Some of you may remember the old war movies in which the soldiers say "it’s the bullet you don’t hear that gets you."  There have been a lot of movies in which the people who are killed make the point that it’s not what you see that gets you, it’s what you don’t see.  There is no "Cry of the Banshee" prior to receiving the deadly blow.  In business, it’s the same thing.  It’s not the factors you plan on that kills your profitability, it’s what you don’t see.  It’s not the threat from the direct competition that makes you business model unviable – it’s something that you never expected.

During 2005 there are two remarkable businesses that never saw it coming – and now they are facing great pain.  They are household names with tremendous legacy and unbelievably profitable histories.  But I can’t find any analysts who think they have growth in their future – and even the companies themselves admit they are facing a lower growth future.  And their market values, employees, vendors and customers are all facing difficulty

Wal-Mart and Merck.

Wal-Mart has done about everything a discount retailer can do right.  They’ve cut costs, appealed directly to their customers with lower prices.  Created tremendous careers for their employees.  But what they didn’t predict was a tripling of gasoline prices taking a relatively huge bite out of the discretionary incomes of their target customers.  Now, with energy costs eating up the money they’d spend at the Wal-Mart stores the company is struggling to find a way to keep up its growth history.

Merck was the darling of Wal-Street in 1987.  It was the highest P/E in the DJIA.  It’s growth was spectacular.  Not one analyst thought you could go wrong by buying Merck stock (and in all fairness if you bought it then you would have made a lot of money).  But no one ever figured that one questionable drug (Vioxx) could destroy billions of dollars in shareholder wealth.  The Merck business model made them rich while improving the lives of millions of people.  But that same business model pushed Merck to aggressively market drugs directly to patients (rather than to doctors only), and to possibly push drugs into market use a bit quicker.  And now the very health of Merck itself is in question.

Both these companies have been undeniably successful.  World leaders.  And they honed and pruned their business models to perfection for the competitive marketplace they were in.  They locked-in that business model, and worked to defend and extend it as fast as possible.  And that lock-in to the successful past practices meant they never saw it coming – they didn’t see what would cause them to stall.  They didn’t see what could eventually knock them off their top spots.