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Jul 24, 2019 22:56:51

The Middlemen Economy, and how we are all middlemen

by @jasonleow | 610 words | 349πŸ”₯ | 387πŸ’Œ

Jason Leow

Current day streak: 349πŸ”₯
Total posts: 387πŸ’Œ
Total words: 187610 (750 pages πŸ“„)

I just read The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit, by Marina Krakovsky. It's an interesting book about how in our increasingly specialized and diversified economy, most of us are now middlemen, even if we generally hate dealing through middlemen. It then goes on to break down the different types of middlemen, their roles, and the value they bring. I thought this was useful for my work going forward, since I do foresee myself making products that might have to deal with 2-sided markets, or 2 different sets of customers, e.g. businesses/suppliers and consumers.


Sharing them here as reference for myself, and for anyone who might find it useful. This is not a book review, just raw notes lifted directly from the book, with some minor interpretations and categorisations of my own. This is part of my reading list for a new season.


Intro

Nobody likes the middleman, but most of us are middlemen.

Middlemen connect the nodes on a network to increase the value of the network. 

Middlemen has dual responsibility and balancing act of providing value for both sides.


The 6 types of middlemen - the roles overlap and interact in any one job:


The Bridge spans the chasm, promotes trade by reducing physical, social, or temporal distance/cost in a 2-sided market. Reducing temporal distance can mean things from past in the present.


The Certifier applies the seal of approval, separates good from the bad by scouting, screening, vouching, and gives buyers reassuring information about the seller’s underlying quality. A trusted third party with a good reputation to reduce information asymmetry and guarantee quality prior to transaction, especially for goods/products. Protects against precontractual problems of hidden information.


The Enforcer keeps everyone honest, makes sure buyers and sellers put forth full effort, cooperate, and stay honest/accountable. A trusted third party to facilitate smooth working together, prevent shirking or cheating, especially for services. Protects against postcontractual pitfalls of hidden action (or inaction).


The Risk Bearer reduces uncertainty, fluctuations (uncertain demand/supply) and other forms of uncertainty, especially for risk-averse trading partners, in order to bring better returns, e.g. VCs for investors, Uber. Better able to weather volatility and bearing risk than their trading partners. Usually risk bearers need scale to make better forecasts, and high unpredictability of demand and scarcity of supply so that in makes sense for a middleman to come in during unforeseen emergencies.


The Concierge makes life easier, reduces hassles and helps clients navigate and make good decisions in face of information overload, lack of transparency, complexity. Other middlemen address informational scarcity, the concierge addresses informational abundance.


The Insulator takes the heat by being the bad guy, acts as an equalizer/advocate, and negotiates hard for clients to get what they want without the stigma of being thought of as too greedy, self-promotional, or confrontational. Often righting the balance of power between less informed, more vulnerable parties more knowledge and power. Middlemen usually bring people together, but insulators keep them apart to insulate them from blame, diffuse responsibly, provide plausible deniability, protect clients from the law, or help them feel less guilty in dirty/unethical deals.


A 2x2 matrix of middlemen qualities:

Low warmth, low competence = Parasite e.g. investment bankers

Low warmth, high competence = Predator e.g. loan sharks, patent trolls, drug dealers

High warmth, low competence = Pet e.g. mom-and-pop shops

High warmth, high competence = Partner e.g. (some) governments 


How to use these learnings

Think about what roles you are good at, which skills your trading partners value, and which ones you would benefit from honing.

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    @jasonleow - You are on fire with these books.
    I remember arguing with someone how I am not a fan of drop shippers because they are middlemen. And realized I am one too... We are all middlemen. We just need to be efficient and value add.
    Thanks for sharing your notes.

    Keni avatar Keni | Jul 24, 2019 12:03:10
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      @keni yeah i used to think that too. But I guess what we're all against are middlemen who are parasites and predators (low warmth, vampire types). So yes, let's be middlemen who value-add, proudly! ;) Glad you're finding the notes useful too

      Jason Leow avatar Jason Leow | Jul 25, 2019 00:21:11
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