Updates from

Nilofer Merchant, LLC

The One Thing VCs Could Do To Increase Returns

By Nilofer Merchant on Sep 23, 2013 02:14 pm

(Catching up the Yes & Know site with essays written while site was being renovated. This is an essay on who and what forms the structural power in modern society — and asks that group to buy a clue and get with the times. It’s probably the most pointed piece I’ve ever written, and at some point I’ll tell you what happened behind the scenes as a result.)

***

If the person who can cure diabetes came to you for money, if you were a VC you’d likely turn that person away. And, an inventor who could reduce global dependency on oil by designing better batteries? That VC might not even take the meeting. By venture capitalists’ individual actions, they are limiting growth and innovation. By their collective choices, they are risking our very lives.

Now that might sound a little extreme. But bear with me.

Ted Schlein, general partner at Kleiner Perkins, was recently invited to discuss race and investment in technology. The

conversation took place at an inaugural conference called Platform, created by Hank Williams after a provocative series that Soledad O’Brien did on CNN on black entrepreneurship. At Platform, luminaries like Quincy Jones and Governor Deval Patrick, as well as entrepreneurs like urban revitalizer Majora Carter, and Juliana Rotich of Ushahidi came together to discuss what specific changes could be made to have all aboard the innovation economy.

And so all ears were tuned in when well-known VC Ted Schlein of Kleiner Perkins started talking… but Ted denied there was a problem. Despite the story the numbers tell — women receive less than three percent of all venture capital funding, and blacks even less than that — Ted said that the venture capital community was “color-blind” and “operates fully on a meritocracy.” This continued argument disregards the astounding facts that essentially 100 percent of funded founders are white or Asian, and 89 percent of founding teams are all-male.

Since then, we’ve had the case of Paul Graham, who recently got into a brouhaha because he claimed a correlation “between founders having very strong foreign accents and their companies doing badly.” He continued to dig into his argument, believing people were simply misunderstanding him, but he doesn’t acknowledge the facts: immigrants with accents do found successful startups, but often without VC support. Kauffman Foundation research shows that more than half of Silicon Valley start-ups are founded by foreign-born entrepreneurs. Imagine if those with accents could get your support — what tougher problems could they solve?

And who can forget that only two years ago, Vinod Khosla said that only the young can innovate. “People under 35 are the people who make change happen,” said Khosla, who explained his belief that old entrepreneurs can’t innovate because they keep “falling back on old habits,” because “people over 45 basically die in terms of new ideas.”

So, basically, if you followed this limited logic… you’d hear that if you’re a woman, black, foreign, or old, you need not apply; you will not be seen. No matter how good your idea could be. No matter how many lives it could save, or new solutions you create, or how much revenue it could generate.

Listening to Ted Schlein, Paul Graham, Vinod Khosla, and countless other conversations among VCs reminds me of playing peek-a-boo with a baby. Amazed that the person is there, even though they can’t be seen, this mystery creates joy. In the vast majority of VCs case, they believe that the person isn’t there, because they can’t see them. And there’s no joy in that.

Venture capitalists are often “pattern matching”, thus actively looking for someone who looks like the successful founders of Google, FaceBook, Amazon, or Apple. In other words, you are actively looking for people who look like Larry Page, Mark Zuckerberg, Jeff Bezos, or Steve Jobs — white men. Forget differentiation. Forget newness. VCs primarily invest in sameness.

By not seeing (and funding) new-ness you are actually blind, not color-blind.

Now what each of you says when this topic of “blindness” comes up is this: “I am not a racist / sexist / whatever it is you are accusing me of.” And, let me assure you that you’re (likely) not. What you probably are is biased, which is to say your lens is altered by cultural norms and so see what you expect to see. If you’ve largely been surrounded by, say, women who don’t work outside the home, your lens when it comes to women may be warped. But, as I’ve already written in a prior HBR post, bias is fixable — though it takes work.

