Boostrapping Your Business With Barter

My startup got its first paying customers last year through a barter network. Most of its members are other businesses, so it can be a great way to bootstrap if your service is B2B, or at least offers something that small and mid-size businesses might be interested in.

You have an advantage when selling on a barter network: Some members end up accumulating barter dollars that are burning a hole in their pocket. If you can offer something valuable but uncommon you'll probably do well. We upgrade business websites for mobile phones and our offerings sold quickly.

There are some nonobvious costs to bartering in this way. When you sell, you get "barter dollars" that can be used to purchase from other members of the network. The barter network charges you a *cash* fee of about 12% of the barter dollar amount (6% when you sell, and then again when you spend those "barter credits"), in addition to small monthly cash membership fees. Both buyer and seller have to pay these.

In general, the process is more bureaucratic for both buyer and seller than cash transactions, which costs time.

And if you are based in the USA, for tax reasons you probably want to spend all your barter dollars in the same tax year you earn them, on deductible business expenses. The IRS considers barter dollars as cash income, so if you have a net "profit" you'll have to pay taxes in cash on your barter transactions.

The big benefits for a startup using a barter market are:

1. it's easier to get those first clients, since many members accumulate barter dollars that they find more difficult to usefully spend than cash.
2. The barter dollars you earn can then be used to buy things your business might find useful, such as advertising.
3. You can get testimonials and success stories, then leverage them to get cash-paying clients.

The two barter networks I know of are ITEX and BixXchange, though I've only used the former.