Cut out the Middleman? Why?

Why has the ‘middle-man’ become such a bad guy?


Every other startup pitch tries to refer to him as something of an evil presence in the eco-system.


But is this justified?


Since 2016, the google search references to the phrase ‘cut out the middleman’ have gone up 300%.

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Some business models have completely relied on this narrative.

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For example, many D2C startups are primarily marketed with this as the only premise.

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But are we demonizing the necessary?


In fact, most of the largest consumer tech startups today are essentially middlemen – Uber, Swiggy, Zomato….


So in my opinion, ‘All middlemen are not created equal’.


1

Middlemen match demand & supply continually and take on a large portion of the risks onto themselves.

Electronics: They help ensure that the product reaches every pincode with or without the internet irrespective of the company’s priorities.


2

They replay the eyes and ears of the market.

FMCG: They provide feedback on the products up to the far reaches of a household that the company has no way of reaching out to.

IB: They solve the information arbitrage using highly practiced and refined skills.


3

They incentivize innovation.

Food: They incentivise the company to launch new products by providing buying commitments way before the product is launched.


4

They provide highly flexible & controllable incentive structures.

Durables: Launching a new product? Increase the margin. Want to target a few key markets? Or Create a geo locked campaign? Manage the SKU rollout.


5

They help optimize cash-flows.

Clothing: In an industry which is highly driven by seasonality, they extensively buy in advance and help the company smooth out their cash flows.


6

They level the playing field.

Durables: No internet? No problem. Poor education? No problem. Sensitive to price? No problem. Not a focus segment but aspirational? No problem.


7

They make supply chains effective.

Essentials: By providing a ready gateway of established distribution, they can help get the products into the right consumers without duplicating it across various brands.


8

They are your perfect phygital partner.

FMCG: They take on the responsibility of creating a physical presence for your company’s products with the same incentive % as your online ad-spending.


I believe that in certain environments, they are necessary and in fact essential.


But, What is important to objectively weigh is if each middleman is playing a purpose.


The truth is that middlemen are not always people who are encashing on opportunistic arbitrages.

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They are often people who add real value to the value chain.


So,


The next time someone says ‘cut out the middleman’


Our next question we should be asking is ‘Tell me why?’ and not ‘Tell me how.”


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