeky creating apps mostly for the young, driven, and geeky. As Packer put it, "It suddenly occurred to me that the hottest tech startups are solving all the problems of being 20 years old, with cash on hand, because that’s who thinks them up." Packer was onto something.

That "something" is the fact that startup founders are missing out on great ideas because they mainly create apps for people like themselves. That "something" is also the fact that startup culture lacks diversity in terms of economic background, race, gender, and age. The solution to this is simple: More techies and investors from different backgrounds are sorely needed. They aren't needed for the sake of P.C. inclusiveness; they're needed because the market demands their products.

The Young And Wealthy Feedback Loop

Uber and Seamless are rightfully popular consumer-facing service firms (Disclosure: The author is a former employee of Menupages.com, which is now owned by Seamless). But both of these companies exist to take care of affluent (or on-their-way-to-being-affluent) people's needs. Want to hail a limo in the city? Want to order sushi instead of ordering Domino's? Those apps are there for you. Thousands upon thousands of other apps and startups, many of which have been written about by this very magazine, all exist to target that same demographic. While that's not necessarily a bad thing—you can't fault entrepreneurs for targeting an affluent audience, after all—it a surprise that, just like Packer said, the hottest startups all tackle only the problems of people the same age and class as startup founders.

Apparently, that's true even if startup founders don't necessarily happen to be young. Jeff Makowka, a senior strategic advisor for the AARP, told me that Silicon Valley has an insular investment culture where startup founders feel their products will only be funded if they're "young and cool," meaning both the product and its founders. Makowka also sees a divide between tech-sector startups: Big data and biotech firms' leadership tends to skew older, while consumer-facing tech firm leadership skews younger.

Mobile is the fastest-growing segment of the tech market, but mobile startups tend to avoid making products aimed at 65+ users. Makowka notes a solid financial reason for this: Seniors have low smartphone ownership rates compared to other demographics. In addition, many newly launched apps are buggy and need their kinks worked out. There's a conception, right or wrong, that older users who aren't longtime tech geeks may become more frustrated with apps that aren't ready for prime time and move on quickly.

With that said, there has been some success in creating explicitly senior-oriented products. Gerijoy is an iPad/Android tablet product produced by an MIT spin-off which provides a talking animal avatar companion for adults with mild dementia; the talking pet has Siri-like features (such as displaying pictures and sending emails) and also keeps loved ones apprised of their health. In the most interesting twist, Gerijoy's virtual pets are monitored in real time by company employees who help create appropriate responses in a bid to mimic a real robotic pet. Another firm working in this category is GreatCall, makers of the ubiquitous Jitterburg phone; the company created a series of HIPAA-compliant mobile apps aimed explicitly at seniors.

But, as Makowka notes, the apps he has seen seniors adopt the most have been Skype and FaceTime—produced by megacorporations Apple and Microsoft.

No Bank Account? No Tech Love For You

California's PayNearMe is the equivalent of a unicorn: A successful tech startup serving less-wealthy users. The company creates a technology backend for in-person cash payment for bills and expenses. Using PayNearMe's terminals and cards, users—who mostly lack bank accounts and credit cards—can pay their bills or purchase Greyhound bus tickets in cash at over 7,000 7-Eleven stores and 1,600 check cashing stores nationwide. Like most startups serving underbanked populations, PayNearMe comes from corporate training grounds. CEO Danny Shader led startups later acquired by Amazon and Motorola; the company's honorary chairman, Bill Campbell, is Intuit's chairman and former CEO.

Many new technological innovations targeting the unbanked, such as various debit cards and prepaid payment products, charge users steep fees that some might call exploitative. To give just one example, Walmart's popular prepaid MoneyCard is a new tech product that charges tens of thousands of unbanked users massive fees. Apart from monthly maintenance fees and fees for every single ATM transaction, customers are charged $3 every time they recharge their cards at Walmart. How many startups are missing out on the opportunity to create more financially competitive products for the unbanked?

