The Channel and the Credit Crunch
- By Scott Bekker
- October 01, 2007
I was checking my 401(k) balance online the other day and got a strong feeling of déjù vu. I've seen this figure before, maybe six months and 12 automatic payroll contributions ago. I know the financial gurus say that you should set a good fund mix for your stage of life and not look at it more than once a quarter. But when the Dow Jones Industrial Average drops 200 or 250 points in a single session, it's like passing an accident on the highway. I mean, really: How can you not look?
The reason my balance--and probably yours as well--is dropping is that more and more of the U.S. economy looks vulnerable as the financing of subprime housing lending has unraveled. The Dow's dips and climbs have mirrored investors' uneasy concern that the subprime-lending situation will affect the broader economy.
In the channel, times have been pretty good in most places outside Michigan, which remains in an economic slide. But now we're seeing signs that the rest of the country could soon resemble the Upper Midwest.
Already private equity is much more dear in a credit crunch that's being exacerbated by the mortgage mess.
That has meant that one exit door for many partners/owners is closing. A climate that makes it harder to fund mergers and acquisitions also makes it harder to sell your business once you've built it. It's harder on the other side of that transaction, too. Less than a year ago, a partner looking to expand into new markets could find funding to buy other partner companies, provided that the potential buyer had developed a solid business plan. Now, in many cases, the best those visionaries can do is gaze wistfully at a lost opportunity.
There's also bad news in a credit crunch for those who aren't private equity movers and shakers. You may not be looking for financing to structure a fancy deal of your own, but you often ask your customers to do exactly that so that they can afford to upgrade their infrastructure or business applications. A hard credit environment for them translates to a hard selling environment for you.
Evidence that this environment is developing now comes from Framingham, Mass.-based IDC. In August, the market research firm's quarterly Channel Panel found that reports of increased business declined in the second quarter, while reports of decreasing business rose.
What are you seeing? Are your customers beginning to hold back on purchases because of credit and economic concerns? Do you think a credit storm is coming, and, if so, how are you planning to weather it? Send your thoughts and stories to [email protected].
Scott Bekker is editor in chief of Redmond Channel Partner magazine.