At a time when it is essential to develop new revenue streams to meet both customer and market demand, 81 percent of global business leaders are prioritizing new-business building as a means to protect against industry disruption—and the opportunity is significant. By 2026, executives expect 50 percent of global revenues will come from products, services, and businesses that don’t exist today, new research from Leap by McKinsey.
The firm’s second annual survey, The State of New-Business, which surveyed executives at large scale organizations on how they are finding sources of growth for their companies, revealed that new-business building is a global phenomenon. A quarter of CEOs around the world see actively integrating new products and services, or building completely new business models, into their ongoing strategies as a top strategic priority—more than doubling in recent years.
“While the global pandemic forced CEOs and business leaders to take a step back and better understand rapidly changing customer needs, the elevated prioritization of new-business building throughout 2021 has made it clear that it will be increasingly the critical lever for strategic growth moving forward,” said Ari Libarikian, senior partner and co-leader of Leap by McKinsey, in a news release. “However, building a new business is no easy feat with the majority of new businesses failing to scale. Moreover, as leaders look towards future expansions that will thrive in the marketplace, they must consider aspects like sustainability and diversity & inclusion in forming and building new businesses in order to take advantage of this massive opportunity.”
Compelling findings from the research include:
Addressing sustainability is one of the largest areas of opportunity when developing new-business building strategies, yet global business leaders are not actively utilizing the opportunity to address climate change.
- While 92 percent are looking to take on sustainability issues in their new business models, only 22 percent are tracking against goals related to the company’s carbon footprint or other environmental impacts.
- Furthermore, almost half (43 percent) of business leaders acknowledged that sustainability is a top-three trend to address through new-business building.
“Sustainability has an increasing presence in the minds of business leaders around the world, however, executives often spend time worrying rather than embracing the countless opportunities to meet environmental challenges and customer demands,” said Ralf Dreischmeier, senior partner and co-leader of Leap by McKinsey, in a news release. “Successful new-business building ventures will incorporate the many facets of sustainability, and as such, business leaders must begin to track and report on their progress in ways similar to their companies’ other products and services.”
Structure and diversity
McKinsey’s research also highlights how organizations can be successful when launching new businesses. This includes prioritizing core CEO support, building an effective organizational structure, pursuing active acquisitions, better understanding customers, and hiring diverse leaders.
- While it is imperative that organizations continue to tap into the abundance of new-business building opportunities, launching a successful venture is difficult, with more than four of five new businesses globally still not achieving $50M annual revenues at least four years after launch.
To further ensure new business entities are profitable, experience and support from parent companies is key.
- In every region of the world, serial business builders with three or more corporate venturing experiences deliver significantly more revenue (1.4x) than their less experienced counterparts.
- Furthermore, it is essential to prioritize diversity when selecting leadership, with women-led businesses outperforming their peers by 10 percent. Women continue to be vastly underrepresented, currently leading just 14 percent of new business ventures despite this finding.
- New businesses with a core company CEO who works to provide ring-fenced investments in the new business and that set realistic internal expectations, are willing to invest in growth at the expense of immediate profitability, and publicly support the new company are much more likely to succeed.
The data for the 2021 State of New-Business Building Survey incorporates responses from over 1,100 business leaders covering all aspects of business building.