McKinsey: Protect Successful New Ventures From Core Business

McKinsey & Company has identified a critical challenge for companies seeking growth: protecting successful new ventures from the established systems of the core business. Traditionally, companies pursued growth through acquisitions, partnerships, or internal development. However, the advent of artificial intelligence is fundamentally altering the landscape of internal development, often referred to as 'build.' AI is reducing the cost of experimentation, accelerating development cycles, and enabling the creation of businesses designed from inception to be AI-native. This shift has broadened the scope of viable new ventures and significantly increased the speed at which they can achieve scale. According to McKinsey's analysis, successful new ventures now reach an average of $10 million in revenue within 31 months, a notable acceleration from the previous average of 38 months. Furthermore, these ventures require approximately 40% less capital to achieve break-even compared to historical benchmarks. The core issue arises as these ventures gain traction and success. The very structures that support a company's existing operations—its governance frameworks, team compositions, established processes, and control mechanisms—can inadvertently impede the scaling of these agile new ventures. This creates a paradox where success breeds a need for protection from the parent organization's inertia. McKinsey emphasizes that CEOs must proactively intervene to safeguard these burgeoning ventures. The first step involves identifying promising ideas that sit at the confluence of a growing market, a significant customer problem, and an area where the company possesses a unique, sustainable advantage. Crucially, deciding 'where to play' also necessitates defining 'how far to go.' This involves strategic considerations about the venture's proximity to the core business, whether to target the home market or new territories, and how to manage potential cannibalization of existing customers or revenue streams. The consultancy highlights Honeywell as an example of successful venture building. Honeywell established Honeywell Connected Enterprise to leverage its extensive industrial expertise into recurring software revenue streams. By 2023, this division had achieved approximately $1.5 billion in annual sales and was growing at a rate roughly three times faster than Honeywell's overall business. This case illustrates how building around distinctive advantages can yield substantial growth, provided the venture is adequately shielded from the core business's constraints. McKinsey advocates for making multiple strategic bets and providing robust backing to ventures that demonstrate strong scaling potential, underscoring the need for deliberate strategic choices to nurture innovation and long-term growth.