Live on Less: Bartering 101, Trading Haves for Wants

By Melissa Massello, March 17, 2009

In the children’s game ‘Bigger and Better,’ the goal is to find common neighborhood items and continuously upgrade the value of what you have by trading with other neighborhood children. As a kid, British Columbia native Kyle MacDonald never played the game, but as an adult, MacDonald has done his best to recapture the innocence and excitement of “Bigger and Better” but by continuously trading up for items with more and more appeal—from a single red paperclip eventually to a house.

And he’s not alone. At BarterQuest.com you can unload unwanted items for something of greater value to you. Looking for a copy of The Wizard of Oz on DVD and eager to rid yourself of American Beauty? With some luck, there’s someone out there who feels exactly the opposite and not only desires American Beauty more than The Wizard of Oz but will also eagerly make that trade.

After centuries of paper currency, exchangeable for goods and services, thousands of people are cutting out the middle man and simply making these trades themselves. The process and infrastructure for 21st century barter extends from trading babysitting with your neighbors across the street to elaborate exchanges that revolve around the trading of houses.

An Eye for an Eye

After providing a quote for team-building coaching to a group of physicians, including an eye doctor, Boston-based Life Coach Lauren Mackler was told by her potential new customer that her bid was roughly equivalent to the price he would charge for Lasik eye surgery. He wondered if she would consider an even trade. “It was a blessing,” Mackler says. “I would have been too scared to do it otherwise and he was thrilled with the results from my training.”

Although this particular experience was wholly successful, Mackler wouldn’t describe herself as a fan of bartering. “It’s hard to put an equal value on things,” she says, noting that, “People put a different psychological value on things they pay for.” For example, she says that in an exchange of personal exercise training and carpentry, it’s easier for the individual receiving the training to “not honor the commitment to show up.”

Mackler also worries that grassroots trades can be compromised by “weakly developed communication and conflict resolution skills.” What do you do when the carpenter thinks his skills are more valuable than the exercise training he’s received, and vice versa?

For those contemplating local trades, Mackler urges plenty of transparency and structure at the outset. “There should be clear equal value,” she says, “so that apples equal apples.” She further suggests that prospective barterers: have the transaction’s parameters in writing; find an equivalency of goods or services to be exchanged; and enter the relationship with the ability to discuss disputes in value in an effective and resourceful manner.

“Preserve the relationship and its boundaries,” Mackler says, cautioning that allowing a long-time customers to transition from paying for your services in barter instead of with cash, “changes the nature of the relationship. It can contaminate it.”

Bartering Networks Make a Killing

A growing number of companies and services have emerged to meet the bartering demand. One such company is International Monetary Systems (IMS). Founded in 1985 in New Berlin, Wisconsin, IMS operates with a trade dollar. More than 18,000 members offer their goods and services through IMS in order to earn trade dollars, with each trade dollar valued equally to the retail value of the product or service being sold. Last year, members in the IMS network traded over $114 million. As trade dollars accumulate, members can then purchase goods or services from other members, paying a percentage cash transaction fee to IMS, but otherwise making a relatively even exchange.

One customer is Michael Garzouzi of The Killer Baking Company in Rhonert Park, California. When Garzouzi closed his original location in order to move and expand the business, he found himself in need of a new commercial oven. Rather than go out of pocket for the capital to make the purchase, Garzouzi sold about 1,000 of his brownies through IMS to raise the necessary trade dollars to buy the oven from another IMS member. “A big ticket item like that is the backbone of the kitchen,” he says.

While Garzouzi’s regular customers include restaurants or local businesses, access to a larger trade network meant more exposure to potential customers around the country. “They want some delicious brownies for themselves or for gifting to their customers,” he says. Citing trade orders that originated in Connecticut, Indiana or Denver, Garzouzi says, “The fact is, I’m not sure that they would have heard about me otherwise.”

A Trading Alternative

While IMS functions as essentially a complementary currency, New York-based BarterQuest seeks to limit their role as a third-party mediator, providing instead a platform for users to directly contact and negotiate their trades. “We felt the site should be cashless and user-friendly,” says BarterQuest CEO Michael Satz. His engine catalogs users’ haves and wants, creating instant matches between users and allowing them a three-part process to negotiate and consummate a trade. “Our users are encouraged to describe what they’re offering and to provide references and testimonials so that other users can delve into what is being offered.”

Robert Sweetman was part of a multi-user trade. He offered interior design consultation to a user that, in turn, gave a laptop to a web design company, which completed the loop by building a website for Sweetman. “What I’m an expert in is second nature to me,” Sweetman says, assuming his two trading partners had similar outlooks. “The web design was worth more to me than the laptop or the interior design consulting.”

“You have to get into the trading mindset,” Satz says. “We did it as cavemen and as kids. We said, ‘Wash my car and I’ll watch your dog.’ It relies on people rediscovering a trading mindset. What I’m getting has greater value to me than what I’m giving to you.”

One Red Paperclip

Kyle MacDonald ultimately found his adult version of ‘Bigger and Better.’ MacDonald set out to see if he could swap a red paperclip for a house, utilizing a series of trades, each of which would garner something of more value than the last. It took him one year and 14 trades, but MacDonald was able to swap the paperclip for a house in Canada, coming into contact with everything from a unique doorknob to a recording contract along the way.

“It was an idea to see if it could be done,” MacDonald says. “The value of everything is relative. I got things they didn’t want and I had things that they did want and they were willing to trade down to make that happen.”

At the height of the project, MacDonald had something on order of 3,000 active trade offers to sift through. “It was tough to decide who to trade with,” he says, declining to accept offers where he didn’t have positive feelings for the potential trade partner. Eclectic offers ranging from a severed finger to virginity were passed over until MacDonald could find items of value and with people with whom he felt comfort. “We were working together and it was very fluid,” he says of his trade partners.

Surprisingly, MacDonald credits the Internet for enabling his experiment. “It was a completely positive experience as a means of connecting with people in a trusting place. People assume that if it’s on the web, it’s got to be a scam but I met real people.”

Satz agrees that his company couldn’t have existed 10-15 years ago. “Consumers market on the Internet. They trust the Net,” Satz says, pointing out that on BarterQuest, “they’re dealing much more with a person-to-person relationship. Mediation costs money. Someone is going to be paid for that trade and the agenda of the mediator is not necessarily the agenda of the trading partners.”

Sweetman likens on-line trading to a flea market. “They provide the flea market. We as traders go there to trade. It’s not a middleman. It’s a trading platform.”

“It was a really fun adventure,” MacDonald says. “A lot more fun and exciting than I expected.”

To follow Kyle MacDonald’s 2006 bartering adventure from start to finish, pick up a copy of his book, One Red Paperclip: Or How an Ordinary Man Achieved His Dream with the Help of a Simple Office Supply, or visit his website.

Copyright 2009, Shoestring LLC. Image: Courtesy of Kyle MacDonald.