Business leaders predict that by 2026, half of their revenues will come from products, services, or businesses that haven’t yet been created. Here’s how new-business building can help bridge that gap through sustainable, inclusive growth.
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.
New urgency. Companies are more likely now than in previous years to concentrate on building new businesses. More than one-fifth of surveyed business leaders name building new businesses as their companies’ top strategic priority, and 55 percent consider it a top three priority—nearly double the share who said it was such a high priority for their companies between 2018 and 2020. CEOs are now twice as likely to say it’s the top priority than they were in previous years.1 This new urgency is a global phenomenon: a majority of leaders in every region say the topic is a top three priority.
New revenues. The urgency for building new businesses directly reflects survey respondents’ belief that today’s products and services will be insufficient for addressing disruptions and meeting a sustainable future. More than 80 percent of respondents say new-business building will help them respond to disruption and shifts in demand, while 62 percent of respondents are prioritizing new-business building to generate one or more new revenue streams. Respondents foresee that five years from now, half of their revenues will come from new products, services, and business models. Some of these new revenues may be driven by large-scale efforts to address sustainability issues, but the rapid pace of technological progress is surely another factor. No matter the reason, respondents across industries consider new-business building critical to companies’ financial health: 24 percent say it will be their companies’ primary source of new revenue growth.
New-business building is difficult. It may surprise few observers to hear that new businesses often fail to scale. Four or more years after launch, at least 80 percent of all new businesses haven’t scaled beyond $50 million in annual revenue, according to respondents. More than half of new businesses have fallen short of $1 million in annual revenue—or have been shut down entirely.
Courtesy McKinsey & Co. 2021 Global Report