There is exciting news for the software industry and a reason to be cautiously optimistic if you are an entrepreneur.
As exits increase slightly, third-quarter investments in the sector were at the highest levels in over a decade, according to PricewaterhouseCoopers’ MoneyTree report released last month.
In reviewing the data, there are some notable software financings – Appcelerator, ElectNext, Roku, NationBuilder, 3Pillar Global – to name a few. Each of these companies has something in common beyond the fact that they each secured funding this year and are therefore – at least from the perspective of the investors who wrote the checks – the face of innovation. A deeper look shows that they also stand out because of the inclusive nature of their executive teams.
It seems unreal that in 2013 we would still find it unusual to have inclusive founding teams. But it turns out that as of the most recent data, less than 5% of the venture deals and dollars go to companies that include women on the founding teams and fewer than 20% of privately held companies have one or more C-level executives according to Dow Jones.
Wow! Women are half of the workforce. Women are half of college graduates – have been for 30 years. Women are more than half of the advanced degrees. And it has been over a year since Dow Jones published its study of venture-backed companies and found that over the past 15 years, venture-backed start-ups that had women in executive roles outperformed their competitors in terms of investor returns.
For an industry that likes to use data to make its decisions – it seems surprising that every venture capital firm did not run straight out to find a female chief executive.
But I am not writing this article to beat up investors. I am addressing those who aspire to be the face of innovation.
When surveyed, most founders and early executive teams will say they are looking for the best talent. They mean they are seeking to hire the brightest people they can find. We have all heard the mantra – hire someone smarter than yourself. And who can blame us? Isn’t getting the smartest set of individuals the way to build a great company? It turns out the answer to that question is no.
The correct answer can be found when we realise that the performance of the start-up is really about the performance of the team as a whole. Prof Tom Malone at MIT’s Center for Collective Intelligence articulates it like this: “It is important to realise that intelligence is not just something that happens inside individual brains. It also arises with groups of individuals. In fact, I would define collective intelligence as groups of individuals acting collectively in ways that seem intelligent.’’
His research has sought to understand and measure how intelligently groups act. The results of the research are astounding and, I believe, highly relevant for founders and executives everywhere. It turns out that collective intelligence can, in fact, be measured and can be used to predict how well a group will perform. And, further, this collective intelligence is only weakly correlated to individual intelligence.
There were three key components that corresponded to group intelligence – the average social perceptiveness of the group members, the evenness of conversational participation, and the proportion of women in the group.
Malone says: “The more women, the more intelligence.”
By using these three collective intelligence indicators, groups can actually be constructed to perform optimally. I urge entrepreneurs everywhere, and executives too, to stop hiring individuals and start building great teams.
In closing, I will name the women from the companies listed at the start of the article and add them to the face of innovation.
Lyla Kuriyan McInerney, vice-president, marketing, Appcelerator.
Collette Bunton, general manager, devices, and Kim Funk, general counsel, Roku.
Maria Izurieta, chief financial officer; Dianne Black, senior vice-president, client services; and Catalin Stef, vicepresident, Romania, at 3Pillar Global.
Lea Endres, Shannon Bevers, Kara Scharwath, Emily Schwartz, Julie Niemi, Lauren Mermel, Melinda Amato, CJ Minster Cheng, Kathy Jacobs and so many more women at NationBuilder.
Congratulations to these companies for attracting teams that by MIT’s measure should ensure their performance and ultimately propel their success.