Amid geopolitical tensions, easing inflation in developed economies, and expected interest rate cuts in some of the world’s largest economies,1 half of CEOs surveyed in the fifth annual McKinsey Global Survey on new-venture building view the development of new business ventures as one of their top three strategic priorities.
In tracking the sentiment and priority of new-venture building in the past half-decade in the only longitudinal survey of its kind, this research has found surprising resilience in the prioritization of new-venture building, in spite of the unprecedented disruption of the COVID-19 pandemic and rapidly tightening capital conditions. Going forward, we anticipate that more and more companies will pursue growth and diversification through venture building, be it new verticals or businesses enabled by generative AI (gen AI), in particular once monetary conditions ease.
The latest survey of more than 1,100 business leaders finds that companies that prioritize venture building are doing so for growth (see sidebar, “About the research”). While creating new ventures has always been an effective way to accelerate revenue growth, today’s technology innovations have heightened the opportunity—and the pressure—to do so. The types of new ventures receiving the most interest vary by industry, and 60 percent of respondents are eager to pursue gen-AI-enabled ventures in the next five years. This article reports such findings and explores the types of new gen-AI-powered ventures that business leaders are expecting to build.
The primary constraint on companies that haven’t been able to prioritize venture building is capital availability, though many companies have found solutions to this challenge. Those that have are reaping the benefits: the survey findings suggest that companies investing 20 percent of their growth capital into building entirely new ventures achieve revenue growth that’s two percentage points higher than that of companies that do not invest in new-venture building.
Business leaders are seeing the emergence of an expert class of venture builders, with mature support structures and capabilities that assist them with serial venture building. They have different approaches than other companies to funding, setup, leadership, talent, and capability building. And they see organic growth that’s 2.8 percentage points higher, as well as twice the success rate (the rate of meeting or exceeding expectations for scale and growth), compared with companies that respondents deem novices (the companies that respondents say have limited capabilities or structures to support venture building). The evolution of these experts may in part explain the finding that the largest new ventures built by incumbent companies in the past decade have achieved 1.5 times the revenue of the largest start-ups.
Corporate venture building continues to show resilience in the face of capital constraints
Just over half of surveyed CEOs consider venture building one of their top three strategic priorities, in line with the 2023 findings. While years of rising interest rates2 have led to a smaller share of CEOs prioritizing venture building than seen during the early years of the COVID-19 pandemic, its prioritization is still more common than it was before the pandemic (Exhibit 1).
1
Respondents who say their companies have experienced a decline in prioritizing venture building most often point to capital constraints as the primary reason, while those prioritizing venture building are largely driven by a desire for growth (Exhibit 2). Given predictions that interest rates will taper—and given the resilience of interest in venture building—it’s easy to imagine a potential uptick in the creation of new ventures in the near term.
2
Looking ahead, most surveyed CEOs expect to develop new ventures in the coming year: about two-thirds expect to build new ventures—more than the share expecting strategic moves such as joint ventures, M&A, and organizational transformations (Exhibit 3). CEOs are 1.3 times more likely than other business leaders to expect their organizations to build new ventures in the year ahead. While more than half of other business leaders see venture building as likely, they more often expect to see organizational transformations.
3
That difference suggests that CEOs may need to do more work to align other leaders around their priorities. Other business leaders, CFOs included, tend to be more focused on organizational restructuring, possibly reflecting today’s economic pressures. Creating space on leaders’ agendas for venture building and communicating that it’s a growth priority will be important for CEOs.
A little investment can lead to big businesses
At companies that are increasingly prioritizing new-venture building, respondents most often say the efforts are driven by a desire for growth—and for good reason. Our latest findings suggest that companies that invest 20 percent or more of their growth capital into building entirely new ventures have revenue growth that’s two percentage points higher than that of those that don’t invest anything.3 This becomes even more pronounced with larger organizations: venture-building companies of $1 billion or more in annual revenues that invest at that level garner revenue growth that’s 2.5 percentage points higher than that of those investing nothing. This uplift could constitute nearly 50 percent in additional growth for organizations with $1 billion or more in annual revenues, whose mean growth rates globally are 5.2 percent—and an even greater incremental uplift if looking at the median growth rate, which is 3.7 percent.4
The survey findings suggest that investing 20 percent of growth capital might be the sweet spot for capturing value. Respondents reporting smaller investments see smaller returns, whereas those devoting larger amounts to venture building don’t report meaningfully more growth (Exhibit 4). Yet just 38 percent of respondents are investing that much of their growth capital, suggesting that nearly two in three are leaving potential value on the table.
