New Business Ventures Key to Growth for Latam CEOs

(In collaboration with Pepe Cafferata)

Building new businesses has become a crucial strategic priority, often generating more enterprise value per dollar of revenue than core operations. In Latin America, this remains among the Top 3 strategic priorities for 28% of CEOs. Organizations in the region anticipate that these new ventures will contribute between 25% and 30% of their revenue over the next five years.

The fifth annual McKinsey Global Study, which assesses business leaders' views on building and scaling new businesses, revealed a striking insight: nearly all companies in Mexico and Latin America interviewed have at least one asset (for example, data assets that could be monetized, or intellectual property or novel technologies around which new ventures could be built) with underutilized commercial potential – hidden treasures that could be the foundation of a potential new business. 

Small Investments, Large Businesses

Respondents from companies that prioritize building and scaling new businesses cite growth as the primary motivation for these initiatives. This focus is well-founded: our survey results indicate that companies allocating 20% or more of their growth capital to creating entirely new businesses experience increased revenue compared to those that invest nothing.

Investing around 20% of growth capital in new ventures appears to be the sweet spot for capturing significant value. Below this threshold, the rate of return struggles to gain momentum, while exceeding it can diminish effectiveness. However, only 38% of global respondents are targeting this optimal proportion, suggesting that nearly two-thirds of leaders may be missing out on potential value.

Start With What the Organization Already Has

Currently, 13% of revenue and 16% of value of the organizations interviewed worldwide come from new businesses. Latin America, in particular, offers fertile ground for exploration, as it is the only region where over 95% of companies report having at least one asset with unrealized commercial potential. The usual suspects for new business candidates include data, intellectual property, new technologies or capabilities, and internal products that can be scaled to attract public interest.

These hidden treasures that are considered most interesting vary by industry, but they all share a common denominator: Artificial intelligence is widely regarded as one of the opportunities with the greatest potential for generating value over the next five years.

Where Is the Gold?

Most surveyed leaders who expect their companies to build new ventures in the coming half decade see potential value in developing a genAI-enabled venture. In fact, 6 in 10 say their organizations are already pursuing them. There are industry leaders who believe we will see the rise of “solopreneurs” building $1 billion businesses with one human employee that is joined by teams of AI agents that can sell, provide advice, develop and deploy code, process operations, and perform finance tasks, among others.  

Opportunities also exist beyond digital and AI. Leading companies in the region are developing cross-industry ecosystems, such as integrated finance and payment methods, expanding into new geographies or segments by leveraging competitive advantages in products or distribution, and launching sustainable businesses with high intrinsic value. In Mexico, for instance, we have seen leading players in the retail sector have successfully adopted this approach in their pursuit of new value. 

The Mother Ship and the Keys to Success

Successful organizations that build new businesses share certain key elements: a dedicated team, dedicated, stage-gated funding, the right governance, and support from the top, to name some of the most important factors. Experience is a great teacher; companies with more maturity in creating new businesses are twice as likely to succeed with their initiatives. By the fifth year after launching a new business, these experienced companies generate 12 times more revenue, with capital investment only twice as high before reaching breakeven.

The relationship between the new business and the core organization is critical to success. To ensure healthy interaction and prevent legacy challenges from affecting the new project, it is essential to establish a clear governance model, recruit new talent capable of addressing emerging challenges, and provide incentives for leadership to support the new business' success. As companies gain experience, they often grant new ventures greater autonomy to pursue exceptional opportunities, beyond the scope of the "mother ship."

Growing With the New Business

In today's landscape, CEOs who overlook new business development risk jeopardizing their company's legacy and relevance. Even organizations with strong market positions, whether through products or customer access, are not immune to disruptions. Few can afford to rest comfortably on their current advantages.

Achieving the necessary level of commitment requires business leaders to possess the ability to reinvent and redefine the roles and spaces their companies can occupy. This involves envisioning possibilities and recognizing how new trends, technologies, collaborations, and circumstances can unlock opportunities. Beyond tangible bottom line impact, leaders view building new businesses as a means to inspire people, unite them around a common purpose, and create a lasting legacy of sustainable growth.

Pepe Cafferata is a Senior Partner at McKinsey & Company Brazil, and Leader of Business Building in Latin America.

Philipp Haugwitz is a Partner of McKinsey & Company Mexico, and a leader of McKinsey Digital Mexico.