Cover Story for Issue #53

Industry Icons Come Together To Form BarterNet
World's Largest Barter Company

Awesome. . . Amazing . . . Incredible . . . Superlatives Fall Short In Characterizing Motivated Group's Accomplishments

By Bob Meyer, Editor

The significance of this issue's cover story reminds me of the one written in 1992 about the ambitious UltraTrade project. Unfortunately, in that story the brilliant mathematician who founded UltraTrade passed away shortly after the story, as did the program.

However, UltraTrade was yet to be proven. They were talking about the possibility of putting together a huge trading entity someday in the future, based on a complex set of algorithms.

Whereas with BarterNet, they've already done it--the huge trading entity is here! It's a high-speed, enormously energetic accomplishment... unprecedented in the history of commercial barter. Their efforts promise to create fundamental changes in the industry.

The genesis of BarterNet--the world's largest barter company--got quietly underway less than nine months ago, and has moved at warp speed ever since. Their strategy of building the largest, most active barter network in the world continues unabated.

The genesis of BarterNet got quietly underway less than nine months ago and has moved at warp speed ever since.

"We want to bring together those trade exchange owners who have worked hard for so many years assembling their client base," explained CEO Laird Cagan. "By joining with us they will share the rewards of their efforts."

t all began innocently enough. Michael McCabe, an associate of Cagan Capital, was approached about backing a new internet barter company. Cagan and McCabe found the concept intriguing, but felt too many pieces were missing.

Shortly thereafter, they were introduced to Steeve Croteau--the founder and former CEO of Vancouver's Mutual Exchange International (MEI.)

The optimistic and ever-smiling 32-year-old French Canadian had built the fastest growing retail barter exchange in history--building MEI from zero to 4,500 members in five years, with operations in ten offices throughout Canada.

MEI's success was due in great measure to the proprietary software technology and credit-card swipe capabilities implemented throughout the trade exchange network.

In late October, Croteau flew down to San Francisco to meet with Cagan and McCabe. "I heard some interesting things about the barter side from McCabe," divulged Cagan.

"But it wasn't until I met Croteau that I saw the possibilities, as he had shown that internet-based technology could be used effectively to build a fast growing, profitable exchange. Plus," Cagan pointed out, "he had something else that was priceless--proven industry experience.

"Technology is just part of the equation. There's also the learning curve involved, that all-important aspect of knowing what works and what doesn't work in an industry. Croteau had gleaned valuable experience during his five years' tenure with MEI."

Croteau was enthused when he met Cagan, a Stanford MBA, and learned of his previous experience with two of the largest private investment bankers in the world--Goldman, Sachs & Co., and Drexel Burnham Lambert--where he had been personally involved in over 30 transactions valued at $15 billion.

As an experienced entrepreneur and venture capitalist, Cagan invested in and incubated ten companies over the past decade--including one that recently had a high profile public offering.

Their first meeting was lengthy, and immediately followed by others. In fact, for the next two weeks Cagan questioned and dissected every possible aspect of Croteau's vision--making him justify every nuance.

Cagan questioned and dissected every possible aspect of Croteau's vision--making him justify every nuance.

Beginning with the early morning fog and continuing on into the colorful sunsets they toiled for two weeks at Cagan's Woodside estate, in the heart of the Silicon Valley, analyzing various business models, crystallizing their thoughts, and devising a game plan.

One that would blend the established offsite trade exchange model, a proven way-of-doing business, with today's new internet technology. Candidly, Croteau admitted, "We felt that BarterTrust (in procuring three exchanges totaling 7,000 members over a 13-month period) had left too much on the table.

"So if we moved quickly, with the right plan and the right offer in hand, we could make numerous acquisitions, scooping everyone else before they even realized what had happened."

Cagan, with a decade of Wall Street experience, believed the critical "first mover" advantage still existed in the fragmented barter industry. He felt the key was to get a critical mass of members as fast as possible. Scale, along with the use of the web, were the major elements of a strategy that would give them this vital advantage. Cagan, with a decade of Wall Street experience, believed the critical "first mover" advantage still existed in the fragmented barter industry.

The huge horizontal market especially intrigued Cagan. "Barter touches virtually all aspects of commerce. Every company out there, potentially, could be an active member of a worldwide trade exchange. It's the reason I find this to be the most exciting project I've ever been involved in."

Following the extensive meetings with Croteau it was time to do more homework. Cagan, McCabe, and Croteau attended the social events at the November IRTA Board of Directors' meeting in Boston to get a better idea of the industry, and meet some of its leaders.

