55% of European Business Leaders Say New-Business Building Is a Top Priority
Leap by McKinsey, the new-business building practice of global management consulting firm McKinsey & Company, released its second annual survey titled, The State of New-Business Building. The research, 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.
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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. Across Europe, approximately 79% of business leaders are prioritizing new-business building as a means to protect against industry disruption. This research launches at a time when it is essential to develop new revenue streams to meet both customer and market demand, and the opportunity is significant. By 2026, executives expect 50% of global revenues will come from products, services, and businesses that don’t exist today.
“The modern business landscape is continuing to place a growing importance on new-business building strategies to better ensure profitability — which has been further amplified by the global pandemic. Responding to changing customer and market demands will require an increased focus on new-business building in order to ensure continued success and revenue growth,” said Ralf Dreischmeier, Senior Partner, and global leader of Leap by McKinsey. “Still, successful execution can be exceedingly challenging. Leaders, specifically core company CEOs, must be actively engaged in new-business building campaigns as consumer top-of-mind issues like sustainability and diversity & inclusion require vision and support to effectively implement.”
Compelling findings from the research include:
Sustainability — Addressing sustainability is one of the largest areas of opportunity when developing new-business building strategies, yet business leaders are not actively utilizing the opportunity to address climate change.
- While 93% of European respondents are looking to take on sustainability issues in their new business models, only 15% are tracking against goals related to the company’s carbon footprint or other environmental impacts.
- Furthermore, almost half (46%) of European 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. 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,” added Dreischmeier.
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Structure & 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.
- McKinsey found that 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%. Women continue to be vastly underrepresented, currently leading just 14% 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.