Others of you say that it’s okay to pass up any particular group since you’re not interested in what you believe is a limited category. The most common one I hear is “I’m not interested in investing in fashion which is why it’s fine with me that I don’t see a lot of women’s pitches.” What doesn’t seem to occur to you is that women are also interested in bio-tech (like Nina Tandon), policy (like Marci Harris), and electronics (like Ayah Bdeir). Even the consumer goods industry is affected. Kara Goldin of Hint is taking on goliaths in the consumer beverages space by redefining what “is” and “is not” water. Each is an innovator, and many more like them exist. If you want to create higher returns, see these “new” types of innovators and watch them deliver home runs. But, first, you have to first actively filter them in, not out.

Finally, I hear you say is that this is about market capitalism and the only measure of success is whether you have made money. You, of all people, know that if you only focus on the profits of your existing enterprise, even though the rules of the game are changing, you leave yourself open to disruption. You now face the innovator’s dilemma — and if you fail to adopt new approaches, you will eventually fall behind, fail, and die. You know this, but mostly you dismiss the opportunity to reinvent.

But my bigger concern is that you will take us collectively down with you. You have — by far — the most access to funds to invest in new ideas. You are the structural gateway of innovation.

You recognize capitalism as an economic system, while dismissing these issues of inclusion as “social”. But I would argue that, in practice, your collective acts in venture capital are fundamentally a new type of structural power, the effect of which is economic in nature. When your collective actions limit human capital, when they deny opportunity based on race, gender and age, then that must be viewed and evaluated as an economic system. Today, practically speaking, it is not the laws that are structurally limiting our economy; rather, it’s money — specifically the flow of money to new ideas.

Ignoring inclusion is something you do at your own peril — and at ours. For we are all at risk when your system excludes. We — society, that is — need you to reinvent how you do what you do.

Now I’m not an innocent. While I’d like to believe in a just world where all creative and hardworking people will be seen, I know better. I know enough of Jeffrey Pfeffer’s work to know that the world has pervasive power differentials and that groups in power, like yourselves, will often respond to outside pressure by digging in your heels because you’d rather feel good about yourselves than risk change.

But what I also know is that it takes some relatively small set of influencers (data says only 10-20% are needed) with an unshakable belief to convince the rest to adopt the same belief. And, of course, some of you are already there, trying to get the rest to join you. Challenging the venture community may seem like an attack, but actually this is a call from the future. Step into the leadership we so need from you.

***

As is always true with my work I do with the HBR editorial team, please add comments directly at original post: http://bit.ly/15n3Sko

The post The One Thing VCs Could Do To Increase Returns appeared first on Nilofer Merchant, LLC.

Read in browser »

Is Bias Fixable?

By Nilofer Merchant on Sep 23, 2013 01:47 pm

(Am behind on posting here at Yes&Know while the site went through a renovation. This piece was published on the 50th anniversary of the March on Washington. It’s a piece on cultural power, and posed a question around how much what you do affects broader culture.)

***

“As a brown woman, your chances of being seen and heard in the world are next to nothing,” he said. “For your ideas to be seen, they need to be edgier.” He paused, as if to ruminate on this, before continuing. “But if you are edgy, you will be too scary to be heard.” This was the advice I got from a marketing guru when I asked for his help with titling my second book.

I was confused, as I couldn’t figure out how this answer had any relationship to my original question. I walked — somewhat dazed — to my next meeting and repeated what I’d just heard. In return, I received only blank stares. It wasn’t that these people affirmed his point of view; it’s that they stayed silent. My confusion gradually turned to fear. Was someone finally doing me a service by telling me … The Truth?

For months after hearing this “… you’ll never been seen” message, I was a mess seeing his “truth” into every missed opportunity or unexpected obstacle.

Black / white. Masculine/feminine. Rich/poor. Immigrant/ native. Gay/straight. Southern/northern. Young/old. Each of us can be described in a series of overlapping identities and roles. And we could spend time talking about the biological and sociological programming that causes humans to form personal identity around group structures. But the bottom line is this: we — as a society — don’t see each other. You are not seen for who you really are, though each of us is a distinct constellation of interests, passions, histories, visions and hopes. And you do not see others.

As David Burkus recently wrote, innovation isn’t an idea problem, but rather a lack of noticing the good ideas already there. To see and be seen is therefore key to find innovations and solutions for all of us. Now “noticing” doesn’t seem like an especially hard thing to do, but – let’s be real — it is. That’s because of bias. Bias is shaped by broader culture – something is perceived as “true” – and thus it prevents you from neutrally seeing. Bias is simply saying that you are not impartial – you prescreen by what you expect to see largely because of the examples you know of.

