Marketing Forum: The Advantages and Pitfalls of Barter and Discounts:

When I started my company years ago (the name is a trade secret now), I was absolutely broke. I just got angry and quit and started my business without capital.

If it is surprising to you that the company resulting from those efforts, which now employs me, will do millions of dollars of business this year.

We no longer need huge discounts or special arrangements to sell the product I invented.

However, when I started I had to create a large user base and track record and to cash-flow while I did it, a very difficult thing to do. Fortunately, the product is excellent, so once I had done that, the business took off with legs of its own.

But the ‘chicken or egg’ scenario existed then, a tremendous hurtle.

One of the reasons I was able to survive this period was because I leveraged every dollar: I traded for rent, printing, advertising, food, travel, accommodations: all in exchange for my product, and it was easy to do, because most businesses would rather spend their inventory at retail than spend cash, and my product was a form of advertising.

But even this type of arrangement has pitfalls: ten percent of our customers from those days still want to barter at billing time, and many of them are people we would have been better off without in retrospect.

We were also involved with three barter groups for a while: they actually create a trading currency of their own so that members can arrange indirect trades with any business in the group. Again, the initial affect was tremendous advertising to a captive audience. But spending the huge amounts of barter we got proved to be inefficient in man-hours, and they do charge a percentage, testing our anemic early stage cash position.

Another thing we did a lot was discounts: anything to make a deal. While this built a momentum and customer base so rapidly that here I am, I was constantly raising cash and giving up equity and control to fund the negative cash-flow created by such arrangements.

Actually, I highly recommend both methods for early stage growing companies IF THEY CAN AFFORD IT.

However, I had it to over again this is what I would have done differently:

1. I would have done less of it,
2. I would have been more selective
3. I would have had to raise less money
4. I would have been more profitable
5. I would have grown a little bit more slowly ( I was very aggressive)
6. I would have been very careful to give specific reasons for any discounts, to avoid the aforementioned problems.

In other words, proceed with great caution.

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