If there’s one thing you don’t want to do in today’s world of making money online, it’s become a middleman. Being a middleman is no good. A lot of middlemen make good money, but in the extreme long term, they end up getting cut out. Capitalism is all about progress and making things cheaper and better for the consumer. In a perfect system, there are no middlemen, and I don’t think you should aspire to be one, even if they are well-paid in a specific region or field.
What is a middleman?
Being a middleman isn’t a job, it’s a role. Here’s how middlemen are described by Indeed:
“A middleman is an intermediary between business transactions. This term can refer to an individual, a small company or a large organization. The middleman facilitates a transaction, typically in return for a commission or fee. In some cases, the middleman might earn money by buying a product and selling it at a higher price.
The two main types of middlemen are merchants and agents. Merchants buy and resell goods, taking ownership of the products and assuming the risk involved with storing and distributing them. Agents perform negotiations between two parties. For facilitating the transaction, the agent charges a commission or fee.”
Some good examples of middlemen include Retail Stores, Real Estate Agents, and Stockbrokers. Middlemen set up transactions, so that they can take a small fee. They’re the ultimate capitalists in some ways, but they do not drive the economy or the planet forward, because they don’t seek to innovate.
Being a middleman takes minimal skill
Finding which products and services to arbitrage takes skill, but running a lot of middleman-type businesses doesn’t. When you’re a middleman, you fall behind on other skills in order to run your business. You had better save cash while you’re doing this, because if not, it’s going to be a disaster. You’ll have no skills and no expertise. It’s better to do something skill-based, and earn a living based on something relatively predictable, like your own talents. If you can jump in on a good middleman opportunity it might make sense to do it and fill up a big bag of money. But generally speaking, you can bet on your own skills more than you can bet on being the best guy at taking a percentage of a sale.
The middleman is the first get cut out
When you’re the middleman, your business model depends on other people creating stuff for you to arbitrage. To take the place of the people creating the product, you basically have to become as rich and as smart as them. This is often easier said than done, especially if you’re involved in something lucrative. But it’s worth it. Being a developer takes more risk than being a real estate agent, but successful developer makes far more money than successful realtors. This is because they create the product, and they own it.
The middleman is less well liked
Social capital matters too. If you were just a middleman, people will remember you that way. They’ll remember you as the guy who constantly took from people. If their minds are easily clouded, they’ll remember you as the guy who hurt people and made people feel bad. It’s much better to be remembered as a producer. The producer is at least respected, if not appreciated. If the producer gives back a lot, they might even be liked. Think about both Real Estate and Stocks. People are always looking to cut out the broker.
Being a producer is more fulfilling
This goes hand in hand with the notion of having social capital. For most people, their social capitol as connected to the work that they do. The more influence they gain in the professional realm, the more social capital they have. This is often a very linear relationship for producers, especially if they don’t work in the arts. If you have problem solving abilities, you can “produce” by creating solutions to people’s problems.
The major exceptions to being a middleman
If you want to be a middleman, there are two ways to do it properly. The first is if you are buying things at a large scale or are risking far less money than what you can afford to. This is why Real Estate agents usually do it part time or end up failing at it. If you do it full time, you oftentimes end up realizing that you need to start your own office. This is very doable in the United States and Canada, but it can be extremely stressful. You’re at the mercies of the local real estate market. This can be very tough from year to year. That being said, being a middleman is smart if you’re just flipping your money. People with a job and established business can become middlemen, as far as I’m concerned. Just make sure you know what you’re investing your time and money into.
The other scenario in which it makes sense to become a middleman is if you’re going to be a middleman in a highly regulated industry. This could be something like Medicine, Law, or Real Estate. Regulations create a buffer around you and your job and make it hard for people to compete with you. Getting to the point where you can get certified will often require you to learn a skill though. So you or someone work for you ends up acquiring a producer’s knowledge by nature.
Don’t become a middleman. Whether it’s soda, financial products, or real estate, you don’t want to build your business this way. Sure, there’s a lot of short-term opportunity when it comes to flipping stuff, but my hunch is that it’s better build businesses that are based in reality. Entertain people. Show people your skills. Sell products. Run workshops and webinars. Don’t engage in rent seeking, be someone who creates something. Be someone who has control over the process. In today’s world, I think that gives you a lot of power and peace of mind. Producers have control over their own incomes and professional reputations, can render themselves indispensable all while being able to stay away from the big government and the larger corporate world. It’s the best professional life someone could ask for, and all it takes is becoming highly competent.