4
The survey also explored what share of investment would be needed for new ventures to deliver the share of total revenues desired by their parent organizations’ leaders. Respondents on average expect to achieve 24 percent of their organizations’ revenues from new ventures in five years’ time. To achieve this share, many companies will need to meaningfully increase their level of investment. In fact, the findings suggest that those that achieve this share have invested 2.4 times the average of those that are targeting that share but haven’t achieved it.5
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Indeed, incumbents have proved their impressive ability to build high-revenue ventures. Additional research finds that the ten largest new ventures built by established companies in the past decade have averaged 1.5 times more revenue than that of the largest start-ups launched in the same period.6 These new ventures can benefit from their core organizations’ access to customers, brand, and expertise, often enabling them to scale revenues quickly.
What’s more, venture building can affect more than just revenues for an organization. Survey respondents report that new ventures launched by their companies in the past five years have generated 16 percent of their enterprise value, while revenue created by new-venture building was 13 percent.7
Venture building starts with uncovering hidden treasures within an organization
The latest survey results show that, for most companies, opportunity is ripe to build new ventures from existing assets. Nearly nine in ten surveyed business leaders say their organizations have at least one asset with unrealized commercial potential. Most often, they see opportunities with data and with intellectual property or novel technologies, though the potential varies by industry (Exhibit 5).
5
For example, respondents in healthcare and consumer goods and retail most often say their companies have products developed for internal uses that could be sold externally, while respondents working in financial services point to data assets that could be monetized. In advanced industries8 and technology, media, and telecommunications, respondents often say their companies have intellectual property or novel technologies around which new ventures could be built. This finding provides a starting point for where to look to accelerate value from unrealized potential.
When building new ventures, capitalize on distinctive advantages
Organizations benefit when they capitalize on their distinctive advantages and scale them as new growth opportunities. Venture building requires recognizing those advantages and staying true to them.
Exhibit 6
Overall, nearly half of respondents who expect to build new ventures predict that they will create such a business in the next five years, up 11 percentage points from the 2023 results. Examples of new ventures that could be built in this space are a medical-device company building software that uses its data to provide treatment-related insights to clinicians and a cloud-hosting provider creating an application that uses gen AI to help insurance companies identify suspicious claims.
Interest in gen-AI-enabled ventures is surging—though companies are at the early stages of capturing value
Most surveyed leaders who expect their companies to build new ventures in the coming half-decade see potential value in developing a gen-AI-enabled venture. In fact, six in ten say their organizations are already pursuing them.
Exhibit 7
These are still early days for companies seeking value from gen AI. Of those building businesses around gen AI capabilities, 73 percent say their organizations are still in the ideation and early-development stages. Yet 13 percent of respondents say their companies are already in the value-realization stage of their gen-AI-related venture, and the number is as high as 22 percent within pharmaceuticals and medical products.
New-venture building is a learned skill that can bring outsize returns
This year’s survey findings show what companies have implicitly demonstrated for years: the organizations that have developed the capabilities to programmatically build new ventures see the most success per business. These expert venture builders have double the success rate of organizations with less mature venture-building capabilities and generate larger revenues from their new business ventures. The latest findings show how companies that are new to venture building can speed up their own maturity and begin to build effectively from the start.
Practice makes perfect
According to the survey results, as companies mature in their new-venture-building practices, the likelihood of their new businesses’ success dramatically improves (Exhibit 8). Expert builders are about twice as likely as novice builders to see success—that is, the new venture meets or exceeds expectations for scale and growth. Responses also suggest that these companies are seeing growth rates that are an average of 2.8 percentage points higher than that of novice builders.
8
Reported returns also increase with the maturity of new-venture-building capabilities. On average, expert builders see 12 times more revenue in a venture’s fifth year than do novices,9 despite investing only twice the amount of capital prior to breaking even (Exhibit 9).
9
Six key actions for building like an expert
Success in new-venture building can be learned from those that are the best at it. We grouped the factors that distinguish experts from novices, based on our experience and the research, into six actions for success. We also find that these factors can affect revenue expectations. When looking specifically at the factors in place for individual new ventures, the data suggest that the new ventures that respondents say have a majority of the factors in place see 3.4 times more revenue from new ventures in their fifth year than did new businesses that didn’t have any in place.
1. Take a disciplined portfolio approach. Understanding that the stakes are high, expert builders spread their bets. They have built an average of about six new ventures in the past five years, whereas novices have built fewer than two during that time.
