CEOs’ choice for growth: Building new businesses

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Week 323 | Strategy & Business Model Section | 1

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CEOs’ choice for growth: Building new businesses

McKinsey & Company | November 9, 2023

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Organizations are doubling down on building new businesses, even amid ongoing economic uncertainty. The latest McKinsey Global Survey on new-business building finds that a larger share of CEOs than in previous years are making the creation of new revenue streams their top strategic priority.   Most surveyed business leaders believe the current climate makes this a good time to prioritize those efforts for resilient growth, reflecting the capital advantages of incumbents and anticipated acquisition opportunities. Moreover, as companies grapple with economic uncertainty, CFOs see business building as the most likely strategic action their organization will take in the next 12 months, beating restructuring and capital structure changes.

In McKinsey’s fourth annual report on business building, it explores the types of new businesses that respondents expect in the coming years, with a close look at how advances in generative AI will enhance those efforts. The findings also highlight factors that position companies and new business ventures to succeed.  Major findings of the survey and practical advice to help business leaders navigate investor perspectives and maximize the value ascribed to their new businesses are: 

1. The results of the latest survey show that economic uncertainty hasn’t stopped organizations from investing in new-business building—and, in fact, many business leaders say now is a particularly opportune time to prioritize business building. 
2. Respondents also point to the fact that their organizations now have a relative advantage compared with start-ups, which are experiencing more difficulty raising capital.
3. Companies’ focus on new-business building appears to be increasingly reaping benefits. Twenty percent of revenues at respondents’ organizations came from new businesses built within the past five years, up from 12 percent last year.
4. Respondents most commonly expect their organizations to build new data, analytics, and AI-based businesses over the next five years, as was true in the 2022 survey.
5. The share of business leaders expecting to build everything-as-a-service businesses, such as subscription businesses or remote healthcare, is now nearly as large as that for new data, analytics, and AI-based businesses.
6. Respondents expect AI capabilities to facilitate new-business building in multiple ways, from enhancing new businesses’ productivity to completely disrupting business models over the coming years.

When we look at successful new businesses—that is, those that met or exceeded expectations for scale or growth—and the organizations that build them, the results suggest three success factors:  discipline is linked with business-building success, successful builders don’t do it alone, and expert builders succeed more often and fail faster.

3 key takeaways from the article

1. Organizations are doubling down on building new businesses, even amid ongoing economic uncertainty. The latest McKinsey Global Survey on new-business building finds that a larger share of CEOs than in previous years are making the creation of new revenue streams their top strategic priority.
2. Respondents most commonly expect their organizations to build new data, analytics, and AI-based businesses over the next five years, as was true in the 2022 survey.  The share of business leaders expecting to build everything-as-a-service businesses, such as subscription businesses or remote healthcare, is now nearly as large as that for new data, analytics, and AI-based businesses.
3. When we look at successful new businesses—that is, those that met or exceeded expectations for scale or growth—and the organizations that build them, the results suggest three success factors:  discipline is linked with business-building success, successful builders don’t do it alone, and expert builders succeed more often and fail faster.

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Topics:  Strategy, Business Model, New Business