By Sarah E. Needleman Lewis S. Jacobus took over his parents' ailing home-decor business two years ago intent on turning it around by rebranding it as a retailer of game-room products, such as pool tables and dart boards. But he had virtually no money to spend on advertising the shop's new image. So Mr. Jacobus began searching Facebook for nearby retailers to see if any would be willing to promote his store for free in exchange for him doing the same. The strategy quickly paid off.Mr. Jacobus connected with the owner of a Christmas-tree business about 25 miles away. He says they agreed to place sample products and advertising materials in each other's shops, including coupons specifically drawn up for the partnership. Over the next few weeks, he says both businesses generated sales as a direct result."Working together is a way to get your name out there," says Mr. Jacobus, 27 years old, who became an entrepreneur to save his parents' 30-year-old New Hampton, N.Y., business, now called Hudson Valley Game Rooms, after his father developed cancer. One way to grow your small business on a limited marketing budget is to team up with other small businesses that target the same types of customers—but aren't your direct competitors—and promote each other's products or services. The tactic typically requires a lot of networking and relationship-building, which can take time and may not always pan out. But entrepreneurs who have engaged in the practice say it can work and that it beats spending hundreds or thousands of dollars on traditional marketing efforts, like TV, newspaper or radio ads."This is the old barter system," says Bruce I. Newman, a marketing professor at DePaul University in Chicago. "What's the cost? A phone call." Mr. Newman recommends pursuing partnerships with companies that sell complementary goods or services and keeping tabs on your progress to see how effective it is. "Build a database once you start doing this so it can be tracked, measured and monitored over time," he says.Sheryl Connelly of Louisville, Ky., has literally gone door to door asking the owners of nearby businesses if they would be interested in doing cross-marketing with her start-up, Marketing Media Management, a provider of social-media services. She also has approached prospective partners through LinkedIn.com and at networking events. But she says she doesn't actually mention anything about a possible partnership upfront. Rather, she tries to get to know the entrepreneurs she targets to be sure they're a good match. "You're gathering information," says Ms. Connelly, who started her business after getting laid off from a sales job in 2009. "You need to be comfortable. It's about your credibility."To date, the 40-year-old entrepreneur says she's developed six partnerships that entail swapping customer referrals. For example, one partner is the owner of a computer-repair business and their agreement is such that if any of her clients mention having computer trouble, she recommends they call that partner. Likewise, if any of the partner's customers indicate that they use social media for marketing, the partner will recommend Ms. Connelly's firm for support in that area."I went from one lead a week to about 10," says Ms. Connelly. "And they're solid leads. You're riding on their credibility, which speaks volumes."Of course, not every attempt to strike up a partnership is likely to work out. Mary Tamargo, owner of Nocube, a digital-marketing start-up in Rochester, N.Y., says there were a handful of times when entrepreneurs she hoped to team up with either turned her down or didn't follow through on their end. But since becoming her own boss in late 2010, just prior to getting a pink slip from a health-care company, Ms. Tamargo, 36, says she has managed to drum up lasting partnerships with three consultants whose clients are mostly small pharmacies—also her target market. Partnerships don't necessarily need to involve exchanging the same kind of support. Entrepreneurs can scratch each other's backs so to speak by agreeing to assist one another in ways that make the most sense for them.Sara Marshall of Jersey City, N.J., says she learned of a creative product-display technique from an entrepreneur she met last spring at a farmer's market. In return, she introduced her peer to a retail store that now carries that woman's cookies and breads. Ms. Marshall has been selling her own brand of salsa under the name Saucy Sara's Salsa since getting laid off from a communications job in 2009. She says the partnership she has works in large part because she and her peer are in the same market and have similar goals. "Everyone's having a hard time because of the economy," says Ms. Marshall, 46. "Everyone wants to succeed." Write to Sarah E. Needleman at sarah.needleman@wsj.com ...

