Different strategies work for different people. For the most part, good work begets more good work, but it usually requires a bit more legwork than that. We started by doing cheap (but never free) work for people we knew. Then we built an awesome portfolio site and our web presence did most of the work for us. Other places have told us that winning competitions is most important, and we’ve heard people have success by getting published in design magazines. The one common thread we hear is that networking is always important, and getting to know your community is a lot more rewarding than putting ads up on craigslist.
FYI
Cast Iron Design is now The Office of Ordinary Things. We relocated from Boulder to San Francisco, but otherwise we’re pretty much the same people doing the same things, just a bit more hardcore.