Forget about bartering. For start-ups, it's all about the freebies.
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.
It also helps if you can play on people's sympathy. When most entrepreneurs start out, they try to make their companies seem bigger and more seasoned than they are. Cristy McCullough took the opposite tack when she founded Culturally Correct, a multicultural marketing firm based in Fort Lauderdale, Fla., in 2002, with just $500 in seed money. A former marketing executive at AT&T, McCullough decided to turn her financial woes into an advantage, betting that clients and vendors would be willing to help a struggling entrepreneur. "If you don't ask, you don't get,” she says.
Of course, McCullough didn't want to seem pathetic. To build a solid reputation, she arranged seminars about multicultural marketing at her local chamber of commerce and asked previous clients for referrals. But, when it came to doing business, McCullough pulled no punches. For example, when her landlord asked her to give another tenant access to a thermostat in her office, she demanded that the landlord pay her monthly electric bills to make up for the inconvenience. Later, when a client asked for an extension on a bill for $5,000, she asked for something in return. He gave her a $9,000 poster printer, a desktop computer, and some office furniture. In total, he coughed up nearly $12,000 in products. "He gave me those things not just because he owed me, but also because I was a new business starting out,” she says. "He believed in my company, and thought if I had the right types of tools, I'd be more fierce than I already was.”
Of course, finagling free stuff can get you only so far. After a year spent in search of freebies, Morgan began looking for investors. He's glad he waited. By then, Real Media was a much more attractive investment, with a dozen clients and $100,000 in revenue. By the time he sold the company five years later, Real Media boasted $30 million in revenue and 300 employees in 12 countries. That year, Morgan founded Tacoda Systems, another marketing technology company in New York City. This time around, he's not too concerned about free stuff, but he encourages cash-strapped entrepreneurs to use his strategy and recently gave a speech on the topic at the Wharton Entrepreneurship Conference. "We hear so much about cookie-cutter entrepreneurship: You shop a business plan to VCs right away and get a couple of million dollars,” Morgan says. "That happens once in a while, but usually you have to be a lot more creative.”
Be Reasonable Request free products and services that companies can easily give, such as legal advice.
Emphasize the Future Tout the benefits of establishing a lasting relationship with your fast-growing business.
Swallow Your Pride Many people are willing to help struggling entrepreneurs, so don't hesitate to explain your plight.