For the last 20 years or so, business has been changing. Whereas once, each company would typically offer a specific set of products and services, there has been a steady shift towards outsourcing.
Many businesses now are little more than re-sellers. They offer the full package of services, and they then farm out all incoming work to a select list of providers. Typically they won’t tell their clients that they have outsourced the work and as long as the client is receiving the service they require at a price that is reasonable to them there is no need for them to be told. The firm that actually does the work gets paid by the Middleman, who brings in a steady and reliable stream of work. The Middleman takes his cut, and the end customer has their requirement fulfilled in a timely and cost efficient way.
But what happens when the Middleman gets into difficulty?
For companies that rely on buying in the services, what they are really selling is an image. They don’t have the expertise to deliver the services themselves so they convince their clients and prospects that they are a large, well established thriving company. As a company acting as the ‘Middleman’ they must stand up to scrutiny by ensuring they have a solid and current marketing presence both on and offline and look successful and dependable. This image making all costs money, so the business model would detail the need to recover the outlay of this money plus make a profit. This is achieved by adding a substantial mark-up on the cost of the services they buy in but of course as in any business it is a very delicate balance between the cost of maintaining an image that sells, and the profit generated from the mark-up added on to another company’s work, and sometimes through naivety, bad management or just downright ‘working the system’ the whole thing collapses and becomes a matter for the administrators which affects the associated companies:-
When the Middleman fails, everyone loses:-
- The end client who has already paid for a range of products or services that have yet to be delivered.
- The service suppliers who will have spent time and money delivering a service for which they will not get paid.
- The Staff at the Middleman’s’ company who have remained loyal to the bitter end being owed outstanding wages.
While everyone can apply to the administrators to recover their losses, too often, they only win a small percentage of what they’re owed, if they get anything at all.
The knock on effect
When this happens there is always the knock on effect, where a company within the circle of the Middleman’s service providers can be tarred with the same brush and will lose out on valuable work because of it, or in the worse scenario the money owed by the Middleman is such that an associated company cannot recover and also has to fold putting more people out of a job.
Does it have to be so painful?
A well managed business can usually weather a storm. A firm that doesn’t spend more than it earns on its online presence and sales team, and focuses on ensuring it can continue to deliver the specialist services it offers, will usually still be trading long after the dust of the middleman’s collapse has settled.
Here at the Data Processing Company, for more than 20 years, we have been diligently and reliably delivering data services both direct to the end client, and through other third parties who require our services for their end client. Many of the firms we do work for have also stood the test of time. Sadly one or two have fallen by the wayside along the way. But our valued clients can be confident that all our resources go into managing the business effectively, and delivering an excellent service at a sensible price. We don’t hire a sales team, and we don’t spend an insane amount on our online and offline presence. We’re open for business, and if your middleman can no longer deliver, we’re more than happy to work directly with you. Contact