"Whoever Generates the Demand Captures the Value: The Changing Role of Middlemen and CTOs"

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Hatched by Glasp

Jul 06, 2023

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"Whoever Generates the Demand Captures the Value: The Changing Role of Middlemen and CTOs"

In today's digital age, the concept of middlemen and their role in capturing value has been greatly disrupted. The rise of the internet has created a barbell effect, where we see both consolidation and fragmentation in various industries. This means that while some companies are able to aggregate demand and capture value, others are being commoditized as markets become more efficient.

In the pre-internet era, controlling the supply chain was the key to capturing profits. However, the internet has shifted the focus towards aggregating demand. The best companies are now those that provide the best experience, attracting the most consumers and suppliers in a virtuous cycle. Value capture is now more closely aligned with value creation, allowing the best companies to make 10x+ more profits than before.

This shift in power also affects middlemen. As the internet continues to commoditize suppliers, middlemen who simply route supply and demand without adding significant value along the way will be squeezed out. In fact, venture capitalists (VCs) themselves may be replaced by more efficient models such as venture studios.

The key to success lies in the mindset shift of players and consumers. If players were to team up and start a new league, fans would likely switch and pay for it directly. This demonstrates the power that individuals and consumers have over middlemen. By choosing to exercise this power, they can reshape entire industries.

This same idea can be applied to the role of a Chief Technology Officer (CTO) within organizations. The traditional view of a CTO as a technical expert is no longer sufficient. While technical expertise and foresight are still important for strategic planning, what is equally if not more important is the ability to lead and navigate the organization as a whole, considering the various stakeholders involved.

The most important behavior expected of a CTO is to be a jack-of-all-trades, driving the verification cycle of products at a rapid pace. This means actively engaging in user interviews, accompanying sales teams to gather feedback, taking on the role of a tech lead by writing code, and ensuring the necessary workforce is in place to realize the desired functionality and design.

At the early stages of an organization, when the product is still taking shape and the focus is on scaling, it is not necessary to have a defined system or structure. The organization can function without explicit rules as long as the product's direction and unique selling points are understood. It is only at this stage that the evaluation criteria for personnel, necessary functionalities, and division of responsibilities become meaningful.

In fact, it is during this initial stage, when the organization is small and about to scale, that it is crucial to clarify the vision and philosophy of the organization and its products. As the organization grows, it becomes increasingly important to establish a mission, vision, and values that can be embedded and permeated throughout the company. This can be achieved through management layers and company-wide retreats, where everyone can align their thoughts and quickly formalize them into a system and framework.

It is advisable to start with simple systems and structures that are easy to understand and implement. At a minimum, a simple organizational chart and an evaluation framework should be established, accompanied by a culture of thorough 1-on-1 meetings. This allows for a better understanding of any issues or challenges that may arise.

Effective communication skills and the ability to convey intentions and goals in a way that resonates with team members are also crucial. Merely establishing systems and policies is not enough to move people; it is important to communicate effectively and ensure that everyone understands the objectives and expectations.

Ultimately, the success of both businesses and organizations lies in their ability to relentlessly pursue what they should create as a product. Without this pursuit, neither customers nor employees will find true happiness.

In conclusion, the digital age has revolutionized the way value is captured and the roles of middlemen and CTOs. Whoever generates the demand now captures the value, while middlemen who do not add significant value are being commoditized. For CTOs, the focus has shifted towards being a leader who can drive the verification cycle of products and navigate the organization as a whole. By understanding these changes and taking actionable steps such as clarifying vision and values, organizations can position themselves for success in the evolving digital landscape.

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