In a phone conversation, Shader said there are opportunities for companies to serve that market, and that services which appeal to the underbanked can serve other demographics like teenagers and people trying to avoid the use of conventional credit or debit cards because of account limits or other restrictions.

It isn't only the unbanked or underbanked who are ignored by entrepreneurs as potential customers. Despite the fact that there are 94 million credit union members in the United States, web and mobile technology for credit unions lags far, far behind those for commercial banks. Even the most wired credit union is at least three years behind your average commercial bank in terms of customer-facing technology. Meanwhile, customers avoid credit unions—which offer far fewer fees than commercial banks—because credit unions are difficult to use. That vicious cycle repeats itself over and over again, and entrepreneurs miss out on a huge potential market.

How Huge Tech Corporations Became More Diverse Than Startups

The entrepreneurial class of startup creators is disproportionately male and white. Last month at the Personal Democracy Forum, a tech-and-government conference in New York, I had the pleasure of seeing Kimberly Bryant speak. Bryant is the founder of Black Girls Code, an organization that provides STEM educational services to, yes, black girls aged 7-17. In her talk, Bryant discussed her organization's goal—to teach one million girls to code by 2040. By email, I asked her about one trend I've seen as a reporter for Fast Company; that there seemed to be more racial diversity among engineers, developers, and leadership at large corporations than at startups.

Bryant's response mirrored what I've heard before; that many of the past companies she worked for, primarily large biotech firms like Genentech and Merck "had extensive programs for diversity and inclusion initiatives. I believe most startup companies are just starting to focus on increasing their workforce diversity."

There are structural and economic factors at work here too. Writing over at the New York Daily News last year, Anjali Mullany (now of Fast Company) noted that there are very few black VCs, for instance—which can cause obstacles in the clubby world of early-stage investment. There's also the fact that, due to these aforementioned inclusion programs, there are often simply more opportunities to earn more money and scale the hierarchy at large tech firms rather than small startups.

But Bryant thinks that's a loss for the startup world. "I do believe that most startups who develop applications and digital products design "towards the middle." By this, I mean they design their products to reach the broadest consumer base possible, which is a sound strategy in some respects. Yet from a strategic standpoint, I believe that to be truly competitive and industry leaders, tech companies need to design to reach consumers on the end of the bell curve as well. In many cases on the front end of this bell curve you may find a diversity of consumers since African-Americans, women, and people of color have been shown to be early adopters across multiple technology platforms and social media. If technology is designed mostly by white males, who make up roughly half our population, we’re missing out on the innovation, solutions, and creativity that a broader pool of talent can bring to the table."

[Image: Flickr user Sodanie Chea]

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8 Comments

  • Jason

    Great article.  As a founder from a diverse background who is also working on an innovative product that targets people beyond the affluent and soon to be affluent, I can attest to the fact that lack of investment is a major obstacle.  Investors are generally afraid of truly innovative concepts and often unwilling to fund them.  Thankfully, new funding vehicles, such as crowd funding, are making it possible for entrepreneurs like me to bring our product to market despite the lack of support from more traditional gate keepers.

  • RMGH

    The difficulty is that the 1% have all the money!  Start-ups want to market to those who have enough coin to pay them.  This is what happens when wealth distribution gets so out of whack.  I work as a photographer and real estate agent.  The poor NEED help from agents, but the can't or won't pay.   Since this is a business, not a charity, we can only do so much.  To make it a business, you have to find a way to get paid. 

