StartThis Idea #12: The B2B Barter Marketplace
Bartering - the oldest form of trade - still offers new opportunities!
An online B2B bartering marketplace where businesses barter with each other for products and services to reduce the reliance on cash.
Categories: alternative economies, B2B, SaaS, cryptocurrency (optional)
Skills needed: E-commerce solutions knowledge, full stack development
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The Pitch
Informally, businesses trade with other businesses all the time. Software companies trade access to each other’s platforms, restaurants often trade gift cards with each for staff rewards, or professionals might simply exchange new business leads. Simple bartering is a tax efficient and cash-friendly way for businesses to get value from each other. The challenge, though, is that doing this at any kind of scale is too complex to manage. Enter the idea for a B2B bartering marketplace.
This concept revolves around a membership-based bartering marketplace. There, small businesses pay for a membership which allows them to view and list their products and services for “barter credits”. Since every trade has a dollar value, businesses have a level playing field to compare trade offers and track their financials.
Users accumulate app-based credits based on the value of their trades, which can be then be used as currency in future transactions. These are trackable, saveable, and potentially cashable if the app infrastructure and financial liquidity allow for it. Both credits and products/services are available to barter for something of comparable value.
The fee structure involves an ongoing subscription fee to access the platform, but no transaction fees or commission on transactions. See the strategy section below for more insight into why a subscription model better aligns with the goals of a program like this (and will likely perform better, too).
A user referral program can offer incentives to bring along trading partners who offer sought-after services. It can look like a couple of different things, like unlocking tiers of features based on referrals or users having caps on trade value until they meet certain criteria. This mitigates the risk of flooding the marketplace with lower-value or lower-demand services. It also helps build up a local critical mass that’s robust enough to keep the system functioning.
Background
Bartering is the oldest form of exchange, predating all types of currency. It’s based on the trade of products, services, and information between people or businesses. The peer-to-peer (P2P) trading economy is huge around the world and involves everything from agriculture to cryptocurrency. The decentralized nature of bartering can mitigate the impacts of limited cash flow, liquidity issues, and even tax implications on sales.
For small businesses especially, bartering is fairly common. It might be on a small scale between established trading partners (a pizza joint and an ice cream shop trading products or sharing freezer space, for example) but it’s still bartering. The larger marketplace is there to help more businesses get access to their network.
It’s about building stronger connections to other local businesses. With that, it fosters an economy that’s outside the single-track goal of only building capital. Community- and service-based economies strengthen ties between industries and concentrate economic power outside of the national brands with the highest earnings. For economic situations like today, having the ability to do business without needing access to cash can mean greater longevity for SMEs.
COVID-19 has all but slammed the brakes on hyper-local business development. To boot, countless businesses are left with idle time, staff, and product, and significantly fewer opportunities to put them to use. This is where the barter system offers a back-to-basics approach to commerce that can keep small businesses afloat.
Data points & research
One B2B barter company is rising quickly in value and use. BarterPay completed over $40 million in barter transactions in 2019 with their business usership numbering over 4,000 and charity usership over 100 over 18 cities. [Digital Main St.] Their high fees, transactions costs, and heavily human-brokered process, however, ensure this marketplace is limited in its audience and reach.
In North America, only half of new businesses survive to their fifth year. This includes national organizations, which pushes SMEs further into the margins. Any opportunities to remain competitive in the market will increase their chances of survival. [BDC]
During the recession of 2008, barter exchanges reported double-digit increases in membership. Per the New York Times, “the exchanges enabled members to find new customers for their products and get access to goods and services using unused inventory. The exchanges also used custom currency, which could be hoarded and used to purchase services like hotel stays during vacations. The barter economy during the financial crisis was estimated to have touched $3 billion.” This time around with businesses weathering pandemic-based economic struggles, it’s unclear what the ceiling for this type of industry will be. [Investopedia]
Strategy notes
There are already a few major players in the B2B bartering space, including Canadian-based companies BarterPay and Swapsity B2B. The major difference between this concept and the existing bartering platforms is in fee administration. Both BarterPay and Swapsity B2B take a percentage of the value of each trade. From a strategic perspective, a subscription model is far superior to a per-transaction fee.
Transaction-based pricing is a huge disincentive for businesses to conduct their trades on the platform. The biggest risk associated with a venture like this is of barter partners continuing their relationships off-platform to circumvent the fee structure. The platform loses out on both parties and all future revenue thanks to an overly ambitious revenue driver.
The “product” at play here is the platform itself and the connections between barter-friendly businesses. There needs to be a fee associated with accessing the barter network, but not the ability to conduct trades altogether. A subscription-style SaaS structure makes the most sense to mitigate risk, though losing members to their newfound connections remains a concern.
With a service like this, the innovation is the networking potential included in membership. It almost works like a regional BIA, where there are perks to dealing with fellow members. In this case, the perks are exposure, reduced expenditure on products and services, and a growing network of business connections in the local area. The benefits of membership have to outweigh the perks of cutting and running with new business connections, so there needs to be a way to tie some of those benefits directly to the platform.
To start out, it’s best to target service-based businesses so the trade is based on a time value rather than products with material cost. That being said, companies whose struggles are stemming from stalled sales and stock excess could really benefit from moving their product. It’s more of a consideration for what sort of supply and demand is in the area where the marketplace is targeting.
The program also has the potential to incorporate blockchain systems and cryptocurrency into its functionality. A crypto element can offer payment and trade solutions, and has the potential to further create independent, secure alternative economies within the barter world.
Possible names
Agora, BarterBoard, Caravanserai, Rialto, Traid.io