CEOs Put Spinout Building as Top Growth Priority

Share
New horizons: 67% of CEOs plan to prioritise new ventures in the year ahead
Creating spinout businesses, often using a corporate’s own assets, are top growth priority for CEOs worldwide - McKinsey report

Two thirds of CEOs worldwide plan to prioritise corporate venturing in the coming year.

Corporate venturing normally means established companies either investing or partnering with smaller, innovative startups. But it can also mean acting like a startup yourself, using your own business assets to build a spinoff business.  

For example, car marque Daimler launched a spinoff Car2Go car-sharing service which became its own multi-million-dollar company. 

BP, Salesforce and Unilever are among the multinationals that have their own corporate venture arms. Indeed, one fifth of all VC deals are made with corporate venture capital.

And CEOs around the world are putting new corporate ventures ahead of traditional ways to grow your business, such as organisational transformation, diversifying, joint ventures and mergers or acquisitions.

Nearly nine in ten business leaders say their organisation has at least one asset that has unrealised commercial potential. This could mean data, new intellectual property or a new technology.

‘It could represent one of the most significant cultural transformations within corporations in the coming years’

Daniel Aminetzah, Senior Partner and Global Co-Leader of Leap Practice at McKinsey

Until recently, CEOs who have not made new ventures a priority have cited capital constraints (cost of borrowing) as their reason. With Goldman Sachs predicting that interest rates will fall to 2.7% by November 2025, the implication is that corporates are back in venture-building mode.   

And the risk pays off.

According to a new McKinsey report, companies investing 20% of growth capital into building new ventures achieve revenue growth 2 percentage points higher than those not investing. On average, this is close to doubling the natural growth rate of companies in the US and Europe. 

For billion-dollar organisations this growth rises to 2.5 percentage points - an uplift which could constitute nearly 50% in additional growth where the mean growth rate is 5.2%.

But one in three corporates are missing out on growth - just 37% of businesses are investing 20% of their growth capital in new ventures, which means nearly two thirds are sitting on their hands.

And the more experienced you are in building new ventures, the more it pays off, with experienced corporate new venture builders having twice the success rate – and 12 times the revenue - of newer entrants over five years.

Partnering with a corporate also pays off for startup founders. New businesses created under a corporate umbrella have access to customers, brand and expertise, often enabling them to scale revenues quickly. 

The largest new businesses built by incumbents in the past decade have achieved 1.5 times the revenue of the largest startups.

CEOs driving new ventures

CEOs are in the driving seat when it comes to launching new spinoff ventures. They are 1.3 times more likely to pursue new ventures compared to other senior business leaders, who prioritise organisational transformation. 

Most business leaders who expect to build new ventures over the next five years see potential value in developing a Gen AI-enabled new venture.  

In fact, six in ten say their organisation is already pursuing Gen AI-enabled new ventures.

Half are planning co-pilot ventures, in which gen AI reduces effort and/or improves decision making.

McKinsey surveyed 1,176 senior managers and C-suite executives worldwide for its latest annual survey on corporate venture building.

Growth capabilities 

Daniel Aminetzah, Senior Partner and Global Co-Leader of Leap Practice at McKinsey, said: “CEOs across most industries are confronting a reality in which traditional growth levers are losing their effectiveness. As a result, building ventures through new capabilities and ecosystem collaborations is emerging as a key driver of growth. 

“This shift calls for openness to new mindsets and, to some extent, the adoption of elements from the venture capital world into traditional corporate environments. It could represent one of the most significant cultural transformations within corporations in the coming years.”  

 Paul Jenkins, Senior Partner and Global Co-Leader of Leap Practice at McKinsey, said: “The opportunity to build new ventures — often leveraging 'hidden treasures' already existing within companies—is ripe for the taking right now. Businesses need to be bold and thoughtful. We've found that investing 20% of growth capital into such ventures delivers the highest revenue growth, increasing it by two percentage points. On average, this is close to a doubling of the natural growth rate of companies in the US and Europe.”

******

Make sure you check out the latest edition of Business Chief, the monthly digital magazine for CEOs of multinational companies

******

Business Chief is a BizClik brand

Share

Featured Articles

Is This the Next CEO of LVMH?

Appointing Alexandre Arnault as Deputy CEO of LVMH’s wine and spirits arm has rekindled speculation about who will succeed Bernard Arnault as group CEO

How Burberry’s New CEO Is Going Back to Basics

Can Joshua Schulman, previously CEO of Michael Kors and Coach, bring his magic touch to venerable British luxury brand Burberry?

Is Bayer CEO Bill Anderson Running Out of Time?

Anderson, CEO of German agriculture and healthcare giant Bayer, has asked investors to be patient as slashes costs and headcount as part of a 3-year plan

Tesla’s Innovation Culture: How Elon Musk Drives Excellence

Leadership & Strategy

Are CEOs Capitalising on Emerging AI Technologies?

Technology & AI

Why Trump’s Tariff Threat Could Spark a Worldwide Miniboom

Leadership & Strategy