Recent emails from franchisors and franchisees of different barter and trade companies have led me to pontificate on the continued persistence of franchising and licensing within the barter industry. To be clear, right at the beginning, I think franchising a barter exchange is inefficient, ineffective, and just plain stupid. In my opinion, licensing a brand and forming some kind of cooperative effort is the more effective and less restrictive method I suggest the industry follow. Not franchises.

Franchises are designed to protect proprietary information, business practices, trademarks, processes and such. In the case of franchises like McDonald’s, those trade secrets run deep. From the process by which fries are cooked, to the training methods, to the brand value preservation, McDonald’s has deep secrets and a vested interested in protecting their brand. They are a multi-continent, multi-billion dollar company. And their franchises command a pretty penny in most cases.

Barter companies have no secrets. I’ve been in and around the industry long enough to know that in today’s climate and with the internet, there are no trade secrets that exist within the barter industry. If you want to learn how to start a barter exchange, there are a number of online resources that will give you all the details you need to do it. (Full disclosure: I have one of those programs for sale on another website.) Some of those resources are free. If you want to learn how to sign up members and broker transactions, you can, free. If you want to find a software provider to keep your records, many are available. E-commerce is common knowledge and available from just about any internet device. So what’s left? Forms? I can get those from any of the software providers. A network of businesses outside your area? Either you can get that from a software provider or join IRTA. Need specialized training? Hire an independent to give it to you.

Only one of the standard reasons for buying a franchise apply in the barter industry. The top ten reasons for buying a franchise are:

1. Turnkey Business - The barter industry IS a turnkey business. There is virtually no barrier to entry in to the barter industry. With the above mentioned free or paid resources, there is very little a person can’t do on their own just as well as a franchisee of a barter franchisor.
2. Proven System in Place - Many of the barter franchisors tout their sales system or their software as being the key to their success. Most of those claims are false. The only difference between any barter exchange and their competition is the quality of goods and services available, which is a function of sales, and their broker. A good broker, no matter the company, makes all the difference.
3. Higher Likelihood of Success - Your success in the barter industry depends on one thing: you.
4. Corporate Image and Brand Awareness - See my comments below.
5. Easier to Obtain Financing - Financing a barter exchange? Almost entirely unnecessary.
6. Training - Even software providers give a certain amount of training to new exchange owners, if not written material that can help.
7. Ongoing Support - If you belong to an organization like IRTA or use one of the software providers that is also a network of independents, you can always find someone willing to give you a hand or answer a question. Not to mention the half a dozen or so consultants that work with new barter exchange owners. But if you are a person who needs extra support, read my comments below.
8. Marketing - I have yet to see any marketing doen by a barter exchange that is more effective than word of mouth caused by a good reputation of the broker, networking, and cold calling.
9. Exclusive Territory - This one almost makes me laugh out loud! A guaranteed territory? In barter? That’s pretty funny. With 98% of retail trades taking place at a local level, a less than 1% market penetration, and a very low barrier to entry in the industry, how are you going to protect a territory, other than by offering stellar customer service and working with reputable companies?
10. Own Multiple Locations - A good broker can expand their office with or without a franchisor to back them…

So, why would anyone buy a barter franchise?

I can think of only one reason to buy a barter franchise. Branding.

Does McDonald’s have a reputation (good or bad)? Absolutely. You know that you can count on the product that comes out and you have a clear expectation of what you are going to receive. Does McDonald’s have a valuable brand? $21,642,000,000 according to one web site.

Now, can we establish the brand value of a company like ITEX, IMS, or any other barter company? I think we can, by market penetration. By any standard, a less than 1% local market penetration is about the same as having no brand at all, right? Can any barter company claim more than 1% of the local market in any given area? In the county I live in, there are 60,000 businesses. At the height of my exchange, we had 500 businesses in the area. Not quite 1%. If you extend that to Salt Lake county, it’s waaaaaay less than 1%. Get up in to Weber county or Utah county, that number goes down even more. Some of the larger exchanges, like ITEX and IMS, probably have a significant market penetration in a few of their offices. Same with other companies. But the reality is this: barter is a closet industry. It’s very infrequent that a company owner wakes up in the morning and says to himself, “I need to join a barter company today.” That being the case, can you really say you have a powerful and valuable brand? Perhaps. I would suggest that the more truthful answer is no.

There is one compelling reason, in my opinion, to buy a franchise. If you are the kind of person that is afraid of going it alone, who needs someone to guide and inspire, who is unable to train yourself through reading or video, and who needs a team to get off the ground, franchises are definitely for you. If you need that intense kind of support, find a good franchisor and get in bed with them, figuratively. A good support system, for someone who needs it, will make the difference between success and failure.

The ugly part of franchising begins when there are disputes with your franchisor. Without being in control of your own destiny in matters of policy or marketing or other important matters of business, there will be disputes. As those disputes build, or a franchise company starts down a path of self-destruction, a franchisee may feel like there is no option other than independence. Which leads some franchisees to go it alone, potentially in violation of whatever agreements they have signed with their franchise company. What happens next?

Unfortunately, most franchise disputes that I have seen end up in court. In a right to work state, or not, the franchisor will sue a franchisee that sets up shop against their franchise agreement. Then there is a counter suit, and everyone starts the pursuit of legal justification, and the only people who win are the lawyers. Members suffer lack of customer service and the uncomfortable position of being put in the middle of a dispute. Barter companies suffer from less volume and a negative perception. Franchisor’s resources, which could be spent on improving and assisting franchisees, are instead spent attempting to destroy their competition, who used to be their friends and franchisees. The inevitable result of franchises gone bad is more bad blood, more pain, more suffering, and less service given to communities and members. We would do well to do away with franchises in the barter industry altogether. We would be better served in the industry to create a system in which stellar employees have a place to grow and move in to ownership in their own exchange. It would be better to have a voluntary cooperation of professionals who aren’t afraid of their franchisees and worried about defending their territory.

Maybe I’m an idealist, but I think we can do better.

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Tyler Seamons

barter, franchise, franchisee, franchisor