Plenty of cash-strapped start-ups trade for goods and services. But what happens when you try to convert barter clients to cash-paying customers?
With only 33 vertebrae (24 movable) in the human spine, how many chiropractic adjustments can one CEO use in a year? Steve Dubin, who opened the doors to PR Works in Norwell, Mass., in 1990, had to ask himself that question once his business began to grow. Early on, with few clients, limited cash flow, and plenty of time, he decided to help a New England chiropractor, Michael Gottfried, score some local press in exchange for a weekly back cracking.
For Dubin, the barter arrangement meant a solid local reference and another name on the client roster -- not to mention an aligned spine. Yet when his public relations business finally began gathering steam, the $500-a-month value of the weekly appointments was, Dubin realized, "barely an account." As many entrepreneurs find out, lopsided barter deals struck in a company's early days have an expiration date. But good relationships shouldn't.
Though it sounds like something that might have peaked a few hundred years ago with Native Americans, barter is big business. That, says Krista Vardabash, the executive director of the International Reciprocal Trade Association, is because business owners are always looking for ways to cut costs and break into new markets and because, these days, online trade platforms are making barter connections easier than ever. Of course, while converting from barter to cash isn't necessarily easy, there are proven ways to transform trade arrangements into cold hard cash.
Sometimes, all you have to do is ask. Dubin, for example, initiated a frank conversation with Gottfried, who happily signed on as a paying client. Why? Because he was extremely happy with the PR his practice was getting. "Dubin," says Gottfried, "gave me incredible guidance about how to make myself known to the local press" -- landing him appearances on local talk radio programs and a regular gig doing a daily public service spot that aired during prime commuter time. "I could see I was coming out ahead on the barter," says Gottfried. It helped that Dubin sweetened the deal by offering to discount the value of the chiropractic services Gottfried provided from his account every month -- a nice compromise that showed goodwill and a belief in the value of his chiropractic skills. More than a decade later, Dubin and Gottfried are still doing business.
But if you're not careful, changing from trade to cash can easily lead to severed relationships. Just ask Denver entrepreneur Cynthia McKay. In 1992, McKay quit practicing law to start Le Gourmet Gift Basket, where she has long been big on barter. Even today, with 510 franchises, McKay still allows 20% of her clients to barter, trading gift baskets for everything from brochure printing services to bulk orders of fudge. The biggest problem she's encountered is that many partners come with an expectation: If you barter once, you will barter forever. She deals with the issue by setting up a contract at the start of the barter deal, building in an expiration date along with some quality-assurance parameters. This can both ease the transition to pay-to-play and safeguard against faulty service.
Many partners come with an expectation: If you barter with them once, you will barter forever.
McKay speaks with experience on both sides of the fence. For years, she swapped with a Denver transportation company, Admiral Limo, and its CEO, Michele Rossi, to get swanky rides around town for clients and employees. But in 2001, Admiral merged with Presidential Limo, a company with a strict no-barter policy. Rossi had to break the bad news to her longtime trading partner. "Generally, small-business people understand," she says. But it's important to let them know as early as possible, she adds. That way, they won't feel they're being bullied into a cash arrangement. "As a courtesy, you should let them know before they come and ask you for a next trade, so you don't look like you were trying to find out what they need to sucker them into a sale," Rossi says.
At first, McKay was loath to pay cash for transportation services she had long received for free and tried to find another transportation company willing to trade. Eventually, however, she came to the conclusion that Presidential was the best operation in the area. "After a car left some clients stranded at a casino," she says, "I went to Presidential and paid in cash." Not only have McKay and Rossi continued to do business, they've become friends. Rossi, now president and co-owner of Presidential Limo, says whenever she and her antibartering partner, CEO Gene Cookenboo, send a gift basket to one of their 55 employees or to one of their clients, they always buy from McKay. In short, drawing a line and demanding cash can work -- especially when you have a long-standing, proven relationship with the client.
But even as you convert from trade to cash, barter still may have a place in your business. It just might be a different place than you originally intended. Geoff Karcher, CEO of the Karcher Group, an Internet marketing agency in Canton, Ohio, began bartering for goods and services as soon as he launched his company in 1997. That's how he scored free video rentals all year from a local chain, Video Time, for his four earliest full-time employees. He's since turned at least 20 barter clients into paying customers. But he continues to strike barter deals -- not to save money but to establish ties to the community, providing Web design and hosting services to everyone from the local chamber of commerce to the Jewish Community Center. "When companies first start," he says, "they most often barter to gain access to what is otherwise not affordable. But more mature businesses barter to help other organizations -- and get value out of helping them." So if you do turn a charity case into a cash customer, remember that you are giving up value beyond dollars -- namely the ability to wear your halo out on the town.
Write a contract When beginning a barter relationship, build in an expiration date to ease the transition from trade to cash.
It can't hurt to ask A client who has been trading for your services might be perfectly willing to start paying real money.
Give plenty of warning Waiting until the last minute will alienate clients, and ruin your chances of converting them from trade to cash.