The model for business growth seems straightforward: You get a promising idea, research its potential, invest in the right marketing, then sit back and watch your product or service sell. But if there's one thing we're all learning, it's that there's no sure route to success. A television- and newspaper-based advertising structure can crumble. SUVs that sold spectacularly well for a decade can suddenly sit, ignored, on dealer lots. Businesses that don't adapt to changes in consumer taste or new scientific breakthroughs get left on the sidelines, watching their profits shrivel. That's the lesson behind this week's big merger news. Pharmaceutical giant Merck ( MRK) made an offer to buy rival Schering-Plough ( SGP) for $41 billion, the kind of mega-deal that's gotten all-too-rare these days. For both companies, it's a chance to strengthen their core competencies, while diversifying into a wider range of products. While your company may never write a billion-dollar check to buy out a competitor, the same forces behind the merger may affect the future of your business. If you've built your reputation on one or two big products or services, now is the time to widen your offerings. Diversification is everything. "We're seeing a lot of merger activity in the pharmaceutical industry," says Linda Bannister, senior area analyst for health care at Edward Jones. A few weeks ago, Pfizer ( PFE) made a $68 billion offer for Wyeth ( WYE), and Swiss pharmaceutical company Roche yesterday announced that it agreed to buy the rest of biotechnology pioneer Genentech ( DNA) it didn't already own. "Many of these companies are cash-rich and growth poor."
They're cash-rich because they made enormous profits over the past few years with a fairly simple business model: producing so-called blockbuster drugs, then supporting them with huge amounts of consumer marketing. But that's no longer a guaranteed road to profits. "These large pharma companies are all trying to get away from relying on blockbuster drugs," says Bannister. "It's difficult to come up with a unique product, and the odds of a compound making it to market are against you." For every big winner, there are countless (expensive) losers. Bannister also points out that health research dollars are being concentrated in many fields, such as cancer and diabetes, that demand individually tailored solutions rather than a one-size-fits-all pill. As medicine grows ever-more complicated, companies like Merck want to offer a wide range of solutions. Schering-Plough brings along well-regarded products in areas such as women's health and consumer health care, markets where Merck traditionally has not been a major player. For example, Schering-Plough's portfolio of fertility drugs is a plus. The merger will also bring Merck well-known consumer brands such as Coppertone and Dr. Scholl's. No matter what your product or service, this is the time to investigate subsidiary markets. Whether it's a diner upgrading its coffee to attract more breakfast business or a tax accountant who studies up on bankruptcy law to advise struggling families, finding ways to branch out from your core service could make all the difference. Perhaps what's most encouraging about this particular merger at this particular time are the terms of the deal itself. Merck will be taking on $8.5 billion in debt, a pretty impressive sum given all the hand-wringing we've seen over the state of the credit markets. "There's definitely an appetite for investment-grade debt where people think cash flow is secure," says Bannister. What does that mean for your business? A shaky economy doesn't necessarily mean hunkering down and narrowing your perspective. You can still grow, if you take the time to identify your weaknesses and fill in the gaps in your offerings. It's about having a clear vision for the future and taking the steps now to get there.