Estimated reading time: 3 minutes, 20 seconds

WHOSE VAR IS GORED?

This summer's uproar about the meaning of the demise of the large Sage VAR MIS Group needs to be put into context.

For the moment, there's no indication that it means Sage has troubles that are much different than those faced by other vendors. True, Sage has its problems. But there's a lot more at work here than just the relationship of one reseller and one software manufacturer.

There were many comments about the fact that the reseller closed its doors two months after being named Sage's Partner of the Year. That ignores the fact that the award was based on results for Sage's fiscal year ended September 31. It was clear that MIS Group's problems started earlier. But it simply didn't get the award and then go belly up.

The MIS Group had its own issues. It grew by acquisition, apparently with some borrowing involved or a bank wouldn't have seized the property, and it relied heavily on sales of Timberline, a construction package, at a time when the construction market dove. There has been a great deal of talk among resellers that the company had problems in how decisions were made.

But it points to the continuing problems face by larger resellers, especially those that grow rapidly. And there have been those who doubt the viability of the concept of larger VARs, at least those who remained highly focused on simply reselling mid-market software.

In the 1990s, ePartners, then known as TexSys RD, gobbled up resellers and was on the road to a IPO when things fell apart. It struggled for years before appearing to turn things around with new financing and new management. And the current company is much different than the ePartners of the early part of this decade.

More recently, Tectura was on the acquisition trail, buying up relatively larger organizations like the Aston Group. But its growth path turned from acquisition to forming alliances in order to enter new countries. I had a sense that it couldn't afford to keep buying and its plans for an IPO have been stalled by market conditions.

And in June, Tectura, filed a document with the SEC for a $10 million offering of exempt securities. The largest Dynamics VAR had sold $7.5 million of them in June with $2.5 million left for purchase. CEO Terry Petrzelka said the company swapped debt for equity to clean up its balance sheet. Swapping debt for equity is not something most of us interpret as strength. Since Microsoft reported Dynamics sales were down 13 percent for its June quarter, it would be reasonable that Tectura can't be doing a lot better than the market as a whole.

In Europe, Dynamics reseller Qurius lends more evidence that companies that grow by acquisition have faced challenges in this economy. In June, it reported it planned to issue a stock offering worth about $1.4 million "to meet a postponed acquisition payment ... ". I assume most companies do not miss such payments lightly.

There's one other company that had problems with its largest reseller. And while the dispute between NetSuite and Skyytek, which had been the online company's No. 1 VAR may seem unrelated, that's not completely the case. After the two parted company, they ended up in a nasty suit. But one of Skyytek's complaints was competition from NetSuite for accounts.

Large VARs are going to have issues with their vendors as the size and complexity of sales increase. It's situation that needs to be actively managed by both parties. In an economy where sales are in short supply, there are going to be vendors and channels who collide, and it's more likely to happen among the larger organizations that can handle deals vendors may cover.

The real lesson is that rapid growth is a dangerous business, and it seems especially tricky for financial software resellers since this is a limited market. It's not that long ago that ePartners hit the wall after its grab for national presense and it's taken even longer for it to fight its way back to respectability.

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