When Toronto-based financial planner Shannon Simmons offered her expertise to a professional clown, it wasn’t exactly business as usual. Simmons advised her new client to switch from a “couch fund” to a high-interest-bearing account with limited market risk. And in exchange for her financial guidance, Simmons received… trapeze lessons.
Surprisingly, it isn’t the most bizarre or unique way that Simmons has been paid in the last year. Since leaving a full-time job at investment management firm Phillips, Hager & North in 2010 and embarking on a year-long experiment as a barter-only financial consultant, she’s been compensated with a butter-churning tutorial, a large bag of toiletries (which included a month’s supply of toothpaste, toilet paper and shampoo), and a chance to perform with the University of Toronto cheerleaders, among other strange offers. “I had a guy come up to me once and say ‘I’m a fire-breather and I’d like to barter with you’,” Simmons says. “I was like, ‘I don’t think I can say no to that.’”
She officially ended her experiment in November, and not a moment too soon. She’s broke, she says, and not sure if she could survive much longer with a barter-only business model. “It’s a great idea in theory,” she says. “But there are things you don’t think about. You can’t barter with your telephone provider or your utility provider. You can’t barter with your landlord. Trust me, I tried.” Despite the hardships, she still believes that bartering is the future. While she looks for gainful employment, she’s writing a book about bartering, and she just finished filming the pilot for a TV reality show about her bartering experiences. “Bartering has changed the way I think about how I spend my money,” she says. “And I think that’s a lesson the business world is just starting to learn.”
Bartering may sound like an antiquated idea, a style of commerce more fitting to a third-world marketplace than a modern corporate environment. But according to the International Reciprocal Trade Association — an organization created to promote “just and equitable standards” in modern bartering — the U.S. barter market is a staggering $12 billion annually. In other words, $12 billion worth of goods and services are traded every year without any currency changing hands. Scott Whitmer, the co-founder of trade exchange company Florida Barter, says that while 2011 saw positive signs of an economic recovery, many small and medium sized companies are still struggling. “Bartering has continued to help many (of these) companies grow and conserve cash,” he says. Though Whitmer’s company, Florida Barter, enjoyed a record year — a 12% increase in total trade volume in 2011, over $17 million dollars traded amongst the 1,600 clients — he believes that bartering as a business practice is still in its infancy, “on the cusp of exploding.”
Not everybody is so eager to give bartering a shot. Debbie Lombardi, the president and founder of Barter Business Unlimited, a Connecticut-based exchange network, says that despite her company’s track record and 4000-plus registered members, she still regularly encounters resistance and confusion from prospective new customers. “Nobody comes to me and says, ‘I’ve always wanted to try bartering,’” she admits. “It’s more like ‘What is this? I don’t get it. Is this some kind of scam?’”
It’s no scam, but it can be complicated to the uninitiated. As Lombardi explains, “We run like a little bank.” And she means that literally. Members are paid in something called “barter dollars,” which they can exchange with other members for goods and services. If it sounds like Monopoly money, she says, that’s not an entirely unfair comparison. Like Monopoly money, barter dollars are useless in the outside world. But within the bartering community, they’re the only acceptable currency. “It’s like going to a barter mall,” Lombardi says. “They can do all their holiday shopping. They can get the carpets cleaned or the walls painted at their office. They can pay for their child’s orthodontic work. It’s almost limitless.”
Limitless and occasionally bizarre. Lombardi has brokered barters on everything from tattoos to real estate to headstones. “Don’t laugh, but we’ve had people who’ve bartered for boob jobs,” she says. “If that’s what you really want and it’s not in your budget, with bartering you just have to do a few more carpet cleaning jobs and eventually you’ll have new boobs. That’s a wonderful thing.”
It may also be the fatal flaw of bartering. While it certainly provides opportunities for struggling businesses, it can also lead to temptations for impulse buying. Dave Evans, a Barter Business Unlimited member who operates an online ticket reseller in Plainville, Conn., called EasySeat, was first attracted to bartering as a means to sell distressed inventory. “Our inventory is 100% speculative,” he says. “In the cases where we speculate incorrectly, bartering is a way for us to liquidate inventory that we might not be able to sell for cash.” He’s bartered tickets to New York Yankees championship games and Lady Gaga concerts, and in exchange has received everything from a fresh paint job at his company’s latest building acquisition to an overhauled office alarm service. Sometimes, though, he’s bartered for services that weren’t exactly essential to his business. “I used some of the barter money to get LACIK surgery for myself,” he says. “I guess that’s a little counterintuitive.”
