After wrapping up his career as a U.S. Air Force jet fighter pilot in 1989, Tom Austin of Dallas started a business marketing art with an aviation theme.
His challenge: Austin’s customers preferred to buy the art framed, but his start-up company didn’t have the cash available for framing.
So he turned to a local bartering exchange, where businesses swap services and inventory instead of cash. There, he traded $8,000 worth of fine art from his inventory for $8,000 worth of framing for a limited-edition series of prints he wanted to issue. He paid the 10 percent agency fee and was able to market his prints for a total cost of $800.
Austin became such a fan of business-to-business bartering that he made a career out of it. Ten years ago, he founded his own Dallas-based trade exchange, Delta-1 Trade Exchange, and is known as “Trader Tom,” host of his own radio show about bartering.
“Trade is the most powerful financial tool a small business can use,” said Austin, whose exchange currently has 1,200 clients and has facilitated about $35 million in barters over the past 10 years. “It brings you greater market share, new customers that small businesses need, and it can make things easier when you are starting out.”
Cave people were probably the first to use barter, but commercial bartering has been around since 1960. Today, it’s a $9 billion industry in the United States, involving more than 400,000 businesses. The bulk of business-to-business barter is conducted through exchanges like Delta-1, which provide members with private currency that allows them to trade for what they want and need.
“One-on-one trade is very difficult,” Austin said. “If you make wheelbarrows and need dental work, it’s very difficult to find a dentist who needs wheelbarrows.”
In a trade exchange, the dentist would provide the service in exchange for trade currency that he could then exchange for services or goods he needed from another member.
The wheelbarrow manufacturer would have the trade currency to pay the dentist by providing the wheelbarrows to someone else in the network.
But hanging onto your cash is only one advantage of barter. Bartering allows manufacturers and retailers to move inventory that may have lost its cash market value, and service industries to fill empty hours. It exposes companies to a network of other business owners that may become new customers. Best of all, industry experts say bartering can boost annual sales by 5 percent.
“It is the most significant marketing tool available to small business,” said Susan Groenwald, president of BarterCorp, an Oakbrook Terrace, Ill. trade network that represents 3,100 clients in the greater Chicago area, including Cleveland, Milwaukee and Northwest Indiana. Groenwald said that 95 percent of BarterCorp’s clients are small companies with between two and 10 employees.
By giving businesses a way to gain value from unused assets and improve cash flow, bartering can drive profits up 80 percent an industry statistic quoted by both Austin and Groenwald. They estimate their clients collectively used bartering to offset more than $40 million in operating expenses last year.
Patrick Goodness, owner of the Goodness Co., a two-person, full-service advertising, graphic design and public relations agency in Round Lake Beach, Ill., signed up with BarterCorp four years ago. His company has used barter dollars to purchase laptop computers, monitors, software, office furniture, peripherals and valuable space in the Yellow Pages.
But more valuable to Goodness, he said, are the new clients and business he has generated by exchanging his own services.
“We can fill our schedule during slow times when we can’t bring in cash business,” Goodness explained. “It gives us a much wider variety of clients, and gives us more experience so that we can increase our value in the cash market.”
Through barter connections, Goodness has been able to do work for Microsoft, AllState Insurance and Morgan Stanley Dean Witter.
“It helps build your businesses in ways you couldn’t have imagined,” he said. “You have to learn how to best spend your barter dollars.”
As expected, the Internet is already having an impact on the traditional barter community. Both Delta-1 and BarterCorp have Web sites, and the industry is rapidly moving online. Timothy Fong, a Los Angeles-based entrepreneur, was able to attract several hundred thousand dollars in private funding to launch Lasso Bucks.com, an online business exchange.
His network capitalizes on the natural synergy between online communication and traditional trade networking.
Signing up with Lasso Bucks is free, and its 5 percent-per-trade fee is standard in the industry. Fong used bartering to launch his first business after college a software company and newsletter. There, he bartered free advertising in his newsletter for accounting, marketing and Internet services.
Lasso Bucks requires members to create their own network by bringing in five other businesses. The network grows as each vendor brings in new vendors, since vendors are only allowed to trade within their own network.
“You know that everyone in your network is there via referral,” Fong explained. Because his year-old company is still defining its market and raising funds, Fong wouldn’t comment on revenues. He did say Lasso Bucks has signed up 433 vendors participating in 73 individual groups.
With bartering growing by about 25 percent a year, with much of this growth in the small-business sector. Tom Austin has these tips for getting started:
? Find out how long the trade exchange or barter operation has been in business in its present location.
? Don’t get in too deep at first. Remember, you have to find a way to pay for the products or services you are trading.
? Bartering works better for some types of businesses than others.
? Do not trade more than 10 percent of your gross sales. Above 10 percent, the financial benefits of trading begin to eat into your profits.
For more information on bartering, visit www.bartercorp.com, www.delta-1.com, or www.lassobucks.com. You can also contact the National Association of Trade Exchanges, 27801 Euclid Ave., Suite 610, Cleveland, Ohio, 44132. The phone number is (216) 732-7171.
Reporting by Robin Wallace. Jane Applegate is a syndicated columnist and author of “201 Great Ideas for Your Small Business.” For more resources, visit [email protected].
