Teacher, Doctor, Firefighter, Broker

The pervasive job they didn't teach you about

I’m listening to a wonderful book called Very Important People which is about the economy around ultra high-end night clubs. Among its main characters are “promoters,” men who build relationships with fashion models and invite them out to clubs, where the models in turn attract wealthy men who spend a lot of money at the clubs.

At the same time, I’ve been dealing with apartment brokers¹ who connect prospective tenants to landlords with open apartments. So, I’ve been thinking about the role of brokers in society, and realizing how common the job is.

A broker is defined as “one who acts as an intermediary.” They sit between two sides of a market and do whatever it takes to make more transactions happen. And it’s remarkable how many jobs serve this function when you think about it. Here are a few jobs that at least partially involve being a broker:

• Recruiters serve as brokers between companies looking for talent and people looking for jobs

• PR Agents serve as brokers between reporters looking for stories and organizations looking for publicity

• Investment bankers serve as brokers between acquirers looking to buy companies and companies that want to be sold

• VC associates serve as brokers between VC fund general partners who want to invest in good companies and startups looking for capital

I think there are consistencies in the skills required to be a good broker: trust building, evaluation and negotiation, and velocity.

For example, the VC associates I worked with were good at their job if they could build trust with both sides of the market (the partners of the fund on one side, the entrepreneurs raising money on the other side). This trust helped them convince the two sides to transact.

They also needed to be able to evaluate companies and negotiate deals well because if they could pick good companies at fair prices, the expected returns to the fund would go up: each investment would be worth more.

And they needed to be able to do all of this at a high velocity. They needed to build trust with many strong entrepreneurs at once in order to make enough transactions happen to justify their salaries. So they worked a lot and were in constant communication with both sides of the market: texting entrepreneurs, commenting on LinkedIn posts, calling the partners.

It generalizes to the below equation. In the case of VC associates, evaluating companies and negotiating deals increases the average value of each transaction, and working a lot increase the number of transactions that go through. Building trust increases both variables.

Total Value of a Broker = Average Value of Transaction X Number of Transactions

The higher the average value of the transactions the broker facilitates, the greater the trust needed for both parties to transact, and the better the broker needs to be at evaluation and negotiation. But that means that the number of transactions needed to generate a given amount of value goes down.

So, a high-end real estate agent probably spends a lot of time building trust with rich people who might buy expensive property and sells perhaps one property per month. But a lower-end apartment agent whose average transaction value is much lower does not have time to build a lot of trust with clients because she must facilitate 10 rentals per month to make her money.

Being a broker seems like a really challenging job to me, because you have to be selling to both sides of a transaction at the same time. And especially in high-volume roles where you have have to facilitate many transactions to be successful, you’re dealing with so many details it seems very overwhelming. But it can also be extremely valuable and so all of these skills are good to develop no matter your job title.

1. In addition to lots of cognitive biases, many of which I wrote about years ago