There are a lot of lessons from the sudden death this week of Sage Software’s largest channel partner, Dallas-based MIS Group.
First and foremost, the MIS Group tale is a classic example of why it’s just plain stupid for a solution provider to bet too heavily on one vendor. And by the way, Sage itself openly and aggressively encouraged that type of bet with a channel strategy that placed a premium on Sage-centric partners.
That strategy has left Sage with a black eye and could very well cause customers to reconsider their commitment to the Sage product line.
So how does the Sage partner of the year, achieving the highest total sales of Sage products in both 2007 and 2008, suddenly post a note on its Web site that it was for all practical purposes insolvent and unable to continue as a viable business?
Just like AIG bet beyond reason on credit default swaps and watched its balance sheet crumble through a $600 billion bet on credit derivatives, MIS Group made the same kind of foolhardy bet, only this one on scaling its Sage business beyond all reason. It’s no surprise that acquisitions that put a boatload of debt on the balance sheet are part of the story.
For an incisive look at just how much hubris was at the heart of the MIS Group meltdown, check out this article from WebCPA on the state of the VAR market from April 2008. MIS Group CEO Robert Muir, who founded MIS Group 13 years ago, actually boasts in the WebCPA piece that while many solution providers have either sales or technical people, MIS Group has “veteran businesspeople who are applying largely a scale business concept to a traditionally smaller business. It’s a different way.”
Different indeed. What’s so interesting about the MIS Group story is that Sage itself was caught off-guard by the death of its largest solution provider. In a ChannelWeb followup, Sage Vice President of Marketing Dennis Frahmann says the vendor was unaware that MIS Group would close up shop on July 6. What’s wrong with this picture? He then goes on to say that it’s obviously a difficult market out there. A difficult market is one thing. Your largest partner going out of business is plain and simply a sign of a faulty channel strategy.
Sage is also telling MIS Group customers that it will work with them to identify a new solution provider they can work with. How would you like to be a Sage customer, depending on the company’s software for your most mission-critical business applications, and get that e-mail?
There’s a lot of blame to go around in this channel story. MIS Group made a foolish bet to scale its Sage business beyond all reason. And Sage was more interested in keeping other vendors out than in making sure it was cultivating a strong and stable channel force based on solutions breadth and depth.
In the end, MIS Group didn’t get a bailout from the vendor or the federal government. That may be the only difference between AIG and MIS Group. What lessons are you taking away from MIS Group’s demise? Let me know what you think is the REAL channel story here.
What Do MIS Group’s Failure And The AIG Meltdown Have In Common?
The Real Channel
It’s a question worth asking given the sudden death of Sage’s largest software partner, MIS Group of Dallas, and Microsoft’s recent partner moves that are taking center stage this week at Microsoft’s annual Worldwide Partner Conference in New Orleans....
The Real Channel
It’s a question worth asking given the sudden death of Sage’s largest software partner, MIS Group of Dallas, and Microsoft’s recent partner moves that are taking center stage this week at Microsoft’s annual Worldwide Partner Conference in New Orleans....
The Real Channel
It’s a question worth asking given the sudden death of Sage’s largest software partner, MIS Group of Dallas, and Microsoft’s recent partner moves that are taking center stage this week at Microsoft’s annual Worldwide Partner Conference in New Orleans....
The Real Channel
It’s a question worth asking given the sudden death of Sage’s largest software partner, MIS Group of Dallas, and Microsoft’s recent partner moves that are taking center stage this week at Microsoft’s annual Worldwide Partner Conference in New Orleans....
The Real Channel
It’s a question worth asking given the sudden death of Sage’s largest software partner, MIS Group of Dallas, and Microsoft’s recent partner moves that are taking center stage this week at Microsoft’s annual Worldwide Partner Conference in New Orleans....
The Real Channel
It’s a question worth asking given the sudden death of Sage’s largest software partner, MIS Group of Dallas, and Microsoft’s recent partner moves that are taking center stage this week at Microsoft’s annual Worldwide Partner Conference in New Orleans....
