The business of barter
Bartering with other businesses has long been a staple for Jodie and Brian Ostrovsky.
One year before the couple opened their first 'What's the Scoop?' ice cream shop on North Williams Avenue, Jodie bartered for rent for business space in the basement of Hotel deLuxe in downtown Portland. More recently, in December of last year, she traded ice cream for gift certificates to local restaurants as holiday gifts for her employees.
The latter series of transactions led the Ostrovskys to look for a local organized barter exchange for small business that they could join. When they came up empty-handed, they decided to start one of their own.
Right now, PDX Barter Exchange is still in the early stages. However, when it's fully operational, the Ostrovskys say it will offer local small businesses a fully automated way to change the economics of how they operate.
The practice of barter can be traced back to 6000 B.C. when trade consisted of goods and services being exchanged before modern-day currency existed. Even though cash may now be king, barter still accounts for between $12 billion and $14 billion worth of trade transactions per year, according to the International Reciprocal Trade Association.
About half of that amount comes from corporate barter and traditional retail barter exchange companies. While conducting research to start their exchange, for example, the Ostrovskys talked with members from business-focused barter exchanges that have been around for 20 or 30 years in other parts of North America, where members have traded for rent, space build-outs, plumbing services and office equipment.
"We did an interview with one of the owners of a very large exchange in Canada, and he said he paid for his entire wedding in barter," Jodie Ostrovsky said.
"It's really amazing what (members) can do," Brian Ostrovsky added. "There's a guy who runs an exchange in Arizona that says his average member saves $4,000 in cash ... every year."
Being able to obtain goods and services without having to spend cash is one benefit of barter that makes it especially attractive to small business owners, Brian Ostrovsky said.
"Cash and employees are two of the biggest challenges for a small business," he said.
Another bonus of the PDX Barter Exchange is the fully automated aspect of the network.
In an organized barter program, an exchange serves as a third party that tracks member transactions. Traditionally, those exchanges have been tracked manually or by using swipe cards. The PDX Barter Exchange, however, is being billed as one of the few that handles transactions using an app that Brian Ostrovsky, who has a background in starting tech businesses, developed.
The Portland exchange operates on a system of "barter bucks" that one member business uses to obtain a good or service from another member, whose account is then credited by the actual retail value of the transaction. The member receiving the barter bucks can then use them to obtain a good or service from another member. Members also will be able to give barter bucks to their employees as well as use them to make contributions to nonprofits that the Ostrovskys hope to add to the exchange in the future.
The app offers the benefit of immediate processing of transactions, unlike traditional systems that often require an approval before a transaction is processed.
The fully automated system also offers a benefit when it comes to tracking transactions through an entire year. The Internal Revenue Service considers every barter to be a taxable transaction. So, at the end of the year, each member of PDX Barter Exchange will receive a 1099 B form as well as a listing of individual transactions.
Right now, PDX Barter Exchange has about a dozen member businesses. The majority of those members are restaurants, a business type the Ostrovskys figure future members will be interested in bartering with. The couple is looking to add businesses that will offer a variety of other goods and services, from bicycle repair to haircuts to plumbing services. They plan on curating the membership as the exchange grows to make sure that what members offer aren't being duplicated
"We don't succeed if the exchange isn't growing," Jodie Ostrovsky said. "If it's a small exchange and people don't have a lot of choices, they're not going to barter. They're not going to find what they need on the exchange.
"So, right now, our entire concentration is growing the exchange. We're not even really concerned with trading happening just yet. Right now, we want to make sure there's a lot of choices out there."
Once the exchange is fully operational, businesses will be charged a one-time $99 sign-up fee, a monthly membership fee of $10, and a fee of 5% of each transaction (charged to the buyer and the seller). While they're building membership numbers, the Ostrovskys are waiving the one-time sign-up fee and they're delaying the monthly fee until a member has been in the exchange for four months.
The couple also is working on written materials to help members make the most of their involvement in the exchange. One important thing for members to keep in mind, for example, is that barter isn't the only way a business should operate. A good rule of thumb, the Ostrovsks say, is that a business should limit the amount of barter they do to about 10% of total revenue.
The barter exchange is just the first part of the Ostrovskys' overall plan. There's also a second venture, a platform called Planet Barter, which will allow the Ostrovskys to roll out their fully automated barter exchange concept to other cities.
For now, though, the couple is content to focus on their main reason for starting the local exchange for businesses.
"Our goal was really to build something that supported small businesses in Portland," Brian Ostrovsky said. "We're creating a micro-economy for small businesses."
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