A news item, pretty much insignificant as far as football goes, caught my attention recently when it came out. David Gold, one of the two chairmen that the English Premier League club of West Ham United have, went on a rant about how “agents are sucking tons of money” in football.
The only reason I noticed the headline was because a synonymous declaration, ‘middlemen are sucking tons of money in this market/sector’, is often why many new companies start up.
The startup scene of the past few years has made the idea of killing middlemen glamorous. Middlemen go by a variety of names based on what industry we are talking about. Sometimes they are agents, as David Gold termed them. Sometimes they are brokers. Some other times they are promoters, and there are instances when they sound something very fancy like ‘channel partners’. But they are all middlemen .
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This is also where I think that a lot of startups are losing sight of what they ought to be doing. There is a reason there have always been middlemen in any sort of an economic transaction. Middlemen act as lubricants. They are the ones who ease the friction that naturally occurs when supply and demand do not match. Given where their incentives lie, middlemen always benefit from matching supply and demand. At smaller ticket sizes of transactions, the role of middlemen is not all that apparent, and may even often come across as hindrances.
But as the ticket size increases, and as it often happens with such increases in ticket size, the economic good being bought or sold becomes more and more esoteric, and the role of middlemen becomes indispensable.
If you look at all the instances where startups, as marketplaces, have been hailed for killing middlemen, the truth is that almost always, these successes have been in markets where the transactions are often both high-frequency, and of fairly low ticket sizes. And to be honest, they have not actually killed middlemen. They, through economies of either scale or unending venture capital investments, have just replaced inefficient middlemen with themselves, because they are significantly more efficient as middlemen. Cab-hailing startups such as Uber and all its clones are possibly the best examples of this model.
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If startups stop chasing this needlessly romantic ideal of killing middlemen, and instead focus their efforts on either being better middlemen when ticket sizes are small, and when the ticket sizes are much larger, focus on how they can actually enable existing middlemen to do their job better, they are almost always guaranteed a better probability of success.
Going back to David Gold’s opinion, with which I opened this article, all these agents are not ‘sucking tons of money’; they are pretty much single-handedly responsible for making sure that the most talented footballers make their way to teams that can showcase their talents the best. Yes, such hard-nosed economics can rob us of stories that overflow with what I term ‘sports romanticism’, such as Matt Le Tissier being the sole reason why Southampton played in the top tier of English football through the 1990s, and a few years more. But it more than makes up by giving us instead the likes of Gareth Bale leading Real Madrid’s attack or Zlatan Ibrahimovic karate-kicking his 500th professional career goal.
So, if you are an entrepreneur, do not bother about killing the middleman. Make the middleman your best friend instead.
The author heads product at a mid-sized startup in the real estate space