With the advent of the smartphone we entered the realm of “disrupting” services. For some it worked, Betfair (even without a phone), disrupted how betting was done and opened up a brokerage platform. AirBnb brokers bits of people’s houses with a half decent standard.

It’s Free Money!

“Neither a buyer or seller be, become a broker and take your fee“, the saying goes. In an ideal world everything would be digital including the buyer and the seller and transactions would flow and you would take your cash. The more transactions then the more revenue.

Commonly though there’s a huge showstopper that gets in the way of all this, humans. When humans are the end purchaser and the supplier this is actually when problems occur and when you are brokering real world goods or services you WILL run in to problems.

I don’t care if you’re brokering graphic design services, or even sandwiches if you can’t secure the loop then you will go out of business. It’s all to easy for tech startup to think that they can disrupt any market with a phone, the reality is you can’t.

• The graphic design brokerage needs to shield the designer from the purchasers, that’s basically sub contracted recruitment.
• The sandwich app if not delivering hasn’t closed the loop, you make me connect with the retailer which begs the question, “why am I using this when I can just roll up to the shop anyway?”. Deliver me the sandwich, save me time, I’d probably pay the broker a bit more for the hassle it’s saved.

Close the Loop

The reality is pretty simple, if you can’t close the loop then there’s no point bothering. If you can close the loop then carry on and I look forward to seeing your exit in the tech press. Human nature dictates that people will use your service once, if they can find a way to buck the system then they will. If the emphasis is to use your brokering service again and again then you’re already in trouble unless you can close the loop.

Case in point, my first startup was auctioning off leases for commercial aviation. There were two elements that I hadn’t taken in to consideration at the time. Firstly, I was up against an old boys network, everything done by phone with favours of nice presents in the post. Secondly I never realised how much these people would not want to pay an even modest fee.

• So, owner lists his Boeing Business Jet (BBJ), a lovely 30 seater Boeing 737-400 with everything looking nicer on the inside than Ryanair could muster. Looking to lease at $150,000 a month on a 12 month term. At 1% I should make $18,000 on one transaction.
• My system sends out alerts to interested users, even Boeing themselves phone me up interested in the site, let alone there aeroplane.
• An interested party looks, likes and then makes contact.
• Both parties have to meet…. this is the failure point of the online system. Once the parties meet I can be cut out of the loop.
• And I was…. the site got no project update responses. Inspection reports and so on, I was out of the game and $18,000 lost on the deal.

Why? Well it was simple, the handshake was done without me being present. I did the introduction for free and the deal was done. Not a thank you, not a bottle of wine, nothing.

I learned a lot that day.

Even with lessors and owners loving the service, some editorial press exposure with the main trade aviation publications and supporters within the industry, without the loop being closed it was open to abuse and as a result the service would lose revenue. The only way to combat it is to be the sole broker, getting the exclusive mandate to sell/acquire an aircraft, getting that mandate is an art in itself. The key, regardless of the object is exclusivity, if no one else can operate without you then you’re winning.

Most online services don’t have that luxury.

So, Calling Time on Daft Brokerage Services

The notion of “putting user [a] with business [b]” is a pull on the founders heartstrings, theoretically easy revenue and with lots of social data (remember, it’s not yours) near unlimited potential of sectors and so on. Most fail on the basic concepts, once your service is out of the loop then why the need to use you again?

Perhaps question one is, “how do I make this 100% water tight?”