How to Structure/Propose a Business Deal involving a Middleman?

[baileysgramma]

Hi everyone,

I need your business savvyness/ideas in structuring deals. This is my first time in proposing a deal and I'm seeking advice/ideas as to how to approach the following scenario:

Party A seeks to source products but doesn't know where/how to get them. Party B, me the middleman, has a potential connection (Party C), who is able to provide what Party A needs.

1. Do I put Party A and Party C in touch? Or do I keep Party C "unseen" from Party A so I am in control of the "bridge"?
2. Do I resell the products from Party C? Or do I somehow take a commission from a deal/agreement?
3. Or, do I become the "broker" and try to find other sourcers who can provide what Party A needs?

Thanks- Looking forward to hearing all of your responses!

 

[epthediah]

@baileysgramma The section of the law concerning this is called Agency.
You can sign both A and C to noncircumvents and to fee agreements.

 

[mjfacio777]

@baileysgramma If you are trying to build a business of putting people in touch, form agreements and become a salesman like person, a middleman. If you are trying to build your network for the future, put them in touch. It's what many good people do to help others and often returns in more ways than you know.

 

[baileysgramma]

@mjfacio777 Wow that's a very good advice and leads to two very different paths. Thanks!

 

[mjfacio777]

@baileysgramma Hope it helps. One of those, you are the choices you make. Me, I would be the latter, and tell them if there is an opportunity for me to invest, be a part of, etc., that I should be first in their mind and not to cut me out. This way the network is consistently building, you are being a good, honest person, while helping everyone out, and asking to be remembered when the right time comes. Just my 2 cents. Good luck!

 

[faetalesprincess]

@baileysgramma Is it drugs?

Kidding, sort of.

Do you want to be in the business of buying and selling this product? And by want, I mean for any reason - for the money, the ancillary benefits of possessing the product, the attractiveness of the business as a whole, etc.

Are you actually willing and capable to do what it takes to execute?

I would answer those questions first, they will likely point to the right answer.

That said, here are some thoughts on the option you presented:

Keeping the parties blind of each other is likely the most sustainable, as you are otherwise useless on an ongoing basis. However if you do not provide some kind of value add, this is most likely a short or medium term opportunity where you will eventually be cut out.

The commission variety is the short term, easy buck version of the deal. Offer to source the product for either a flat fee or a small percentage of the first transaction. This is what I would personally aim for, as I generally don't like heavy time commitments into businesses where there is a clear end (you being cut out as the unnecessary middle man).

Option 3 seems like a waste of time since you already have a source and Party A is probably looking for sources themselves, anyway.

 

[baileysgramma]

@faetalesprincess Hey overdude,

Thanks for your insights. To answer your questions, I do want to be in the business and am absolutely willing to do what it takes. I am not sure if I am capable, as this is my first time doing something like this - but everyone starts somewhere. I want to learn through this experience and get the deal done.

You're right that the commission option is a short, quick deal. No future re-orders would come through though since party A can just order from Party C directly.

Regarding value add - I can position myself as a consultant. But it seems to go against the "Consultants Code of Conducts" to keeping the parties blind and reselling products...

 

[faetalesprincess]

@baileysgramma

I want to learn through this experience and get the deal done.

Good attitude, that'll go a really long way.

You're right that the commission option is a short, quick deal. No future re-orders would come through though since party A can just order from Party C directly.

I was thinking of the commission variety as the "i don't want to be in this business in the long run, but do want to seize this one opportunity" choice.

Regarding value add - I can position myself as a consultant. But it seems to go against the "Consultants Code of Conducts" to keeping the parties blind and reselling products...

Will this product show up with branding from the other company or is it something you can brand yourself? If re-brandable, your brand can be the "value add" that creates stickiness.

There are other value adds, too - your expert knowledge, your ability to source a variety of products in the space / being the single contact for sourcing and thus creating convenience - and probably a lot of others that you can figure out as you gain experience with whatever the product is.

I don't think you need the value add figured out for day one, but you should be thinking about it. You might just stumble onto it as you learn the business. One way to do it is a problem interview - you know this customer has the problem of not being able to source the product - ask them about other, related problems they might have.

I wouldn't worry too much about following a particular code of conduct at the beginning. Do what it takes to get your business started (legally), as long as you stay within your own personal limits/ethics - what ever allows you to sleep at night.

Do note that if you're keeping them blind, you'll be responsible for things like returns, disputes, payment terms, etc.

 

[baileysgramma]

@faetalesprincess Ah, very good point about being responsible for returns/disputes/payments if I keep them blind. I didn't think about branding as a value add - thanks for the awesome advice!

 

[jayne]

@faetalesprincess I was debating on doing something similar but instead of physical products, it would be services. I have been debating on offering a consulting fee or controlling the money and paying the service guy one I've been provided funds from party A.

Any thoughts of what might be best?

 

[faetalesprincess]

@jayne This can be a really good model. Be a consulting group or a skill agency, the one stop shop for experts in the category. Your job - sourcing clients, project management, sourcing consultants - is easily worth 10-15% or likely more depending on the service.

I would control the whole experience - the brand, the client management, the money, etc.

 

[jayne]

@faetalesprincess Yeah, I have enough contacts in different areas and personally have experience in marketing. I have had several companies and helped friends with businesses before.

I have contacts in graphic design (wide range of things here), app design, branding, product mock ups, press/media kits, business plans, etc.

So, I figured I could get something going, but since it's working with start ups they are usually strapped on cash. So, it might have to be an à la carte business model. Not sure.

 

[kens48884]

@baileysgramma The easiest way to do this is to have Party C pay you a finder's fee - a commission - for each product and put Party A and Party C together.

If you want to get into this business for more than just one deal, check with Party C to see if they have a reseller program in place that you can sign up to. Generally when you resell a product, you can notify the the provider (Party C) who your prospect/customer (Party A) is so that account is "locked" to you. If I am Party C, I will expect my resellers to declare who "their" accounts are and then I will make sure I pay them their commission and other resellers or my own salesreps do not hijack the account. This is pretty common business practice.

One step above a reseller is becoming a distributor. A distributor generally purchases Party C's products and sells them either directly to customers to often to other resellers. They are usually on the hook for processing returns, level 1 support etc. But they make higher commissions.

Many times some product makers will have a single distributor for a specific geography, called Master Agent, Master Reseller or Master Distributor. For example if you were the sole distributor of Wrigley's gums in India, you would be the Master Agent and everybody who wanted to resell Wrigley's gums in India would have to buy from you.

 

[baileysgramma]

@kens48884 I know in the big corporate world, it's very unlikely for Party C to circumvent you after releasing details of Party A. However, it seems that there is a higher chance for the middleman to be cut out when dealing with small startups & "mom-n-pop" providers. Is there a way to still be in the loop?

 

[kens48884]

@baileysgramma Depends on Party C's willingness to accept a bad reputation. Startup or not, if their business relies on resellers, they will be careful not to stiff them. If they are shady, then they will screw you over no matter their size.

Get a short letter documenting the relationship signed by them. Beyond that, you pretty much have to trust that they will do the right thing.