From Breast Implants to Flat Roof Repair

Everything old is new again.

The rough economy blues have spawned the resurgence of a very old idea. Only this time, the classic barter network is back with a new twist. Reincarnated as a way to drive new business, firms such as Pittsburgh's Green Apple Barter have gained considerable airtime as of late touting itself as a path out of broader economic woes.

It works like this.

Barter networks are - essentially - closed commerce networks. As such, when you join, you have a direct incentive to do business with others in your group. For illustration, let's pretend you are a roofing contractor. When you perform the service for another member of the barter network, you don't receive money. Rather, you receive "barter credits". (Each network works a bit differently, but this is a common approach). The member who receives the service pays for it in cash - or if they have them - barter credits of its own. In turn, you can use the barter credits you receive for goods or services you need within the group. The network manager takes care of the tax implications of the transaction, sending 1099 forms to each member at the end of the fiscal year, as well as takes its own cut (somewhere between six and 10 percent).

Got all that?

I know what your thinking. This doesn't sound like a "barter" at all. I remembered bartering quite differently. When I was a boy, we had a barter network (of sorts) for baseball cards and the like. You had a player's card I wanted. I had a player's card you wanted. We struck a deal. End of transaction. That was a barter.

But this is different. Webster's defines "barter" as "the exchange (goods or services) for other goods or services without using money." And by that definition, they are (technically) correct. However, that same dictionary defines money as "a current medium of exchange in the form of coins and banknotes" and secondarily "the assets, property, and resources owned by someone or something." I think barter bucks qualify as money. But that's just semantics.

What is really going on here is somewhat of a rebirth of micro-economies - groups of people getting together, separating themselves from the larger economy, and transacting amongst themselves.

The benefits, on the surface, are clear.

The barter network is, as it is being promoted, a closed system. Psychologically, we are wired to want to "belong," and the barter network plays to that need. The larger the network gets, the more choices you have (yes, Green Apple Barter sports plastic surgeons as well as flat roof repair, funny as that might sound). That means, in contrast to my baseball card story, you and I do not need to have exactly what the other wants. Finally, and perhaps most alluringly, if your company has unused capacity (read: missed opportunity cost) you can sell services to the barter network rather than see them go unused. It is not money, but at least you get something.

From a "green" perspective, localized barter networks could also reduce the micro-economy's impact on the environment by reducing transportation and fuel costs.

Still sound a bit fishy? Yes. But.

Closed buying networks can work. Case in point: I have a client in a niche B2B industry. Their company is a member of a semi-secret closed buying network. At first suspicious, my client has enjoyed considerable success. The network is well organized, well managed, and tightly knit. In stark contrast to the vast variety of goods and services promoted in other barter networks, this group handles only goods and services directly related to their specialized industry. In other words, they are not trying to remake the broader economy, only make their niche more efficient.

Outside of situations like that one, does the barter network tickle your suspicious bone?

It should. Here's why.

Companies drawn in by barter networks at this economic time are likely to be struggling (especially given the way barter networks are promoting themselves). In much the same way multi-level marketers prey on people down on their luck, barter networks seems to be dredging the bottom of the barrel for those firms capitalism would consign to failure.

It comes down to this. The real economy defeated the older barter economies for good reason: Efficiency. Not just in the dollars and cents, but in weeding out companies, products, and services that compete poorly.

If you are having trouble selling your product or service in the real economy, a secondary barter economy is unlikely to help. Problems in your business likely are fundamental: poor market targeting, value proposition, ineffective sales, product/service issues. All of the above.

So before you're tempted to join a barter network to improve your business prospects (and burden your financials with an additional 6-10 percent "tax"), take a hard look in the mirror. And fix what you see.