Given the financial rumblings that Nortel and Sage partners are facing right now, it would be wise for solution providers of all kinds, but particularly those closely tied to a single vendor, to do a financial health checkup on their vendor partners.

Unless you've been living under a rock, you know that Nortel has been in a financial free fall for years and finally filed for Chapter 11 bankruptcy protection in January after years of missteps. Earlier this week, Avaya made a bid to scoop up Nortel's enterprise solutions business for $475 million, as Nortel seeks to sell off all of its divisions to pull out of bankruptcy. More on that later.

At the same time, Sage witnessed its largest solution provider partner, MIS Group of Dallas, close up shop suddenly on July 6 without even filing for Chapter 11 bankruptcy protection.

It is no small matter that Microsoft, in a press release aimed at recruiting Sage customers and channel partners, has decided to invite those "concerned with the stability of the Sage Software channel to consider available alternatives from Microsoft."

You can call the Microsoft play grandstanding if you'd like. But in the global economic environment we are living in, the financial health of a vendor and its partners is a serious issue and clearly VERY HIGH on the purchasing criteria checklist for midmarket CEOs and CIOs.  

A financial health checkup performed by solution providers on their vendor partners would be a wise move given the global economic crisis. Distributors and vendors are surely doing financial health checkups on their solution provider partners and are closely watching accounts receivables.

It's going to be interesting to see just how big a hit Sage took on the accounts receivable line when MIS Group went out of business. Sometimes vendors think a partner is so big it can't fail. And sometimes partners think a vendor is so big it can't fail. In the case of MIS Group and Nortel, that thinking proved faulty.

What's more, given that we are in the midst of a major economic reset, there are likely to be more big trees and small trees that fall in the forest. The sad thing is the big trees take down a lot more people and businesses.

Nortel's failure is rippling through the solution provider community as we speak. Believe me, there are many Nortel only partners that are living right now off support and product sales from existing customers. You can bet that those cases of a company that has never before bought Nortel equipment making a Nortel buy are few and far between. If the Avaya lifeline goes through, it is still going to be a long, hard road for those Nortel partners to transition to Avaya. On the other hand, if you were a Nortel partner and also an Avaya partner, you're sitting pretty, or at least you're more comfortable knowing you and your customers have a built-in insurance policy.

And no matter what anyone says, the failure of MIS Group is going to make life in the sales trenches difficult for Sage partners of all stripes. Customers are clearly going to look more closely at solution providers' balance sheets -- either Sage partners or any other vendor's channel partners.

Let me ask you this: If you were a midmarket CIO making a $1 million ERP buy, would you feel more comfortable right now making a Sage MAS 90 or MAS 200 purchase or a Microsoft Dynamics ERP buy?

Sage Group ranks No. 3 on AMR Research's recent list of global enterprise application vendors, coming in at $2.40 billion, well ahead of Microsoft, which comes in at $1.30 billion. But remember, Microsoft, which dwarfs Sage, weighs in at number 25 on the Fortune 1000 list at $60.42 billion.

Microsoft has a lot of cash it can use to make sure it moves ERP solutions to the next generation including Software-as-a-Service (SaaS). Microsoft may not always be first, but it always gets there (look at Bing).

Partner balance sheets are going to come under increasing scrutiny in the wake of the MIS Group collapse. Solution providers should make sure they scrutinize their vendor balance sheets just as closely. It’s a matter of trust for you and your customers.

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.

David Siegel, a Microsoft and Sage business consultant based in New Orleans, takes on that very question in a blog post in our ChannelWeb Connect Community.

“We have seen recent indications from both Microsoft and Sage that they want to concentrate their channel business with larger VARs,” said Siegel. “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 rethink the ‘bigger is better’ mind-set.

“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),” said Siegel.

Siegel’s right. Vendors like Microsoft and Sage are trying to focus on fewer midmarket partners. Don’t let anyone fool you. That’s what Microsoft’s much-ballyhooed decision to overhaul its channel partner program -- including doing away with the current "Gold," "Certified" and "General Register" designations in favor of ranking partners according to their competencies -- is all about.

It’s no mistake that at the same time Microsoft announced the partner overhaul it has eliminated  telephone support for thousands of its partners. The changes come after Microsoft laid off an undisclosed number of Telephone Partner Account Managers (TPAMs) who provided sales assistance aimed at helping partners close deals and navigate the Microsoft bureaucracy, sources said.

Some Microsoft partners say the move is a precursor to decreasing its partner base as it moves to a cloud computing model. Microsoft, meanwhile, insists that it has some 640,000 channel partners and wants to grow its partner base to more than 1 million during the next two to three years. Who’s kidding who? One million!  Microsoft may be interested in 1 million consultants around the world. But it definitely isn’t interested in 1 million partner companies.

The fact is both Microsoft, Sage and a number of big players are moving to the bigger-is-better mind-set. That mind-set, however, is code words for cutting partner costs in the midst of the current economic downturn. The MIS Group’s death is a sign of the times. Bigger doesn’t mean you can’t fail. It just means that more people feel it when the giant falls.

What MIS Group’s failure shows is that the bigger is better channel strategy is a foolish play. And for my money, you’d be wise to make sure you have the right mix of big partners and smaller partners. Smaller partners like Siegel and Schulz are more often than not smarter and have more talented technical help than some of the larger midmarket VARs. This is not an indictment of any midmarket partner, just a plain fact that often smaller partners will do a better job than a larger, more scattered and distracted partner.

What do you think of the bigger-is-better channel partner strategies from the likes of Sage and Microsoft?