the art of good business is being a good middleman the biggest companies that you never heard of make billions of dollars every year by inserting themselves as wholesalers distributors licensers or aggregators getting between you and the factories that make your stuff the only problem is everybody kind of hates middlemen which is why entire Industries have been created from the ground up to cut them out by offering direct to Consumer peer-to-peer direct selling disruptive streamlined Outlet platform solutions to make consuming everything an easier faster and cheaper experience the only problem is it never really works and
in our Venture Capital fueled rush to cut out the middleman we have just created even bigger ones I simply put we cut out the middleman so we design our own frames we work directly with manufacturers yeah we cut out the middleman and voila Uber on Monday said it's cutting 3,000 more jobs in a second wave of layoffs more and more Americans are cutting out the middleman in the prescription drug industry it cuts out all of the middle no wholesalers no middlemen no Distributors no importers just direct to your front door so last month the online
coupon code extension honey was exposed for basically being a massive fraud that would claim referral revenue from its users online shopping even if they found no coupons to offer and even if Shoppers were directed to the website from another affiliate that actually did most of the work of selling them that product they inserted themselves as a useless middleman and allegedly claimed billions of dollars in referral Revenue now unless you were living under a rock you have probably already heard all about this the original expose video has over 15 million views and basically every major influencer
on the platform has come out to call it the biggest scam in YouTube history it's a big claim considering large YouTube sponsors have given unlicensed mental health advice leaked people's personal data Frozen their life savings or misappropriated their Investments hot take alert but a multi-millionaire like lonus not getting his referral revenue from Amazon is simply not as big of a deal as someone losing their life savings on a bank they were told to sign up for by a trusted influencer now this is not to defend honey in any capacity what they did was clearly highly
unethical at best and will probably be proved fraudulent in the many upcoming Court battles headed their way but you would be forgiven for thinking that the reason it's getting so much attention from YouTubers is because the sponsor was stealing from the YouTubers themselves The Art of good business is being a good middleman all of the biggest channels on this platform are made possible because at some point they may be able to convince you to buy something thing that means they can directly or indirectly be rewarded for that through advertising the reason this has rustled so
many jimmies is because someone beat them at their own game even if they weren't playing Fair now in the interest of total transparency this channel is just as riing on Advertising to pay team as the other big creators and while we don't take sponsorships from Financial firms because of the potential for you to lose your entire life savings we honestly probably would have worked with honey if we were offered because just like anybody else we didn't see anything wrong with it them so all right with that out of the way this video is not about
the honey scam in particular it's about what it represents if you buy something like this stylish personal neck fan off Amazon Amazon itself doesn't actually sell the product it just provides a Marketplace and distribution services to a third party distributor that third party distributor buys these products from an Alibaba wholesaler in China who themselves work with white label suppliers who work with manufacturers even for a relatively simple piece of consumer junk there were five middlemen between you and the person actually making that stuff if you include an affiliate Link in there there's six different businesses
that need to be paid cutting into the profits or more likely raising the price of what could be a simple exchange consumer retail isn't even the worst example Consultants Brokers and fund managers and Technology platforms have all built some of the most lucrative businesses in history by capitalizing on the Golden Age of the middleman but why is this happening now middlemen are nothing new but there are a few reasons why it's become particular lucrative in just the last two decades the first reason is we have simply mandated middlemen the list of corporate regulations only grows
longer every year and so to do industry guidelines best practices Frameworks reporting standards certifications privacy controls and self-imposed goals like ESG Dei CSR G GRC and whatever other BS McKenzie Cooks up in the New Year some of these rules are absolutely necessary and genuinely help both consumers and workers some of them are just a little bit silly and some of them only exist to make sure that a group can make money by Consulting on the issues they create looking at you car dealerships but either way there are a lot of rules that businesses have to
adhere to out of this it's become very lucrative to provide third- party solutions that offload compliance onto another company that is better handled to deal with it this both protects businesses from legal repercussions and lets them focus on where they actually add value in their business Visa and MasterCard are some of the most valuable companies in the world and their business operates exclusively on middleman transactions between credit card processors like stripe or Square and Banks who are themselves middleman between the customer and the business that they are buying from businesses could just take cash or
work out their own payment system but it's just way easier to pay a few cents to visa to process the transaction and let them handle the accounting Computing and dispute resolution it's also not like businesses have much of an option when was the last time you paid in cash for anything lock your answer in the comments below of course a small group of people live and die by the Benjamins but the vast majority of consumer spending these days is done with credit cards debit cards or more recently buy now pay later Services Beyond letting people
spend money they don't have they are just easier any business that didn't want to work with these middlemen would immediately make it very difficult for most of their potential customers to shop with them now this isn't a problem by itself modern payment providers have made doing business a lot easier for everybody and they should to be rewarded for providing that service but as things like this get more complicated every extra step of the supply payment or marketing process is an opportunity for a business to gain Market power and squeeze out a little bit more from
consumers even benign payment providers with lots of competition are causing a long list of problems for consumers but that's got nothing on what the middlemen are doing to regular workers to kick off the new year a lot of people have been talking about H1B skilled worker visas these are something we have talked about a lot on this channel before because they give companies the opportunity to employ workers from overseas if they can't find any workers in America willing to do the same job those foreign workers are then dependent on their employer to maintain the residency
which makes them great employees because they really can't quit unless they find another company willing to sponsor them a lot of companies especially tech companies clearly prefer these workers because they have more staff loyalty and won't argue too hard for a pay increase the rules and restrictions on these visas are pretty extensive and the rules are supposed to stop companies under are cutting American workers and just hiring more subservient expat workers instead but it's really easy for big companies to get around if you the CEO of a tech company and don't want to pay tech