"It was a very positive experience," recalled Cagan. "I found the exchange owners to be good, solid, quality business people. I was particularly impressed by their business sophistication."

The IRTA board meeting concluded with an enjoyable evening at Allan Hackel's beautiful home. During the course of that evening, the visionary founder of the the 46-year-old Allan R. Hackel Organization floated a very interesting business proposal.

Hackel had the option to purchase the 22,000 member BXI organization (the oldest and largest multi-office retail trade exchange in North America) but wanted to spread the risk of the acquisition. So he let it be known that he was looking for an investment partner.

Within days of returning to the West Coast, Cagan conferred with Croteau and they decided to go for it. They agreed that their prior thinking had been right-on, and the BXI opportunity presented an opening to move faster than they had predicted.

Success would require swift action, with the right package. Croteau immediately called Paul St. Martin, President of the Hackel Organization, and announced, "We want to get in on the BXI deal."

Thanksgiving Day, Croteau and Cagan flew back to Boston where they met again with Hackel and St. Martin for a marathon negotiation. "A transaction of this size isn't a slam dunk, as evaluations and agreement on price take time," revealed Croteau.

But once it had been accomplished and the loose ends were secured, it was time to bring the money; within two weeks Cagan secured the initial capital needed from Wand Partners to move forward.

It was during the negotiations among Cagan, Croteau, Hackel, and St. Martin that the BarterNet vision of a truly global enterprise came into clear focus.

Cagan knew how to package deals, having a decade of merger and acquisition experience, and suggested that an opportunity to do a huge roll-up existed in the barter industry--one with enormous, untapped potential. He painted a vivid picture that would ultimately lead to an IPO.

Mirroring his excitement, Paul St. Martin expanded on Cagan's thinking by suggesting a real powerhouse could quickly be achieved by adding a corporate barter company to the mix.

It was at this juncture that the Hackel Organization, with a multi-million-dollar inventory, became a part of the ever-expanding plan.

After the Christmas holiday break, in early January, Cagan met with Bob Meyer at Laguna Beach. Meyer and Cagan quickly developed a mutual affinity, and Meyer agreed to become the first member of the BarterNet Board of Advisors.

Nearly two weeks later, an investment agreement was signed by Cagan and Hackel, which included an option to purchase BXI along with The Allan R. Hackel Organization.

The conversations, projections, plans, and dreams of just a few months earlier had quickly materialized, and the size of this first acquisition showed that Cagan and Croteau were indeed capable of big things.

The size of this first acquisition showed that Cagan and Croteau were indeed capable of big things.

Immediately, Croteau and McCabe flew to Europe to meet with several of the top trade exchanges in that region. Getting the company's flag planted outside the United States was an important part of the game plan.

To do that, BarterNet also wanted to establish a foothold in one of the top barter locations in the world--Australia. A flurry of phone calls to that country ensued, culminating in opening discussions with David Johnstone of Trade Limited and Bill Rorke of TradeBanc.

Meanwhile, serious talks had started with trade exchange owners in the United States.

San Francisco-based David Wallach, the owner of ValueCard (one of California's top trade exchanges), and respected RTE owner Steven Webster, on the opposite coast in Rochester (NY), immediately had a high level of interest in this new endeavor.

On the heels of these negotiations, Cagan, flew a group of eight prospective-acquisition owners, from North America and Europe, to Australia's plush Royal Pines Resort on the Gold Coast. There, business meetings, continual social interaction, and golf on a superb course (site for the Australian Ladies Masters) took place over the week prior to the IRTA-Australasia 2000 Conference. (All of those attendees have become BarterNet affiliates.)

Just one week after the Australian conference it was on to Las Vegas, where at the NATE convention another group of exchange owners were invited in for face-to-face meetings. Just one week after the Australian conference it was on to Las Vegas, where at the NATE convention another group of exchange owners were invited in for face-to-face meetings.

They were Mark Tracy, Michael Ames, Ken Meharg with Gary Oshry, Jim and JoAnn Briner, and Jack Schacht. (All are now BarterNet affiliates.) At that early-March meeting were Steeve Croteau, Paul St. Martin, and David Wallach, as well as Meyer who was covering the convention.

In late March, Cagan convened an offsite brainstorming meeting in the Silicon Valley to announce and introduce the corporate management team, stating, "We now have assembled a full management team, with an executive in every top-level position."

In attendance were, Laird Cagan, Steeve Croteau, Bob Meyer, Michael McCabe, Summer Egland, Glenn Johnson, Steve Lee, Steve Lewicky, Dave Posey, Jim Rossner, George Sadler, Peter Korda, and Arnie Socher.

