From the March 2000 issue of Startups

Do you know the difference between a hot prospect and a cold one? If you have a program in place to win referrals for your new business, you're on the right track. Referrals are your hottest prospects because people come to you prepared to buy. Typically, prospects move through your sales cycle in three stages. They begin as cold prospects who know relatively little about your company. As you use sales techniques to bring them closer to a buying decision, they become warm, then hot, prospects.

Referrals, on the other hand, are businesses or individuals who've been sent to you because they have a specific interest in what you offer. They automatically enter your sales cycle at about the same point as prospects you've painstakingly pulled in all the way from cold through warm to hot.

Your two best sources of referrals are current customers or clients and businesses that serve your target audience. You need an active program to cultivate referrals, as outlined below.

Step 1: Learn how to ask. Make a habit of routinely asking for referrals. For example, during a meeting with a satisfied client or customer, you might say, "You know, much of my business is built on referrals, and I currently have some time in my schedule. Do you know someone who might want . . . ?" Be specific about the type of work you're looking for. Make it clear you're open to receiving referrals and that you plan to handle any referrals given with the same expert care your satisfied client has received. For past clients and those you rarely see face-to-face, you'll need to send an occasional written reminder of your desire for referrals. Make this a part of your ongoing marketing program. Also, use customer satisfaction surveys and letters to ask for referrals at the end of every project or completed job.

Step 2: Build relationships with referral sources. Businesses and individuals that serve your target audience are ideal sources of referrals for your new business. Identify the types of businesses that reach your target audience--ones with which you can partner or share referrals. Then contact them individually about building a referral relationship. Face-to-face meetings help build rapport and mutual trust. Get to know your potential referral sources well, and over time, the number of referrals they send you will grow.

Colleagues (and even competitors) are also valuable sources of referral business. This is particularly true if you have a unique niche or specialty within your field.

Step 3: Spread the word. Networking is a speedy way to get to know other entrepreneurs and build referral relationships. Be selective about the types of groups you join. Look for those with memberships consisting of business owners who market their products to your target audience. In addition to traditional business groups and associations, consider joining a leads group, or "networking club," in your area. Most charge several hundred dollars a year to join and consist of 20 to 30 people who meet regularly to share leads. No matter what types of groups you join, it's important to make the most of your memberships. It's not enough to attend occasional meetings and sit quietly through the programs. It also helps to be a good listener. Concentrate on what the people you meet tell you about their businesses.

Step 4: Keep referrals coming in. Take excellent care of your referral prospects. Make them your top priority to ensure the quality service they receive from you reflects well on the associates who sent them your way. When new prospects call, ask where they heard about you. Send a note or make a brief call to express your thanks for the new lead or customer. The ultimate way of saying thanks to someone for sending you referrals is to reciprocate by sending them great leads, too!