By Sarah E. Needleman Two closely watched disputes now playing out in the courts are shining a spotlight on tensions between franchise owners and management. The growing rift between franchisees and franchisers—businesses that collectively employ roughly eight million people in the U.S.—follows three consecutive years of declines in the number of U.S. franchises, and as economic pressures prompt people to limit discretionary spending.Late last month, an association made up of roughly 185 U.S. franchise owners filed a lawsuit against Cold Stone Creamery Inc., a subsidiary of Kahala Corp., accusing the ice-cream chain of refusing to provide detailed information about funds that the franchisees believe should be set aside for their benefit in a marketing fund. The lawsuit, which seeks declaratory relief, is asking the court to force Cold Stone to provide the franchisees with information on how much of the rebate money it receives from its approved vendors is actually used for marketing purposes. The Cold Stone franchisee association is also demanding insight into what the company does with revenue and interest generated from sales of unused gift cards. "We're paying too much for our products and we're making less profit every year," said Frank Caperino, who is part of the association that filed the lawsuit in Miami-Dade County, Fla., state court. Mr. Caperino currently owns two Cold Stone Creamery stores, both in San Diego, which he would like to sell. A spokeswoman for Kahala, whose other franchise brands include Blimpie sandwiches and Samurai Sam's Teriyaki Grill, said in an emailed statement that company policy prevented her from commenting on "pending legal matters." Management's response to the group's lawsuit hasn't yet been filed. "We are confident with our position," she said.Cold Stone Creamery, of Scottsdale, Ariz., has roughly 1,500 locations in 17 countries.A typical Cold Stone Creamery franchise posted $352,000 in revenue in 2011, down from $400,000 in 2005, according to the group of franchise owners who filed the lawsuit. It is difficult to know how much of the declining profitability for franchise owners may be due to the economic downturn, or what the group says is management's poor decision making. At least a dozen new franchisee associations have risen out of conflict in the past year, according to several attorneys who helped these associations to incorporate. They are "forming at a faster rate than ever before" and "they're taking a more aggressive and more vocal stance," says Robert Zarco, the Miami attorney who is representing the Cold Stone franchisee group. "At the end of the day, it just boils down to profitability," said Eric Stites, managing director of Franchise Business Review, a market-research company in Portsmouth, N.H. "When franchisees aren't making money, that's when you see them form associations and sue the franchiser." The food sector was hit particularly hard during the recession, as many people cut back on eating out. On average, food franchisees make a profit of $88,382 annually and pay an initial investment of $450,000, according to Franchise Business Review. Specialty chains like Cold Stone Creamery may have suffered more than other chains, Mr. Stites said. Trade publication Franchise Times estimates that Cold Stone's systemwide revenue fell 1.1% to $493 million in 2011 from 2010. The Kahala spokeswoman declined to provide specifics on the profitability of the typical franchisee or the figures provided by third parties. Franchisees typically sign lengthy agreements that require them to follow the rules of the franchiser, which commonly require arbitration to resolve a dispute, thus restricting their ability to file individual lawsuits. "Litigation sends a signal to the franchiser and others that something is wrong," said John Gordon, an independent chain-restaurant analyst in San Diego who served as an expert consultant on a Burger King case. In that case, in November 2009, Burger King Corp. franchisees sued the fast-food company, claiming that it acted in bad faith when it mandated that its double cheeseburgers be sold for just $1. A settlement was reached last April. As part of the settlement, Burger King agreed to come up with a new systemwide policy for making decisions about what is listed on its value menu. In September 2010, a group of Edible Arrangements franchisees filed a lawsuit against Edible Arrangements International Inc., claiming management "abused its discretionary authority" when the fruit-basket chain operator mandated in March 2010 that all U.S. locations must be open on Sundays and stay open for an additional two hours every other day of the week. The decision was made "with little to no regard for the individual needs or surrounding demographics of its franchisees," according to the complaint filed in the U.S. District Court for the District of Connecticut. "Our franchise agreement is illusory," said Sherri Vertorano, an Edible Arrangements franchisee in Mooresville, N.C., who is part of the lawsuit. "It's like a living, breathing document that changes whenever the franchiser wants to create another revenue stream." Ms. Vertorano and about 200 other franchisees are also seeking to stop Edible Arrangements management from collecting 2% of gross sales on orders placed over the Internet, among other grievances, according to the complaint. That fee was implemented last month, the company said. Tom Downes, owner of an Edible Arrangements outlet in Portsmouth, N.H., said he is frustrated with the requirement that his business maintain Sunday hours. The 53-year-old said he averages about $1,000 in sales on weekdays but on a recent Sunday he made $23. Tariq Farid, president of Edible Arrangements, denied the allegations in the lawsuit and said any new operating procedures the company implements are intended to benefit its franchisees, not hurt them. Mr. Farid, who founded the company in 1999 and began franchising it in 2001, declined to provide specifics on the profitability of the typical franchisee. The Wallingford, Conn.-based company has more than 1,000 outlets, and posted $425 million in systemwide revenue last year, up from $380 million in 2010. Management has been investing more in social media and ecommerce, for instance, to help the franchise owners keep up with current consumer taste. "At the end of the day, if you deliver results, they'll respect you," Mr. Farid said of franchisees. Write to Sarah E. Needleman at sarah.needleman@wsj.com ...