developer money for your engineers just put up a job posting paying well below Market rates when nobody wants the job you can then claim that you need to access someone with distinguished Merit since nobody in America can fill your role it's a broken system that's not great for American workers who get undercut for for jobs expats who get exploited by the companies they rely on and genuine immigrants trying to earn their way into the country but it's great for your bottom line the problem for you is that companies are only allowed to hire so many
H1B workers so a new industry has developed where large consulting firms will hire as many H1B workers as they can tech companies like Google meta and X are getting a lot of attention for their exploitation of these programs but according to the Department of Immigration records compiled by the New York Times the largest H1B sponsors have actually been middleman firms that bill out their Consultants hourly this report was initially published over a decade ago but more recent data still shows that distinguished labor hire agencies have learned to game the system this lets companies offload the
legal and reputational risk of using these workers onto the middleman consulting firms and even with a small premium for their services it's still cheaper than paying Market rates for technical skills but the regulations arms race is only the first reason why we have entered the Golden Age of the middleman so it's time to learn how many Works to find out how the best businesses became other people's business this week's video is sponsored by morning Brew morning Brew is a free daily email newsletter that keeps you updated on business Tech and world news in a quick
and witty way it's designed to cut through the dense and confusing news giving you the must know updates in a fun easy to digest format I've been using morning Brew to start my mornings and it's been a game changer for example I just learned that Chicago has transitioned all 400 municipal buildings to renewable energy cutting its carbon footprint by the equivalent of 62,000 cars each year plus weight loss drugs like gp1s are shaking up Industries reducing snack sales and even lowering grocery bills for families over 4 million professionals are already hooked and it takes less
than 15 seconds to sign up sign up for morning Brew today by clicking the link in the description it's completely free so there's no reason not to try it a long time ago in an economy far far away the closest thing we had to businesses producing products for consumption were Smiths saddlers coddlers and other Ye Old Tradesmen these workers made things by hand only after an order was placed with them given their basic Tools in lack of production lines they didn't have an abundance of goods that they had to worry about finding a buyer for
they just made enough to keep up with orders this really changed with the Industrial Revolution and true mass production where consumer goods could be made faster than people could buy them over time the modern business model of a manufacturer selling to a wholesaler who sold to a retailer who sold to a customer customer started to emerge because it worked before this turns into a how history Works video every step of this process has a part to play in making sure Commerce is conducted smoothly there have been hundreds of startup companies that have sold themselves on
using a direct consumer model to cut out the middleman even the biggest direct to Consumer startups with the most investor money like Casper mattresses botos tailored clothing movement watches and everlane fashion have either face significant financial difficulties been acquired by a traditional retailer or gone out of business entirely the you YouTube channel modern MBA did a great deep dive on Casper mattresses in particular analytically pulling apart their broken business model if you're interested in thorough business analytics I'll leave a link to his channel below the point is effective middlemen don't actually make businesses less efficient
if anything they actually make the whole process too efficient the manufacturer's job is to make stuff as efficiently as possible the wholesaler buys from the manufacturer in advance to make sure that they have consistent cash flows and the retailer handles customer service and sales but relies on the wholesaler to make sure goods are available to sell the wholesaler may look like a useless middleman but they are a buffer to make sure that manufacturers don't have to worry about who they are going to sell their junk to and retailers don't have to worry about not having
enough junk to sell that's the idea anyway some companies are big enough that they can be both the retailer and the wholesaler which is why Walmart and other big box stores will be able to outcompete local independent retailers now eventually these companies figured out that it's cheaper to do the manufacturing offshore which meant Supply Chains Got longer and more complicated making the job of the wholesaler even more important and potentially more profitable today the only retailers that can really compete on value are major corporations that integrate wholesale into their operations or get around it all
together this has given them more Market power over both producers and consumers because the barriers to entry into these markets has become so much steeper we aren't living in the Golden Age of middleman because there are more of them in fact it's actually because they there are less of them they just have a lot more power big companies have realized it's a lot easier to gain Market power as a middleman than as someone who deals with the end consumer Katherine judge is a law professor at Columbia and published the book direct the rise of the
middleman economy and the revolution underway in her book she outlines how technology globalization and financialization have all worked hand inand to allow a small group of companies to become middlemen in business operations that just weren't possible that long ago in particular she focuses on the collection of data as a tool that is uniquely useful to middlemen because being right in the middle of operations means they can access information from both suppliers and consumers effectively leveraging data is an incredibly powerful tool to reduce cost on one side of the business and maximize sales on the other
even if you ran a business that could somehow supply products with the same economies of scale as Amazon and Walmart you would still find it incredibly difficult to compete with them because they have so much data about when to order stock where to build retail stores and distribution centers how how many drivers need to work a particular route when people are most likely to make a purchase and what item should be presented to them first as they log in or walk into a location it's all data and being the biggest middleman in their respective Fields
allows them to collect more of it and use it in more ways other companies can purchase data from data Brokers or even you select meta analytics provided by the big tech companies but it's never going to be as comprehensive detailed or as deep as the good stuff they keep for themselves the final point that judge makes is lobbying power these companies can argue for more or less regulation in the fields that are important to them extremely effectively votes over boring middleman regulations barely get lawmakers to show up let alone get the interest of the general
public so this is amongst the most effective ways for these companies to Lobby now the solution to this problem is the same solution to a lot of problems in Corporate America clamp down hard on companies with too much Market power especially those that are not as obvious as the Googles and Facebooks of the world there is one industry that has taken this minle and process to the extreme and that is fining private equity and Broad asset managers have become some of the most powerful middlemen in history go and watch this next video to see why
most people haven't realize just how concentrated the economy has become and don't forget to like And subscribe to keep on learning how money works