Mike1350
says:
Wayne:
Very well put, Anyone who has any since of the reseller channel understands the failure of MIS had little, if anything, to do with over-reliance on one software vendor. If MIS had carried multiple vendor's products, all it would mean is that there would be multiple vendors being owed a bunch of money. The issue here is that this industry (software reseller) does not lend itself to taking on heavy debt to finance growth. This is not the first, nor will it be the last, failure to prove that. Putting the blame on being over-reliant on one vendor would only be relevant if it was the vendor that had shut its doors suddenly, not the reseller.
Regards
Steven Burke
says
in response to Mike1350:
My question is this: what percentage of MIS Group's sales came from Sage software and services? My bet is more than 90 percent. This was a company on an all out binge to be the NUMBER ONE reseller of Sage Software in the world. That was this company's goal. Isn't that kind of business bet irrational and risky at best? This isn't a company whose goal was to be the best midmarket solution provider bar none delivering heterogenous solutions. This is a story ALL ABOUT betting too heavily on one vendor. Do you think if MIS Group had only 33 percent of its business tied to Sage software and services it would be insolvent at this point? No.
wayne
says
in response to Steven Burke:
Before the web site went dark (or redirected to one page) - they did have some indication that they were one of Dell's biggest(er) resellers (Here's one such page from Google Cache). Seems like they also offered additional networking services as well.
Were these other services all just ancillary to their Sage stuff? Don't know. But seems they had some other service that they offered rather than Sage (admittedly Sage seems to have been their 90 percent software offering)
I totally agree with you Steve - to the extent that MIS Group was out to be the #1 reseller (and ignored all other issues such as being profitable and having a solid organizational structure and delivering top services to customers) -- that is probably what killed them.
But that is entirely different scenario than what your story lead off with - " it’s just plain stupid for a solution provider to bet too heavily on one vendor." - and that's what I was commenting on.
Steven Burke
says
in response to wayne:
Thanks for your follow up post and the link to the cached MIS Group website. This is new information.They clearly weren't Sage only. This whole sad tale cries out for more information from someone inside MIS Group or Sage who had knowledge of the balance sheet and business model issues that took this company down. There are a lot of good people who lost their jobs and are out in the street. What is the REAL story?
Mike1350
says
in response to Steven Burke:
In answer to your last question. If the other 66% of their business was financed with debt that could only be met in the best of economic times, the answer is yes, they would be in the exact same position. Their problem wasn't their goal, but rather their methods used in attempts to achieve it.
ddruker
says:
I fully expect MIS group to rise from the ashes. They had great people, a good business and lots of clients. As I understand it, they needed cash to keep the business going and had a couple of sources of funding drop out at the last minute that they thought were lined up.
Getting on my soapbox for a minute, I do think this exposes the flaw in the traditional software VAR model that happens in a downturn. The VAR has to mostly make money from new license sales and implementations - support alone certainly won't keep the lights on. But the publisher keeps nearly 100% of the highly lucrative ongoing maintenance stream- which is where the fat publisher operating margins come from. When new sales evaporate, the VAR's business model can turn bad in a hurry.
I do think that the channel will shift to the subscription model - where the VAR keeps a percentage of ongoing subscription fees forever. Think about the difference in a VARs business model when you can keep 30 to 50% of the ongoing subscription fees of every client you have ever signed up - you'ld build a significant ongoing revenue stream, so you could weather a storm like we are having now. Why should only the SAPs, Microsofts, Oracle's and Sage's get to benefit from ongoing, 90% plus margin ongoing revenue streams?
wayne
says
in response to ddruker:
Dan I think were most software VARS have made a fatal mis-step is in failing ot provide mandatory software support plans of their own. It's quite common to see even large VARS who offer pay as you go billing for support -- some even bill in as small an increment as 6 minutes.
All that this does is invite "why am I being billed for a quick question" and causes VARS to fully staff with expensive people waiting by the phones for calls that sometimes never come.
This, in my opinion, is not a profitable business model. The software publishers got out of pay as you go maintenance years ago - yet most VARS are still trudging along offering to respond to increasingly complex inquiries on an hourly basis.
