Middlemen America

Code-phobia, Recession, Big Tech Layoffs, and the New Value-Add Requirements

There are hundreds of thousands, if not millions, of internet posts that roll along the lines of “Here are 5 Business Ideas To Generate Passive Income”. I am sure you have seen these click-baity posts and perhaps even clicked on a few of them, before coming to the immediate conclusion that they are, in fact, utter trash.

A prototypical Business Idea from one of these posts however, acts as a sort of lens in which we can view the psychology and technical skillset of the average worker in America. The pitch goes like this:

Go around town and post flyers in all the traditional places (telephone poles, coffee shop bulletin boards, etc) with notice of Maid Service, and make sure to have one of those little phone-number-tab-rip-off doohickies on the bottom. Don’t worry, you won’t be doing any house cleaning personally. When potential customers inevitably call you looking for a maid, you get their information and tell them the cost is going to be $100. Then, you call around town looking for a maid that will do the work for $75. You contract the maid, they do the work, you take your $25 finder’s fee. Rinse and repeat and congratulations, you are now an entrepreneur!

Totally normal capitalistic behavior. You’ve created a market for which there was not one previously existing, therefore you deserve to get paid. Whether the maid is able to contract directly with the new client and cut you out of future transactions is completely up to the maid and their level of entrepreneurship and customer service, but thus is the dangerous nature of the middleman activities. You can try as you might to block communication from the transacting parties, but at some point Bezos’s Law will come into play which says, “your margin is my opportunity”. Maybe the maid goes direct, maybe consumers are willing to do a little more leg work and shop around, maybe another middleman creates a market with lower fees. Regular market dynamics seeking equilibrium.

It should be noted that this is how the entire economy works, and it is technology that increases the speed in which equilibrium can be found. The trading of stocks requires a Market Maker which does exactly what is described above. AMM-bots or decentralized exchanges can now algorithmically provide liquidity faster and cheaper than those traditional models. The purchasing of a pair of Loro Pianas on Rodeo Drive requires an expensive real estate lease and human salesperson to complete the transaction. The same transaction online requires a domain name, warehouse, and web development team. The point I am making here is nothing new, technology often makes things more efficient for both the buyer and seller, at the expense of the intermediary. The problem is that being the intermediary is fricking easy. It offers the most amount of money for the least amount of work. The American Way.

That is not to say that intermediaries cannot be value-additive. If I am not sure what size of Loro Piana Summer Walk Loafers will fit my foot, I will have to utilize the brick and mortar location versus the online store. Likewise, many centralized exchanges act as a sort of protection barrier or safety net so that the purchaser of an asset achieves a certain confidence or trust level, which ultimately increases conversion rate. If you have been reading my articles, you know how blockchains further optimize around trust and permission, but this article isn’t about that.

Aren’t you glad? Plus, the “We Are So Early” episteme still applies to blockchains, as a critical mass of adoption to any sort of use case is many years away.

Today I want to discuss the “tweener” phase that we find ourselves in. The place between where we all sort of collectively agree that AI is going to automate a large portion of our jobs away, and the place where AI has automated a large portion of our jobs away. What are we doing about it?

e-Commerce had been eating the lunch of Brick and Mortar for years, with Covid all but putting the nail in the coffin, until suddenly, post-pandemic, we all realized that we don’t know what size Loro Pianas we are, and so we re-underwrote the value proposition of B&M by simply going outside into the world again. I use the e-Comm/B&M as a proxy for the overall effect of Tech on the Economy because it is a nice clean example of the bits vs atoms framework, and how the Middlemen in everything are actual human beings doing actual physical and mental things to add value. The “add value” part is what we need to be wary of, because the future doesn’t come all at once, it comes little by little, until suddenly it is staring us in the mirror, and the value we once added isn’t so valuable anymore.

First Principles for any sort of automation project ultimately brings you back to coding. It is the superpower that can create value out of thin air, but it needs harnessing, and it needs direction. You can’t expect every person in the world to learn how to code, although teaching that in school wouldn’t be a bad idea. One of the first genius moves by Steve Jobs was realizing the power of the GUI (Graphical User Interface). Instead of typing commands via code for a computer to execute, the user could simply interact with a virtual representation of the code, and manipulate events via more intuitive actions such as pointing and clicking. It is here in which the computing revolution was born, with not-super-technical people creating massive value by telling the programmers what the GUI should look and feel like.

Since then, GUIs have dominated our lives, and we are now in an era of using GUIs to make GUIs. Unlike turtles however, it is not “GUIs all the way down”. At some point there is actual computer code, written by a programmer, and even if that programmer is AI, there is a programmer that coded that AI.

All of that is to say that we have bubbled up one full level away from computer programming, so much so that we have colloquially redefined the position and value of the person using a GUI to build a GUI as comparable to the person who built the initial code base.

We get it, it’s value additive. The Middlemen are closest to the consumer and can design a better end product in many cases. There are more things that can be built than people to build them, so the building of tools that build tools that build products is a huge value unlock. In fact, the further you push the code away from the product manager, the more people have the ability to create products, and the more products eventually get created.

