New businesses crucial to future growth

With companies looking to pivot their offerings and adapt to pandemic disruption, building new businesses is now seen as a priority by the majority of global company leaders. More than eight-in-ten business leaders are now investing in new offerings to protect against further disruption.

Leap by McKinsey is the new-business-building practice of global management consulting firm McKinsey & Company. As the organisation examines the prospects of new business models for the year ahead, it has released the results of a survey titled ‘The State of New-Business Building’.

According to the research, which surveyed 1,100 executives at large scale organisations on how they are finding sources of growth for their companies, 55% said new-business-building was now a top-three priority. Meanwhile, 21% indicated it was ‘the’ priority. Looking at why this might be, McKinsey found that by 2026, most executives anticipate that 50% of global revenues will come from products, services, and businesses that don’t exist today – meaning that those who drag their feet on innovation today will quickly pay the price.

Many business leaders anticipate this pressure, with a high number of those putting new businesses high on the agenda noting ‘industry disruption’ as a core reason. Around 81% of global business leaders said they were already prioritising new-business-building as a means to protect against industry disruption. At a time when it is essential to develop new revenue streams to meet both customer and market demand, the opportunity to address different needs is also significant.

In particular, business leaders see this as crucial to helping them address sustainability needs. Around 43% of business leaders acknowledged that sustainability was a top-three trend to address through new-business building, while a further 92% were looking to take on sustainability issues in their new business models. However, McKinsey’s researchers warned against rushing in to innovate for innovation’s sake, and advised that businesses look to properly support these sustainability businesses if they are to get the most out of them.

“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,” said Ralf Dreischmeier, Senior Partner, and co-leader of Leap by McKinsey.

Without taking on board the needs to track new business performance, many firms currently struggle to adequately support them. This makes building them difficult. New businesses often fail to scale, according to McKinsey.

Four or more years after launch, at least 80% of all new businesses do not scale 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.