By Jessica E. Vascellaro Many "angel" investors, who put their own money into small start-ups at a very early stage, previously worked at technology icons that are known for minting millionaires, like Google Inc. and PayPal. But Silicon Valley's angel-investor scene is far from homogenous, new data show. AngelList, a San Francisco start-up that connects accredited investors with companies seeking funding online, recently analyzed its membership to discern where many of the angel investors who create profiles on its site work or have worked. AngelList found that while many angels hold jobs or once did at tech companies such as Google, others were in different industries or tech companies that aren't considered part of Silicon Valley's elite. Googlers still led the pack in terms of overall angel investments and angel investors. According to AngelList's analysis, Google's current and former employees have made 1,823 angel investments. That's more than twice the number of the next company, Microsoft Corp., and spread among more investors—146 from Google to Microsoft's 89.But some companies considered dowdy by the Silicon Valley digerati also broke into the top 10. For example, 39 current or former employees of International Business Machines Corp. made 464 investments. For consulting firm McKinsey & Co., 327 investments have been made by 27 current or former staffers.The list of angels "is much more diverse than people think," says Naval Ravikant, who runs AngelList, with many companies standing out because of the sheer size of their alumni base. He notes that the top 20 companies in the analysis account for 22% of the 38,621 investments its members listed. AngelList classified investors based on where they said they worked and the investments they listed. Individuals could be associated with more than one company.AngelList's analysis also shows older pockets of wealth mingling with newer ones like Facebook Inc., as new secondary market exchanges make it easier for employees to cash out before an initial public offering and diversify by investing that wealth in other ways. The social network, which filed for an IPO Wednesday, ranked eighth, just behind Apple in the number of angel investments.Current and former Apple employees didn't show up as high on the list as one might expect, given the amount of wealth the Cupertino company has created for a number of early employees. Last week, Apple was briefly the U.S.'s most valuable company. Yet the 38 angel investors affiliated with the company listed only 375 investments on AngelList. Former Apple employees note that less turnover at the company means there are fewer onetime Apple colleagues with start-ups needing funding.Overall, U.S. seed-round investing from venture investors—including some angel investors—grew to $327 million in 2011, from $205 million in 2010, according to VentureSource.Silicon Valley angel investor Brett Bullington says the growing diversity of angels has brought different types of expertise to the Bay Area. "The Twitter guys are going to be more mobile focused and the Google guys more infrastructure focused," he says. Damion Hankejh, an investor in start-ups including CrowdFlower and Etacts, says his background as a consultant at IBM and General Electric Co.'s GE Capital taught him the value of intellectual property. Now he'll only invest in companies with strong patent portfolios, something he says other investors often overlook. Write to Jessica E. Vascellaro at jessica.vascellaro@wsj.com ...

By Angus Loten And Shayndi Raice Facebook Inc., with an eye toward future business relationships, wants to be friends with more social-media start-ups.So it is going after those start-ups' investors.Facebook's new fbStart program is open to early-stage business investment groups, also known as "seed funds" and business "accelerators," that have social-media developers in their portfolios. Developers at companies supported by the fbStart partner firms will get an advanced look at new tools and features Facebook is creating for its site. In return, Facebook hopes that some of those start-ups could eventually build a business around its platform. So far partners in the fbStart program include Seedcamp, sFund, 500 Startups, TechStars, and Y Combinator, among others, a Facebook spokesman said.In documents filed for its initial public offering last week, part of Facebook's pitch to potential shareholders is that it can serve as a platform for other companies, and ultimately take a percentage of those companies' revenue. Since Facebook first opened up to developers in 2007, a growing number of start-ups, such as social-gaming firm Zynga Inc., have built almost their entire business around the social network. Other examples include BranchOut Inc., a professional network, and Color Labs Inc., which provides live phone-based broadcasts to Facebook friends."We've been asking Facebook for ways to get better access and advance information for our companies, and this is their way of doing that," said David Cohen, founder and chief executive of TechStars, a Boulder, Colo., start-up accelerator that has helped nearly 100 new businesses raise more than $125 million since 2007. About half of TechStars' portfolio of more than 80 active companies are expected to make use of the program, he said, ranging from ventures that develop entire platforms on Facebook, to others that incorporate social-media tools and features from the site.Most of the 70 start-ups in 500 Startups, a $30 million seed fund and business accelerator in Mountain View, Calif., use the Facebook platform in one way or another, said Christine Tsai, a 500 Startups partner. With fbStart, "they're putting a lot more manpower behind working with us in a more formal way," she added.While the start-ups get an early look at new tools in development at Facebook, the site gets to see how developers are using these tools to spin off new ventures, Ms. Tsai said. For start-ups, it can be easier to create a company that relies on Facebook's roughly 845 million members, rather than build a user base of their own. In the past, entrepreneurs might have built a competing social network or used Facebook as a tool to drive traffic to their own sites.But Facebook must walk the line between allowing companies broad and unfiltered access to Facebook users, while not exposing those users to a flood of pitches from developers (Facebook's version of "spam"). The company also has faced past developer complaints that it still acts like a start-up in many ways, without clear policies or guidelines for what is considered spam. U.S. developers of Facebook apps accounted for about 182,744 full-time jobs in 2011, according to a study in September by the University of Maryland's Robert H. Smith School of Business. Siva Visawanathan, an associate professor of information systems at the University of Maryland, who co-wrote the study, said the fbStart program strikes a balance between providing greater access to Facebook's platform, while controlling quality and protecting user experience."Traditionally the model has been to keep your platform closed from competitors," Mr. Visawanathan said. "But people are realizing that opening it up can be a big advantage, because more apps and services attracts more users."By targeting top seed funds and accelerators, Facebook is increasing access to outside developers while setting a high bar for quality, he added. ...