There are many super successful companies that have modernized this democratization of product approach. IFTTT (If This Then That) is a popular service that allows you to connect hundreds of apps via a seamless API. Bubble is a product that has been gaining steam over the past few years that allows you to build a web app with no code. Shopify was created so that you could launch an e-Commerce website without a developer. The theme with all of these products is in the “no code” ideology. They allow you to build a GUI with a GUI. “No code” has been around since I was a kid, building video games in Windows 3.0 with Visual Basic. While there still was some slight coding to be done, it was easy enough that I could build simple applications at age 12 without being Bill Gates. Coding is hard, and boring to most, and it comes with a stigma due to the many hours required sitting at a computer screen. There is a reason Bill Gates can’t dance, and Mark Zuckerberg acts like a robot. Excelling in the coding domain is inversely correlated with social activity.

So what is the problem? Let the nerds code and let the PMs build, right? Well, the problem comes from what I described earlier in that it is not “GUIs all the way down”. The further the consumer facing product gets from the actual code, the more Middlemen claim that you need them to run it. Additionally, the less knowledgeable about code the top of the stack becomes, the more extractive the Middlemen can be. This means there can be multiple layers of developers and consultants between the person running the product, and the person ultimately making the changes. I specifically used the word colloquial before because the actual definition of what a developer is, is changing. Several years ago, a being a developer meant that you were essentially a programmer and were proficient in code. Now, a developer can mean someone who manipulates the GUI interface per the instruction of the PM/designer/client. If anything breaks, the developer will have to hire a programmer to fix it, with the possibility that the programmer will have to further outsource that work to a more established coding expert. Each layer of the Middlemen stack relies on having more knowledge about code than the person they are selling themselves to.

All of this stems from the code-phobic or “no code” ideology that empowers the end user to be free from such technical burden. You pay a premium for the knowledge you don’t have, it is as simple as that, and many companies are happy with that trade off, or not savvy enough to know better. That trade off is not without risk, though. No code solutions are rising in popularity faster than they are in quality, which is escalating the un-empowerment of the code-phobic PM/designer/client in a way that creates a value/risk gap. I have a pet theory of the world that basically says everything boils down to energy and education. The un-empowerment I describe above is a microcosm of the widening gap between a Liberal Arts degree and a STEM degree. We as a people (country, western culture) don’t value the building of technology nearly as much as we value the extraction that said technology enables. So we shouldn’t be surprised when Middlemen extract from our laziness.

In the opening example I laid out about the Maid Service, one of the paths to equilibrium was the consumer doing the extra leg work to find a better price. That’s what happens in a recession. Pockets get tight, pennies get pinched, and you look for ways to do more with less. It happens even at the biggest of companies. Google, Meta and others have already expressed publicly that there will be layoffs, efficiencies created, productivity mandates, or benefit reductions. This is a very telling, about-face direction shift for companies that have been historically focused on growth, no matter the cost.

What happens to SMBs when thousands and thousands of Big Tech Engineers and PMs hit the job market? They are coming from $500k salaries (plus RSUs!) with elite college degrees and the ability to code. Newsflash for the code-phobic: it is much easier for a coder to become a PM than a PM to become a coder. These people fit snugly into their roles as extractive Middlemen, except their value proposition is 2x a modern developers. You don’t need a PM and a dev consultant who outsources 50% of their work when you can simply hire an able body who can operate the full stack. Hire 1 person at $250 an hour instead of 2 people at $150 an hour. The interesting thing about market dynamics seeking equilibrium is that they will always find it.

It is prudent to pay attention to the clues from Big Tech, because they ripple through the economy whether we like it or not. In Everything Is A Valuation, back in November, I talked about how Elon Musk and Jeff Bezos were selling off large swaths of their own companies because they knew their respective market-perceived values were going to decline. That actually proved to be quite the foreshadowing as they unloaded about a month before the S&P 500 hit its peak in December. While impossible to predict how the cards are going to fall, the jobs report does not change the ultimate goal of tech companies to push the code further and further away from the end user. It will always be a massive value unlock that enables the democratization of product creation. However, it also creates a “fat layer” of extractive Middlemen.

We have been in a period of corporate consolidation for years, and we are now entering a period of economic contraction. To quote Naval once again, there are 4 types of leverage: Labor, Capital, Media, and Code. The closer you are to one of these power points, the more leverage you wield. Democratization by default spreads the power more thinly, so make sure you don’t drift too far into the middle of a stack away from one of the sources. Advances in AI will undoubtedly create another unlock in the near future and the entire world will bubble up yet another layer removed from where we are now. There will be untold levels of value creation, with more valuable Middlemen. However, history is cyclical, and the inevitable subsequent contraction will be more devastating than this one because it will be too late to learn HTML. The level of difficulty it takes for a Middleman to add value will increase exponentially with every cycle. Things at the top of the stack become easier, which means more people can do a thing, but less people will be needed per thing, so if you aren’t the one building the thing, you might be the odd person out. Conversely, things at the bottom of the stack will become harder, which means less people will be capable. As always, VC tropes apply to the economy writ-large: non-technical founders don’t get funding. My advice to future generations: become capable. Because equilibrium excludes extraction.