Eric Jeck of Wand Partners, a venture capitalist firm investing in BarterNet, says Cagan has been amazingly successful in assembling a team of high caliber people. "In Silicon Valley, usually you're lucky if you get 30% of the people you pursue. Laird hasn't missed yet."

And then, with the corporate team in place, the roll-up of the industry moved into ultra-high speed...

In mid-June twenty-three trade exchange owners from three continents flew to Dallas for the first BarterNet exchange owners' meeting.

All had signed agreements to become affiliated with--and eventually merge into--the fastest growing barter company ever conceived. The purpose of the important three day meeting, held at the opulent Four Seasons Hotel at Las Colinas, was to kick off the company's next phase...namely melding together the hundreds of people from around the world to form a cohesive team.

It would be the first time everyone--the corporate management team, the company's public relations agency, investors, advisors, and trade exchange owners--would meet one another.

Although many of the owners were acquainted with each other, this time they would be working with one another on a new and totally different level.

It would be far removed from the usual greetings and networking at the national conventions. Now they were partners.

The objective of the meeting was ambitious--to construct the vision of what can be accomplished when BarterNet couples the power of corporate barter and the global reach of the affiliate trade exchanges, with the strength of their personal client relationships.

"We are a barter company first and foremost, with offices around the world. But the Internet will enable us to grow more rapidly and effectively," Laird Cagan told everyone.

A powerful network of twenty-six respected exchanges along with a well-known corporate barter company had been assembled by BarterNet. Now they were ready to integrate the group into one organization, and harness the exponential power of a network.

"We all have to think differently now than we have in the past. Because with our new network, we have created the opportunity to bring in any company in the world as an active trading member--including large national, as well as international, clients. And that changes the perspective for all of us." Cagan emphasized.

The BarterNet team spent a significant amount of time developing a noteworthy agenda--one that both informed and included everyone in the process going forward.

According to Chicago's Jack Schacht, founder of the largest independent trade exchange in North America, the mission was accomplished. "They did an excellent job of building the foundation.

"It's great to be associated with such articulate and talented leaders who are casting a whole new dynamic for the barter marketplace. We all know that building our industry to such exciting new levels requires aggressive goals and a powerful vision."

Within hours the energized group figuratively "morphed" into a singular way of thinking. At lunch Walther Smets of Belgium noted, "There's a lot of excitement and action taking place here. We're putting together a powerful association of professionals to build a worldwide organization."

Boston-based Gary Oshry, at 28 one of the youngest trade exchange owners, was ecstatic, "It's more organized and professional than I ever imagined. It's certainly a win-win for our members and employees."

Bruce Harris, a long-time operator from St. Louis with over 20 years in the business, shared an additional perspective, "I've seen the industry change from the paper ledger accounting days to using computerization, which enabled us to survive.

"But now the BarterNet team is poised to take our many exchanges to a much higher level. And that's really exciting!"

A veteran of several start-ups, Chief Operating Officer Glenn Johnson, set the tone in the opening session by exclaiming, "Everyone came here with preconceived notions.

"However, if we do our job over the next two days every one of you will get a glimpse of the future. More importantly," he added, "you will become part of the process of building it."

Before the event was over, all agreed with Johnson's honest assessment. The professionalism exhibited by the corporate management team had cohesively brought everyone together.

The professionalism exhibited by the corporate management team had cohesively brought everyone together.

For most, before the first day had ended they realized this was just the beginning of a long, exciting journey together. Essentially, BarterNet's vision is to build a dynamic global organization by utilizing the strengths of the top people in Silicon Valley with the icons from the barter industry. "How," Johnson inquired, "do we take each of our best practices and make them available to all?"

He pointed out the importance of thinking outside the box, without destroying the box. Then cautioned that it's important that we each keep our individual egos from getting in the way.

Johnson concluded his presentation by saying that BarterNet must think as a team. "And," he confidently declared, "I believe this team is going to change the barter industry forever!"

"I believe this BarterNet team is going to change the barter industry forever!"

Overviews Were Enlightening

In the technology overview, Chief Technical Officer Dave Posey impressed the attendees with his natural, open demeanor. He avoided techno talk, and instead asked for feedback, "We need all of you to give us your ideas on what's needed, so we can leverage your knowledge about barter.

"We're building an extremely robust internet system, one that will work on a worldwide basis, with all of our offices and clients. The cost will be in the millions. But," he continued, "even though this internet effort will be very expensive, and a never-ending process, collectively it's affordable."

Posey touched on the project's huge dimensions and functionality, as well as the six factors necessary for success. "We must remember technology is the foundation of our business," he stressed, "as it's a means to exchange information."

