The world’s oldest profession isn’t the prostitute — it’s the middleman (though, undeniably, the two have much in common).
As long as there have been producers and consumers, there have been people who sat in the middle, facilitating the transactions and taking their cuts of the process. These people allowed specialization to flourish.
In other words, you focus on what you’re good at and let other people handle the rest. If you’re a sheepherder, focus on herding and caring for your sheep and let a middleman go to the market and sell your wool for you.
The modern economy is full of examples like this, with new businesses popping up every day to satisfy unfulfilled needs between buyers and sellers. Middlemen help connect the dots between supply and demand, and thus, serve a useful purpose in the economy.
Or, at least they used to. The problem is that middlemen have a different set of incentives than the people who make things and the people who buy things.
Take clothing, for example. It’s a little-known fact that most brands don’t make their own clothing; they just buy it from bulk manufacturers, slap their logo on it and then sell it to wholesalers, who then sell it to stores, which sell it to you.
Every step in that chain adds to the price, and the next thing you know, a pair of jeans that cost $7 to make is being sold at the mall for $140. If you knew the true cost behind the clothes you see at the mall, you’d probably start a riot.
It doesn’t have to be this way, though. In recent decades, there have been a slew of companies that have decided to buck this trend and cut out the middlemen in what’s been called the direct-to-consumer (DTC) revolution. This phenomenon hasn’t been localized to a single industry either; it's everywhere from automobiles to clothing to stand-up comedy.
Consider eyeglass maker Warby Parker, for example. Before the company entered the market, eyeglass manufacturing was virtually monopolized by a single giant company: Luxottica Group. It makes close to $10 billion a year and controls more than 80 percent of the world’s eyeglass brands.
In other words, it's not the kind of company a fledgling startup usually likes to go after right out of the gate.
So, how did Warby Parker manage to compete with a multibillion dollar company that had a 50-year head start? By cutting out the middlemen and selling direct-to-consumer.
Unlike other eyeglass brands, Warby Parker designs all of its glasses in-house. And, also unlike other brands, it doesn’t rely on middlemen retailers like LensCrafters or Sunglass Hut to sell goods. It sells them on its own website, with free shipping and returns.
Best of all, the glasses only cost $95, far below what you would pay for a Luxottica brand of comparable quality. The result? They’ve grown more than 500 percent since their founding in 2010, have raised more than $115 million and are opening up new storefronts and showrooms seemingly every week.
It’s not just companies that are seeing the benefits of cutting out middlemen; artists have started catching on as well. In 2011, comedian Louis CK decided to try a little experiment.
Instead of releasing his new standup set through the traditional channels, an HBO special, DVD sales, iTunes, etc., he decided he would sell it to his fans directly through his website.
He created a dead simple website, added PayPal functionality, and humbly asked for $5 in exchange for a DRM-free download that you could play on any device you wished. His friends told him he was crazy, that people would either not buy it or just pirate it, and that he would lose a ton of money.
He didn’t lose a lot of money. In fact, he made a million dollars in just 10 days, wildly exceeding his expectations and earning him a five times return on investment in under two weeks. Keep in mind that he gets to keep all of that revenue, because there are no “distribution partners” (aka middlemen) with their hand out to take a slice.
By making the download DRM-free, he also provided his fans with a superior product, because a traditional distribution partner would have crippled the download so that it would only play on certain devices and in certain regions.
To top it all off, he was able to have an authentic dialogue with his fans about his reasons for offering the special online and why he hoped that people would pay for it instead of pirating it, which earned him a lot of respect from his fans and comedy peers.
These are just two examples of how getting rid of the middleman benefits both creators and consumers alike, and more are emerging every day.
Today’s shopper has never had more knowledge or more power at his or her fingertips, so businesses need to step up their game if they hope to continue to win our hearts, minds and hard-earned dollars.
Cutting out the middleman and going direct-to-consumer isn’t a cure-all, but it’s a damn good first step.