Everyone who works with PPE nowadays has encountered these obnoxiously long chains of brokers at least once or twice that act as a plague in the business. We are no exceptions: our personal record was a 16-broker-long chain we have encountered during the summer, but a dear friend of mine recently told me that she has even seen a 33-broker long chain while tying to find some 3M masks. The encounters with these are like the famous Russian Dolls: a broker says that he is direct to a buyer, and when we start to discuss the details, it turns out there is another broker. And another, another, another, and God knows how long the chain goes. After a while you just find yourself sitting on a Zoom call with dozens of unknown people, all discussing their “well deserved” commission that they are entitled to get for forwarding a Whatsapp message.
So apart from being annoying, why are these chains dangerous for the business?
First, they are very efficient in sabotaging the communication between buyer and seller. Most brokers have a paranoid fear of being circumvented, therefore they never approve of any direct communication between the two parties where they are not present, and when included, they generate so much noise that the whole process stalls eventually. Not to mention, that members of a chain are on a constant lookout for new sellers and buyers, and sometimes they “sell” the same goods to two-three different companies simultaneously.
Impact on the price
Long broker chains drive up the price of the product. Because everyone in the chain tries to secure themselves a nice chunck, it is common that they cause an increase of 10-30% in the end price. Imagine this: a seller offers a box of gloves for $10.00, but all the brokers want to make $0.10 on the deal. In the end, the price is not competitive anymore and the deal falls apart because of their greed. To combat this, there was a rule of thumb, that brokers only should make maximum 10% on the price, however there are no legal ways to enforce this. And it is also worth to mention, that these people usually do not work actively on a deal; they are just sitting in Zoom calls and sometimes forwarding a Whatsapp message – and for all this hard work and effort they want equal share.
Killing the deal
Third, they tend to kill the deal. When a member of the chain is not satisfied with his commission, he usually tries to circumvent the others, or simply kills the deal. Unfortunately, because these chains all have signed an NCNDA, this can be done easily. In those cases, where seller and buyer are both legitimate, have the funds and products, this is usually the nr. 1. reason for a deal to fall apart.
It is also important to know, that these chains can be dangerous when documents are submitted through them. These usually wander into the brokersphere, where they get recycled for other deals to come. For example, we have seen documents presented as fresh Letters of Intent, where it turned out that the original document was issued two months prior, just some brokers have tampered with the date, and the company that originally issued the document does not want to buy anything at all.
So, how can one combat these chains? Simply by avoiding them: if you do not get presented to the buyer or the seller immediately after signing an NCNDA, and you are not allowed to communicate without the presence of the brokers, quit the deal. This sounds harsh, but try this point of view: if the brokers do not trust their own buyer or seller that they will not get circumvented, are you sure you want to be involved? This is already a huge red flag, and these cases usually don’t end well.