Experts have also developed effective processes to help them create many new ventures. They’re more than three times likelier than novices to have an established framework and process in place for identifying, evaluating, building, and launching new ventures. Novices, therefore, can fall at the first hurdle, building a venture that doesn’t have a clear market or defined needs. They’re three times more likely than experts to build the wrong venture—that is, one without a good product or market fit. Experts, on the other hand, clear this hurdle and concentrate on the next big challenge: creating growth.10
When taking a portfolio approach to building new ventures, experts also develop in other dimensions that support serial venture building, such as having the right incentives and infrastructure in place. For example, experts are nearly three times more likely than novices to have mechanisms to incentivize the success of new businesses, such as bonuses and feedback from a C-level sponsor. They also tend to have the technology and infrastructure necessary to build a new venture. That can include having a clear strategy for where and how to store data, scalable data and analytics platforms, and access to technology vendors with any needed capabilities.
2. Dedicate funding. Organizations that are expert corporate venture builders understand that the funding for new ventures should be committed up front and protected, and they invest meaningfully to help those ventures scale.11 Expert builders are 2.6 times more likely than novices to have financial resources dedicated to new-venture creation.
We also find that experts’ investments reflect a broader trend in new venture building: they’re willing to invest more capital in individual ventures and, as a result, create larger new ventures. That growth doesn’t come free is an unavoidable truth. The survey findings suggest that companies that invest $3 million can expect an $8 million business after five years, and those that invest $30 million can expect a $90 million business.
3. Balance independence with connection to the core. Most companies building new ventures, expert and novice alike, benefit from access to the core organization’s capabilities or other assets. For example, about half of survey respondents from both expert and novice builders say their new ventures can take advantage of the core organization’s customer base (Exhibit 10). However, expert builders are more courageous and give their new ventures greater independence to pursue exceptional advantages.
10
Expert builders are twice as likely as novices to give new ventures a high degree of decision-making independence from the core businesses, and they’re nearly twice as likely to report building a venture in a different industry from that of the core organization. In our experience, this independence is one of the trickiest elements—and one of the most likely factors to trip up a venture in its early stages or suffocate it later on. Experts have figured this out, and they start by giving a new venture greater independence than naturally feels comfortable and supporting it when organizational politics start to get in the way.
4. Show support from the top. Experts benefit from leaders’ prioritization of new-venture building. Over the past five years, our research has consistently found that C-suite sponsorship of new-venture building helps new ventures succeed. In 2023, for example, respondents at the best builders tended to report the presence of at least one C-suite sponsor for venture building. The latest data reinforce this point: experts are 1.4 times more likely than novices to say at least one member of their C-suite championed their new ventures.
What’s more, experts often designate a leader to focus on building ventures. They’re more than twice as likely as novices to have a dedicated leader who is responsible for new-venture-creation efforts.
5. Staff a dedicated team with expert talent. Companies that make venture building a standard part of the growth strategy find that having a dedicated venture-building team helps these initiatives thrive. Expert builders are 1.5 times more likely than novices to have a team or unit dedicated to new-venture creation. These teams typically have both clear responsibilities and incentives in place for scaling new ventures.
In addition, the most experienced builders tend to prioritize attracting and upskilling talent for new-venture-building efforts. They often have more freedom than others to attract the best talent. One-quarter of expert builders have the flexibility to compensate talent more highly than the core business can, compared with just 13 percent of novice builders. Experts are also 1.7 times more likely than novices to have upskilling programs to foster the skills needed for new-venture building.
Looking at where talent gaps affect new-venture building, experts seem to reap the rewards of being effective at hiring or training the talent they need. Respondents who say their organizations are experts are 2.5 times as likely as those who say theirs are novices to report no talent gaps that affect venture-building efforts. Yet across the spectrum of venture-building maturity, responses show that real gaps remain, with consistency in the types of roles that organizations are missing. Product and design roles are the most reported challenge for both experts and novices, followed by commercial and data-related roles. These findings suggest that no matter how successful companies become at building new ventures, they benefit from paying continuous attention to effectively filling the roles that they will need for these efforts.
6. Look outside the organization’s boundaries for any missing capabilities. Over the past five years, we have seen that the most successful builders don’t always need to have every capability in-house. The latest results show that experts recognize the benefits of outside assistance via acquisitions and partnerships: they’re twice as likely as novices to have acquired another business during their venture-building process. It’s unsurprising, then, that those seeing the largest revenues from venture building are the ones that are acquiring businesses. Respondents who say their companies acquired a business as part of developing a new venture report nearly four times more revenue in the venture’s fifth year than do those who say no businesses were acquired.
Expert builders are also 1.4 times more likely than novices to have established partnerships or alliances with other organizations. As we found in last year’s research, the companies with the most venture-building success are more likely than others to access external R&D and marketing capabilities, for example.12
Two in three CEOs tell us that they expect to build new ventures in the upcoming year, and forecasts suggest that more interest rate cuts are on the horizon. The conditions are ripe for incumbents to pursue new business opportunities. Those that do—and put in place the critical processes and capabilities that more mature venture builders have already established—will be positioned to outgrow their industry peers.