Pay as you go support does not generally collect a reasonable fee assuming that the VAR responds quickly and is able to resolve the client's issues. In addition during economic downturns when projects and upgrades grind to a halt the VAR is left self-funding a relatively idle technical support department.
bricci
says:
For a VAR the critical component of staying in business is not having a credit line. In this economy, I see banks getting gunshy and calling existing lines of credit. Paying off a line of credit and continuing to do business can be a very difficult transition. It is easier for smaller VARS to change their course of action than it is a large VAR with significantly more expenses. I believe that there are many VARS that are marginal at best.
We will see many more VARS collaps in the near future.
Rickeditor
says
in response to wayne:
I’d be interested in seeing how much of MIS Group’s revenue was based on product sales versus services, including on-going maintenance and support services and “value-add” consulting services. Maybe a lesson here is that some solution providers are on a dangerous treadmill of always having to keep selling new software to new and existing clients in order to maintain revenue growth. Dangerous because when the economy sputters and customers stop buying new stuff, the solution provider has less recurring revenue from services to fall back on. Especially dangerous if you’re carrying a big debt load.
David Dadian
says:
It is important to acknowledge and understand a very simple principle. It is not about being number one and who has the most sales (revenue), it is about how much you net in (profit) from your sales.
I just love it when I see the fast growth numbers in percentage of revenue posted, in some sense it is like looking at Obama's stimulus plan. Some think that these large percentages of revenue growth are impressive and for a few of the well run organizations they are. For me it is not about growing my revenue by 100,200, or 1000%, it is about growing our gross profitability. I would much rather grow revenue at 30 to 60 percent and maintain a 63.2% gross profit margin, so I know that our net profitability grows in accordance.
I learned this principle the hard way back in 2001, when we nearly went bankrupt!
Aside from the financial concern, is the concern of being to heavily weighted on a vendor. Like everything else in life there needs to be balance. I believe that you need to carefully weigh the vendor mix in certain solution sets perhaps being heavier in one set and lighter in another.
The other concern is diversification, looking into other area's, technologies and solutions one can provide in order to grow and continue to be profitable. Change is pretty much the one constant in our industry!
If you are not looking at and testing the waters of other solutions and services to provide, you will be without a doubt increasing your vunerability to a myriad circumstances that can and will present themselves at any given time. It is not if they will happen but when!
bpoole
says:
Careful not to overanalyze this. I think it is a classic example of a company over-leveraging itself for the sake of growth. The fact that they were a Sage partner is not relevant. Smaller resellers of all the vendors fail all the time because of this same disease. This case is just more visible. For Sage to step in and bail these guys out would have been a slap in the face to all the other resellers that have maintained a disciplined growth model. Now, resellers such as us, that have grown without accumulating any debt, can step in and provide service to the clients. If anything, I think that shows the strength of the Sage reseller community.
rjledger
says:
bpoole hit the nail on the head. These folks just got too big. It's nothing to do with a "single vendor" approach. These folks carried almost every item in the Sage inventory. If you look close that is quite a diversification. They were into the back office with Accounting, the front office w/CRM (SalesLogix and SageCRM) as well as the construction business w/Timberline.
Normally you can secure good credit based on account receivables. Remember why things went down so quickly? - It was the banks. Credit dried up fast and companies that did not have a "Plan B" took a major hit.
We are a (small) Sage BP (SalesLogix) and built the business around services first and software licensing 2nd. It's also a "virtualized" business - we have no fancy offices and everyone is a 1099'r. With that being said, everyone has to pull his/her own weight. Having aid that, we are not unusual. There are lots of small/medium partners out there doing just what we do and are ok.
The days of the "super partner" are over. It's just too expensive of a business model.
david.siegel
says:
As a long-time reseller of both Microsoft Dynamics SL and Sage Abra HRMS, I concur with many of the comments on this thread. We have competed with MIS Group in both Texas and Louisiana.
