This is true, but it's not the whole of it. In some cases the manager goes to a cabin in the woods to drunkenly shoot at moose with the head of the contracting company.
It's a saying that "the purpose of a system is what it does". I think it's a pretty dumb saying. But it is often worth talking a look at a system and see if the "mistakes" it makes (such as wasting money on contacting companies) aren't in fact desired by some people in the system.
This process goes both ways. The people in the system align to the process. So maybe the "mistake" wasn't desired to begin with, but once it's there someone things: if that's the way they want it let's change our ways to fit. That's why these things seem to dumb from the outside.
I noticed this early, and spent the first half of my career leaning into it. If you negotiate every gig as a contract, you get to double (or more) your salary. And the only thing you're trading away is job security which, if you pay attention, you'll notice doesn't actually exist for your salaried counterparts either.
To nitpick, you also have to pay for your own health insurance. So subtract $200/month from that extra $15,000/month for the sort of catastrophic coverage plan that a 27 year old needs.
https://expatsoftware.com/articles/guy-on-the-beach-with-a-l...
Payroll is an ongoing commitment. Consultancy is a temporary service. Moving people from payroll to consultancy means they can reduce overhead in financial projections. Even though consultancy costs more, and employs the same people, it makes sense to do if it means you can convince shareholders and analysts that Opex will shrink in the future, and therefore profitability increase, and therefore the share price increases.
This is one of the many situations where counting beans creates idiocies, because GAAP has no concept of context, and management can play games to make the numbers look good while destroying real value.
That's Level 1 of the problem.
Level 2 is conscious fraud, either of investors or by investors. There are always startups that look suspiciously like their only purpose is to extract money from investors based on future promises that are... unlikely.
You can spot them because the promises keep being delayed, and/or they pivot to some other activity, but keep pretending to be a serious viable business with Exciting Plans™.
Level 3 is the one described by OP, where startups are cynically used by an incubator to extract fees and other income. This can overlap with genuine investment. It can be a triple win. No IPO? A nice cut of investor money. Unicorn IPO? A nice cut of a different kind of investor money. Successful business? A nice cut of the income stream.
Level 4 is straightforward investment fraud by banks and brokers. There are many, many variations on this, from "questionable relationship practices" to risk washing, to outright pump 'n dump, and even the occasional classic Ponzi.
The bottom line is that capitalism is inherently corrupt. There is no free market of rational actors inventing wealth and value for a glorious shared future.
There's an infestation of opportunists, fraudsters, and hucksters at all levels, and governments regularly have to step in to hide the mess and glue the pieces back together - sometimes because the people involved own parts of the government too, and it's better to make millions of working people poor than to go to jail.
People are inherently corrupt. That's just life. The Soviet Union was corrupt as hell.
If you want to put down capitalism, feel free, but don't blame it for something that isn't unique to it.
Isn't that just fraud?
That system however is no law of nature. It's just broken nonsense no one bothers to fix because we haven't yet run out of money.
But then they have to hire good managers and for that you need to be a good manager yourself.
The usual excuse for that is that labor is classified as OPEX, while hiring consulting companies can be classified as CAPEX, and the stock market likes when companies lower their labor costs to "invest" more.