  • John M Sutton

    As
    Packer put it, “It suddenly occurred to me that the hottest tech startups are
    solving all the problems of being 20 years old, with cash on hand, because
    that’s who thinks them up.” The underlying question here is how many
    iPhone / Android mobile apps can be consumed by this narrow demographic. Also,
    as our Smartphone’s grow “heavy” with a myriad of apps designed for the
    20-something, how much potential market opportunity remains unaddressed? In
    conversations with investors recently, this lack of diversity in startup team
    composition and target audience is starting to resonate. In contrast, five
    years ago, I recall a prominent Sand
    Hill Road investor stating that his firm would not
    consider investment unless the founders were in their 20s. Obviously,
    professional VC’s evolve, and are adept at determining downstream limiting
    factors, and what changes may be required to maintain overall marketplace
    momentum. Adopting a broader perspective, it is now clear that those
    20-somethings catalyzed startup culture and often consumed the offerings
    themselves. For the next phase of profitable growth, greater diversity of
    startup team composition, target audience and value propositions are needed. We
    are watching the natural, and more inclusive, evolution of startup culture!
    Corresponding to the SEC’s removal of limitations on fund-raising advertisement
    and the expansion of crowdsourcing channels, there is no better time to
    manifest your startup dreams. What do you think?
    http://startupexecutives.tumbl... 

  • Iris Lapinski

    Great article. Here at Apps for Good we work on the assumption that true innovation always comes from the fringes. So rather than expecting tech enterpreneurs to worry about other people who are not like them, we need to ensure that the enterpreneurs of the future are far more diverse in terms of gender, age, ethnic and economic background. During 2012/13 52% of our Apps for Good students of ca 6,000 11-18 year olds were girls. :)
    Change is coming and maybe faster than some people might want. What if white men were a minority in the tech industry of the future? Mark Littlewood posted a thought exercise looking back from 2043 here: http://thebln.com/2013/06/we-n...

  • London Home

    I'm the Founder of Blackworld.com, a multicultural tech & media startup aiming to help change the world through connectivity. I'm also African, European & American of British birth. I like your article, but kindly allow me to challenge your perspective and make a contribution to impetus this article due to my diversified background. If you look very carefully at Silicon Valley, the best software engineers, tech innovators and surprisingly VC Partners, are actually not white... they are of India decent, either American born or immigrants from India. India itself probably now has more leading software engineer graduates and tech innovators, increasingly than the United States. In the global African Diaspora, from Brazil, America, Europe and Africa itself, there is very very limited involvement of this huge emerging market in the innovation, tech startup, career participation and all its collaborative consumption. Now, there is no need for me to address the impediments here, instead I believe it is entirely possible to make Technology from consumption to innovation part of the African Diaspora DNA in our lifetime. This is what the Indians have done successfully, considering India is actually a very poor resourced country compared to Nigeria or South Africa for instance. I'm using euphemistic phrase here but we must understand charity really does begin at home. There is no point whatsoever worrying about the lack of diversity in Silicon Valley, that's a huge time waster in a world that is now on the verge of breakthroughs such as Artificial Intelligence that is radically changing human behaviour entirely. If you don't allude to what I'm saying, I invite you to read very carefully " Meaning of The 21st century " by James Martin of Oxford University. In this book, there are actually some hugely disconcerting issues, that suggest new communities will evolve that will be "exclusive" and not inclusive. This is going to be a massive problem for humankind started already. However the lack of diversity that you address in this article, must start primarily from our own multi-ethnic communities, by simply getting the big picture of disruptive technologies, in order to fully participate through innovative ideas at home, and evolving community tech startups that contribute towards human evolution. Otherwise, I'm afraid we are going to be in big trouble, very big trouble this century. Try asking a super-human or an advanced alien to join you for a cup of coffee and he'll probably think you're kidding. You get the picture? It's happening already and there's little time.

  • Alicia Kan

    The lack of diversity is reflected in startup marketing. The biggest fallacy is that getting mentioned or profiled in tech media is all that's needed to get the word out. The second is that tech influencers whose attention they court are household names. 

    Startups have to be honest about who their customers are and how best to reach them. The tech world is not the entire universe. Your customer is not necessarily a 20-something Valley resident who can afford a latté everyday.

  • Chris Kelly

    This is a really interesting point. I'm in London: Every coder is male, white & straight. A female coder or designer, if one ever applies for a job, stands out in a list. Sadly they appear to be more harshly judged too. This really needs to be addressed. I also know of two 70+ consumers with smartphones who have a huge amount of spare time & a lot of spare cash. They type slow but man to they stick at it till they get where they are going. And theres not a single company making stuff for them. Missed opportunity.