Business leaders expect half of their companies’ revenues five years from now to come from products, services, or businesses that do not yet exist, according to the latest McKinsey Global Survey1 on new-business building.2 Given the ambition to develop these new revenue streams, many of which respond to sustainability goals and technological change, it is no surprise that a majority of respondents say business building is one of the top strategic priorities at their organizations—double the share of recent years.
In contrast to an M&A-only strategy (in which corporations buy or merge with established companies) and corporate venturing (in which they invest in external start-ups), new-business building makes the most of your core organization’s existing assets and capabilities to create separate but linked businesses offering new products, services, or business models. These often address new markets and geographies. Moreover, and unlike M&A or corporate venturing, new-business building generates organic growth, which often creates greater excess returns to shareholders than deal making does. Examples of new-business building include Telkomsel’s by.U, which provides prepaid cellular service aimed at Gen Zers, and the Lab at RXR Realty, which reimagines the tenant experience across residential, commercial, and mixed-use properties.
Our annual survey shows that the more new businesses you build, the better you get at building them; there’s an experience curve that may explain why only a small segment of companies capture most of the growth from new-business building. Joining their ranks requires learning by doing. This year’s survey examines the successful approaches of leading business builders, providing insights to get organizations up the learning curve more quickly. These include the crucial role played by the CEO of the parent company, the tricky balance between autonomy and centralization, the rationale for bolstering the new business through acquisitions, and the true depth of customer insight needed to succeed. Leadership matters, of course, and not just at the parent company: our survey found that new businesses led by women are more likely to succeed.
More than one-fifth of surveyed business leaders name building new businesses as their companies’ top strategic priority.
In the charts and text that follow, we will describe the survey findings in detail, starting with the urgent need companies feel to diversify the sources of their revenues to respond to sustainability challenges, shifting customer demand, and technological change.
Today’s companies are looking to bring in 50 percent of their revenues from new products, services, or businesses by the year 2026. New-business building is a crucial way to get there. While it’s true that the more new businesses you build, the better you get at building them, it’s also true that less-experienced business builders can improve their odds by learning from the leaders. As our new survey shows, sustainable growth through new-business building requires close attention to the role of the parent company’s CEO, to the rationale for making acquisitions, to the depth of your customer understanding, and to the diversity of your leadership.