Opinion
 Bankruptcies in channel likely to increase
By Robert Faletra
I hate to say it, but we are on the cusp of seeing multiple channel bankruptcies. In good times, cash flow is the biggest contributor to solution provider failures. In bad times lines of credit dry up, suppliers and distributors get taxed and at some point the breaking point is reached.
We are now at that breaking point and unless we begin to see some real economic improvement we are going to see really difficult times in the next few months for partners.
The recent example of the MIS Group—a Sage Partner of The Year for two years running—shutting its doors is not a good sign.
I'm having far too many conversations with partners and vendors alike where cash flow issues in the channel are coming up as a growing problem. In some cases, partners are closing deals and then facing difficulty getting the financing to pull them off.
The only reason this hasn't become a bigger issue is that the credit, available through distribution and the vendors, has been holding the tide back.
However, a few solution providers I've talked to recently believe they can get through the next three to six months in the current economic environment, but if it goes much beyond that they are not sure. Others are, of course, well-financed and fine.
This scenario means we are headed toward a period where a lot of vendors are going to find that their partner base is out of balance. There has been a lot of emphasis on getting more from better partners over the past few years and not enough effort has been made on purging, recruiting and refreshing channel makeup.
The MIS example goes to show that vendors' best-performing partners are not always financially sound.
And direct marketing resellers are being particularly hard hit given the dependence on hardware and not solution sales for this category of partners. Customers are still saying if it isn't flat-out broken we are not replacing it.
For solution providers, the trick to remaining solvent during the six to 12 more months will revolve around cash flow and managing costs. Vendors need to help partners with creative cash flow enhancement deals that allow them to stretch payment on deals sold.
This, in my opinion, is going to force vendors to get deep into the weeds around channel financial stability and it will require a larger effort in maintaining a balanced and financially solvent channel.
How they do it will be interesting to watch. |