An Alan Alda look-alike, Chief Marketing Officer Jim Rossner received loud applause when he announced right upfront, "Marketing exists for one reason and one reason only--to drive sales."

With a missionary's zeal, he affirmed, "Everything must be focused on accelerating demand for more trading activity."

Then, with machine-gun-like precision, Rossner voiced the ways BarterNet would accomplish this goal. Given his demeanor and track record, few doubted his passionate resolve for such achievement.

Two experienced veterans, Arnie Socher, Senior Vice President Business Development, and Peter Korda, Senior Vice President Strategy and Corporate Development, shared their prior business experiences with the group, as well as their aspirations for bringing in outside business from their past successes.

Several exciting ventures, presently underway in unique market niches are singular in purpose--bringing new clients into BarterNet.

Jerry Sodorff, the energetic and articulate Director of Training and People Development, enthusiastically disclosed, "There's an enormous global career-path here at BarterNet."

His efforts will focus on developing fun and uplifting training programs featuring barter expertise as well as the inter-relationship side of the business.

The Dallas meeting was a watershed experience for the many trade exchange owners who had "gone it alone" for decades.

The Dallas meeting was a watershed experience for the many exchange owners who have "gone it alone" for decades.

Looking around the luxurious Four Seasons' conference room, they realized the significance of the changes taking place in the barter industry, something that was completely unfathomable just a few years ago. Now, being an important part of the change, their enthusiasm and excitement was, understandably, palpable.

Productive Workshop Sessions Gleaned "The Best from the Best!"

Breakout projects were scheduled every afternoon. Six different teams addressed specific issues, after which ninety minutes were allowed for reports by each group.

During the sessions the trade exchange owners called on their 700-plus cumulative years of barter experience while cooperatively working together.

They shared their considerable insights and talents on a variety of topics from how to increase trading activity to membership ideas, business rules, compensation programs, and what's needed in the way of technology to create a superior, effective internet barter site.

The stimulating environment resulted in an impressive base of valuable information to be used by everyone upon returning home.

Ambitious Expectations

BarterNet's remarkable roll-up is a stunning achievement that all began with a vision. But bringing together twenty-six fiercely independent exchange owners certainly wasn't a walk-in-the park.

As Steven Webster from Buffalo (NY) indicated, "Being the first independent exchange in North America to sign on, and second only to our Australian partner Bill Rorke, was a step into what I believed to be the future of our industry.

"My confidence was rewarded when 25 other exchanges, representing over 70,000 members agreed to also merge. That took all of 90 days. Imagine what the future holds!"

The organization owes much of its initial success to the indefatigable, tenacious efforts of co-founder Steeve Croteau and their bright young attorney, Steve Lee. Both routinely put in 18-hour days while traveling the globe to bring together the many trade exchanges.

The organization owes much of its initial success to the indefatigable, tenacious efforts of co-founder Steeve Croteau and their bright young attorney, Steve Lee.

The magnitude of what's been accomplished still isn't entirely appreciated. But what's evident is that BarterNet has managed to establish a unique position that is not only sustainable, but virtually unmatchable.

With many of the industry's finest barter companies "taken off the shelf," and unavailable to others, competitors will be hard-pressed to replicate BarterNet's growth.

BarterNet's strong presence, and the reason for its considerable achievement, revolves around the company's inclusive strategy of bringing together the best exchanges--rather than trying to build a global exchange from scratch. It's the cornerstone of Cagan's and co-founder Croteau's philosophy.

"We wanted to align ourselves with the top barter people in the world, and in doing so leverage their knowledge, experience, and clients--for everyone's collective benefit," they explained.

The speed at which it's been accomplished is unprecedented, and a first for an undercapitalized industry that's always plodded along--growing through internal savings and reinvestment.

The speed at which it's been accomplished is unprecedented.

The collective organization now boasts over 500 salespeople and brokers working on a daily basis with thousands of clients around the world.

While the company is not ready to quote specifics, it's clear that BarterNet has very ambitious plans. As the network starts to build on its collective experience and worldwide presence, Cagan believes they have a global powerhouse in the making.

"I think that BarterNet currency will be as ubiquitous as any major world currency," he affirmed.

If achieved, the company's unlimited growth potential could eventually make the soon-to-be publicly traded company one of the world's "market capitalized" titans. A fact not overlooked at this historic first meeting in Texas, inasmuch as every exchange owner has an equity stake in BarterNet.

BarterNet is located at 1065 E. Hillsdale Blvd., #230, Foster City, CA 94404. Web site: www.barternet.com, phone (650) 358-7200, fax (650) 574-3837.