The vast majority of my work comes from recommendations/word of mouth, obviously that wasn't the case when I first started.
Having been involved with buying & selling domain names for a couple of years now I made a few contacts through that, and traded design work for domains, which helped me build up my first freelance portfolio, I was also very active on business forums to make some initial contacts.
Other than that I contacted local companies to offer my services, my first tactic with this was to check the local papers for companies that could afford the big adverts, I knew then that they would probably be spending £500+ on an advert each week, so a similar figure for a website re-design would be easy to pitch. I looked for companies that already had a website (that I believed I could improve on) as felt this would be an easier target than educating a company about why they should have a website + domain name, etc. half of my battle was already done with companies that had sites. More often than not they were out-dated and one of those jobs that had been on their to-do lists for a while! Best results came from direct calls, I would explain that I'd seen their ad in the local paper (they then knew I was local & they also then think their ad must be good) and that I was a freelance designer starting up who could help develop their website. Found that with vast majority of local companies, e-mails won't reach the right person, or will get ignored, so ask to speak to someone about the website, get a name and contact number if they're not available.
Greg