We have seen recent indications from both Microsoft and Sage that they want to concentrate their channel business with larger VARs. In Microsoft’s case, this means firms with at least 50 employees. Perhaps the fate of one of the country’s largest midmarket VARs will lead the channel management leadership at both companies to re-think the “bigger is better” mindset. There is a role in the marketplace for both the large VAR with broad product/service offerings and geographic coverage as well as for the small VAR who successfully serves customers with five or fewer consultants and deep expertise in one or two solutions (Wayne Schulz, who too modestly calls his firm a “small nobody VAR”, is an excellent example).
While Sage may lose some prospective sales as MIS Group’s recent prospects look elsewhere, I expect that the vast majority of current MIS Group customers will remain with Sage. They can transition to any of the many well qualified existing Sage partners who are still very much in business and have available capacity. Or, they may switch to new practices founded by newly-unemployed MIS Group staffers who have successfully served them in the past. Sage will probably benefit economically from this transition, as few of the replacement partners will command the top tier margins of MIS Group.
A look at the trials and tribulations of solution providers and vendor channel personnel. What works? What doesn't? And what do solution providers and vendors need to do to succeed.
I'm a Sage Business Partner so my comments below are not independent.
I'm not certain where your opening paragraph of -- "First and foremost, the MIS Group tale is a classic example of why it’s just plain stupid for a solution provider to bet too heavily on one vendor. " is ever proven anywhere in your article.
Is the inference that MIS Group closed their doors based on a reliance on Sage products?
I think they represented nearly all the products offered by Sage. Maybe what you're referring to is the same thing that I also heard could have been a cause (contributor) of the collapse. Namely their heavy reliance on the contruction niche. If so, I guess too much exposure to one niche is certainly dangerous. Especially in such a poor economy as this one.
Or is the inference that MIS Group was just scaled to a point that they had too much overhead by "veteran businesspeople who are applying largely a scale business concept to a traditionally smaller business. It’s a different way."
I'm kinda going with this as the leading cause of death myself.
And exactly how is Sage more interested in keeping other vendors out than in making sure it was cultivating a stable channel?
As a small nobody VAR I'm constantly amazed that I've probably had more business education opportunities available to me than most VARs representing other publisher's. Sage is one of the few organizations that I've seen who actually consistenly run and operate leadership academies and have a very active alumni group that regularly meets to discuss how to improve their practices. Sage is also exceptionally active in the IT Alliance which is an independent group that regularly gather to share business ideas and learn more about the industry trends. The last IT Alliance meeting that I attended had probably 6 or 8 Sage executives attending. That was 6 or 8 more than any other competitors.
The above three allegations are all interesting. I'm not saying that I disagree with parts or all of them - but to lay the allegations without any type of proof seems a bit reckless.
Sage is surely not blameless. They were very obviously caught unaware - and having your two time Business Partner of The Year suddenly have their doors shut and the phone auto-attendant set to "so sorry call Sage" is not good PR.
I think the coming months will bring lots of answers to questions that many people have. There's also a huge safety net of Sage consultants nationwide that are more than capable of picking up the slack in these types of extreme cases.
Not apologizing for Sage - or MIS Group - just looking for more information to back up these allegations of how the firm came to be defunct. TX
PS - Sorry - I missed the last part of your article and I would like to suggest to you what the real channel story is here.
I believe the real story is the question - "Why didn't MIS Group reorganize" either via bankruptcy or capital contributions of the leadership team (before the site went down I counted 12 executives on the "about us" page).
Why didn't (or couldn't) this organization have re-capitalized and re-opened as a slimmed down version?
As you undoubtedly are aware, the whole valuation of consulting firms these days is recurring revenue. If MIS Group had 3k to 4k active clients then they certainly had a big pool of potential recurring revenues. Why not reorganize around that (albeit with a smaller company).
Was the company not confident in the market going forward?
Was the company so in debt that supplier relationships could have been tarnished by a bankruptcy?
Or maybe it was just as they said - classic inability to get refinancing.
I really think the story here is why didn't MIS Group re-organize - was it really lack of money (and if so why didn't the trim down a year ago?).
Thanks