Paul Jenkins
McKinsey commentary
Senior Partner
Sometimes when you read reports, your eyes can start to glaze over with all the various stats, so I want to call attention to something stunning. Our research shows that investing only about 20 percent of your growth capital into venture building is enough to generate a 2 percent lift in growth per annum. For most companies, that’s a truly astounding ROI.
That 20 percent is particularly interesting, because it’s something of a sweet spot when it comes to getting the greatest ROI. Invest less, and you don’t get a correspondingly lower ROI but, in fact, much less ROI. By the same token, if you invest more, you don’t get greater ROI. The rate of return starts to peter out after 20 percent.
We’re planning on doing more analysis to better understand why that’s the case. But this insight of a 20 percent sweet spot provides a compelling counterpoint to an issue we often see, which is that companies approach building a new venture as a bit of a hedge or a side project and don’t invest enough in it. That’s a surefire recipe for failure.