Something For Nothing

Forget about bartering. For start-ups, it's all about the freebies.

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When Dave Morgan founded Internet marketing company Real Media in New York City in 1995, he vowed to fend off investors for as long as possible. Morgan, a lawyer, had spent several years representing high-tech start-ups that exchanged equity for financing early on, only to lose control of their companies down the road; he was determined to avoid a similar fate. The problem was, he had only $40,000 in savings to invest in his new venture.

With no reputation and no money to fund a payroll, Morgan’s biggest challenge was recruiting employees. Looking to keep costs low, he focused on recent college graduates eager to work for a technology company. Then, when they applied, he simply told them that he couldn’t afford to pay a salary.

Not surprisingly, most candidates withdrew their resumés immediately. But two twentysomethings eager to get their foot in the door agreed to work unpaid for six months. Morgan sweetened the deal by giving them both founders’ titles and a lot more responsibility than they would have received at an established business. Pleased with his results, Morgan got to thinking: If he could get employees to work for free, maybe he could get other stuff for free as well.

We learn from an early age that there is no free lunch—especially in the business world. Still, you’d be surprised at the range of things a start-up can get for free or nearly free. It isn’t easy. Negotiating for freebies is the ultimate sales challenge, far different from just trying to get a bargain. It requires convincing clients and vendors to consider an exchange of value that does not include money or, as in bartering, an even swap. But as Morgan’s experience shows, it’s not impossible. In some cases, succeeding is a matter of humanizing your plight and using sympathy to your advantage. In others, it involves getting people to see their handout as an investment and your company as an opportunity.

That was Morgan’s strategy from the outset. He spent a lot of time networking with people and organizations that appeared open to forming a relationship. And he chose his prospects carefully. When Morgan needed free legal advice, for example, he met with a Philadelphia law firm that wanted to establish a technology practice. He treated the firm’s partners like potential investors and came to the meeting armed with a PowerPoint presentation outlining his company’s financials and market research. Then Morgan made a daring proposal. If the firm agreed to defer his tab for one year, he promised to throw the firm even more work as his company grew. Eager to add a promising tech company to their roster, the lawyers agreed. And, at year’s end, they charged a small fraction of the $20,000 in fees Morgan had amassed.

Skeptics may think of Morgan’s situation as a fluke. But plenty of companies are willing to take risks with start-ups, says Paul Rich, a negotiation specialist at Rothstein Kass, an accounting firm in New York City. The key is to emphasize your firm’s long-term potential, he says. And be sure to ask for things that companies can easily give up, like, say, a lawyer’s billable hours. “It’s a big bet, but companies are willing to help someone they believe is really a winner,” Rich says.

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