Paraphrased from an article by Neil Tortorella.

No guarantee

Basically, designers (graphic, web, illustration, etc) sell two things---ideas and time. Free mock-ups, by definition, require an investment in both ideas and time without a guarantee of compensation.  Therefore they may be done without much time or effort.

Unprofessional

Most professional-level designers won’t participate in speculative presentations since they take away time and resources from bona fide projects with guaranteed revenue. The result is designers who participate in spec presentations are typically less experienced.

Lack of professional research

Successful design requires time to research a company, its competitive landscape and the target market.  Since most mock-ups are run on a quicker schedule, adequate research cannot be done, resulting in designs that are more pretty pictures than strategic design backed up with facts.

Needs of the client not met

Speculative requests are often a result of “I’ll know if I like it when I see it” thinking on the part of the client. The problem is that it’s a self-centered point-of-view rather than a position serving the needs and wants of the target market.

Myopic

Spec projects are often short-sighted and tend to be done quickly without regard to a company’s overall branding efforts.

Reduces value

Speculative projects tend to reduce the value of the client/designer relationship. Rather than developing a cooperative effort, they tend to become a competitive environment that often hinders a positive design effort. 

Undermines consultative benefits

Speculative requests tend to reduce the potential of professionally designed sites to an unknown commodity. Experienced designers provide specific services which build upon each other to solidify a brand and image. Spec requests undermine the consultative benefits of the client/designer relationship.

Undervalues the profession

Designers who participate in speculative work undermine the profession.  These are often new designers who are lured in by the idea of a quick profit or more work down the road.  It is seldom worth seeking out someone who doesn’t value his work.

Sales pitches and design don’t mix

Design work is inherently based on ideas and experience.  A designer without much experience and lacking in ideas is more likely to propose template designs and mock-ups. 

Red flags

The designer may wonder why a client is making a request for a mock-up.  Is it due to a lack of understanding of the industry, to fuzziness about goals and objectives, to get free ideas, or is there possibly not enough money in their budget?   

Why?