Finding a way to make a profit from bartering isn’t just a challenge to the people putting up their livelihood for trade. Even the brokers who act as bartering middlemen are searching for creative ways to make money from a service that isn’t about making money. A website like Swap.com — which connects people who want to swap their unused household items for other people’s unused household items — looks, at least on paper, like a financial windfall. Jeff Bennett, Swap.com’s CEO, claims that “the business has been doubling every year.” They’re closing in on 450,000 registered users, who’ve taken part in more than four million barter exchanges valued at approximately $13 million dollars since the site’s inception in 2010. But as no part of that $13 million is in actual paper dollars, how exactly does Swap.com pay for their overhead? Most of their capital comes from “related aspects of the business,” says Bennett, such as shipping fees and corporate sponsorships. “We’ve had very good experiences with companies like Gallo wines, Lulu’s clothing, and ModCloth.” He also hopes to introduce a Swap.com subscription service in the near future, where customers are offered incentives for forking over a monthly fee, like an ad-free environment and early access to their favorite items. “It’ll be a premium model,” Bennett says. “Just like Dropbox.”
They’ve also generated revenue by selling tickets to live events, like the wildly popular “Sip & Swap” bartering mixers that’ve been held nationwide in cities from New York to Los Angeles. Ticket holders bring in items from their home that they want to trade — including clothing, books, DVDs and baby supplies — and everything is up for grabs, sometimes literally. Melissa Massello, one of the self-appointed “Swapaholics” who host the gatherings, compares the mood to the Running of the Brides at Filene’s Basement. “We set it up like a boutique,” Massello says. “And when we let everyone in, it’s sort of a mad dash to get the best stuff.” There is shoving, she admits, and it can get physical. “Some people find it overwhelming and intimidating,” she says. “Especially if they’re not the aggressive sort.”
Things don’t get quite so wild with business-to-business bartering, although there’s often considerably more on the line. Dave Evans at EasySeat is a firm believer in bartering, but he’s also well aware of the risks. “We have to be a little cautious with how much bartering we do,” he says. “If we don’t manage our cash flow properly, and part of that is monitoring how much we take in on barter, we can put ourselves out of business pretty quickly.” Scott Whitmer of Florida Barter says that smart bartering is limited bartering. “We’re not going to help anybody pay their electric bill or their mortgage,” he says. “But we can help them maintain their business and get sales they never would’ve had otherwise.” The best barters, he says, are for things that you might normally have spent cash on anyway, “like printing, advertising, marketing, or promotional t-shirts with your logo on it.” In other ways, he recommends staying away from boob jobs and corrective eye surgery. If you wouldn’t pay for a new set of breasts with a company credit card, he says, then maybe you shouldn’t be bartering for it.
Which isn’t to say that Florida Barter and companies like it are about bartering restraint. “We’re constantly calling our members and asking, ‘Do you need any printing or marketing? How about pest control? Do you need lawn service or pool service?’ Just tell us what you need.” Florida Barter’s clients cover a vast range of services, from doctors, lawyers, and accountants to electricians, plumbers, and massage therapists. “If a client makes a request and we don’t have it,” he says, “we’ll go get it.” He’s so confident in bartering that he claims to have more faith in Florida Barter’s “trade dollars” — which aren’t all that different from Barter Business Unlimited’s “barter dollars,” other than that both are essentially fake money — than U.S. government-issued currency. “Trade dollars, unlike U.S. dollars, are backed by goods and services,” he says. “It’s like the gold standard that we dropped. The dollar was actually backed by gold at one point. With the bartering system, every trade dollar is backed by goods or services that are real. We have as much or better value as cash in today’s economy.”
His unwavering belief in bartering, however, doesn’t necessarily apply to the 12% commission that Florida Barter takes with every exchange between its members. “That’s how we pay our sales people,” Whitmer explains. “Everyone signs our agreement to pay the 12% in cash and we do not make any exceptions.”
(This story originally appeared, in a slightly different form, in the April 26th, 2012 issue of Bloomberg Businessweek.)