Everyone is biased, as research consistently proves. Yet more often than not, I hear people saying “I’m color blind” or “this place is a meritocracy”, when all modern reality would suggest it can’t be. Nate Silver of Five Thirty Eight recently shared research that affirmed, “those who say they don’t have a gender bias actually show a greater gender bias”. So maybe it’s more this: saying that you aren’t biased probably makes you more blind than color-blind. Because only when you acknowledge that you are blind to an issue, you can begin the process to truly see.

The real question then becomes: can bias be fixed?

Gail Fairhurst, a prof at the University of Cincinnati, has written several influential papers and books on the art of framing. My thinking is heavily indebted to hers on this issue. As she describes it, the world we live in today is conceived and framed in a particular way. This shapes our experience. Even the language we use orders and reorders social life. The Old Guard (and for Americans, you might read this to be old, white, male, rich) doesn’t even recognize this issue of frame. And I would build on her idea that, for the Old Guard, the current narrative is more than a frame, it is “just the way things are.” It is, for them, The Truth. This is what that marketing guru was trying to tell me. He never questioned his bias, as a white man, and so he was just breaking the bad news to me, like any friend would.

But here’s the good news: a world that has been conceived and framed is also a world that can also be reconceived and reframed. This alone is powerful. If you believe that bias is simply an accumulation of culturally accepted norms, then you can recognize your power in shifting those norms.

For instance, across many arenas of power — legislative, executive, corporate governance, financial — women hold between four and 18 percent of the roles. And those percentages have been holding steady for some time. But in one category, an important one for how agendas are set, a quiet shift is starting to take place. Major publications that shape the marketplace of ideas were once dominated by men. In fact, a May 2008 Rutgers University study found that, of all the scholarly op-eds in the Wall Street Journal, 97 percent were written by men. Today, women represent between 15 and 21 percent of bylines at publications like the Washington Post, Slate, and the New York Times, representing a 40% improvement. But this didn’t just happen. The program behind this was The Op-Ed Project, which scouts, prepares, and connects under-represented experts with editors so their pipelines are full of equally viable ideas from both genders.

This is a good reminder that often what appears to be a pipeline problem is actually a problem with the selection process itself. If underrepresented groups have a reasonable expectation of not being selected, it’s perfectly reasonable that they don’t apply, don’t try. But the opposite can be true, too: for instance, Sarah Milstein and Eric Ries designed the 2013 Lean Startup Conference with the intention of inclusion. That shift meant that they went from nearly zero women and people of color at the previous year’s conference to a conference featuring 40 percent women and 25 percent people of color. Recognizing that you have a bias allows you to design processes that correct for it.

But first you have to believe in your ability to sway history. One of my favorite stories about this is a relatively unknown historical example. Marilyn Monroe changed Ella Fitzgerald’s career. In the mid-1950s when blacks had a hard enough time getting gigs, and women even more so, Marilyn Monroe lobbied the owner of the famed Mocambo club to book Ella Fitzgerald, promising to take a front table every night if he did. The owner said yes, and Monroe delivered: front table, every night. The press went overboard to cover these evenings, and with that visibility, Fitzgerald got the opportunity to be seen. (Now just imagine if the marketing guru at the start of this story had decided to go beyond just reporting and recognizing bias — telling me, “this is just how it is” — but instead to be an agent of change?)

Whether it was through creating a more level playing field, designing for a more inclusive context, or simply using one’s own personal power to change outcomes, bias, in the stories above, was fixable. They key was to acknowledge it, and then design solutions to address it.

This week, there has been a lot of talk about the state of bias in America. The 50th anniversary of the March on Washington is upon us, where Martin Luther King Jr. gave his landmark “I Have a Dream” speech. His dream included a more just nation — a nation far better than the one he experienced. Today, I want to suggest that dreams are simply goals without an action plan. You can put into action these ideas (or design your own) to create the world you want, and we need.

***
As is always true for the work I do with my HBR editor, I appreciate it when you can add comments at the original post: http://bit.ly/biasfixable

The post Is Bias Fixable? appeared first on Nilofer Merchant, LLC.

Read in browser »