You're The Boss

This story appears in the September 1996 issue of Startups. Subscribe »

Like many new entrepreneurs, David Sakrison, a Ripon, Wisconsin, editorial consultant, tried to snag clients with a series of snappy print ads. His $1,600 expense resulted in a grand total of two calls. "And one," he reports, "was from a competitor scoping me out."

Sakrison knew there had to be a better way. The answer was referrals. "Once I started really pursuing referrals, there was no sense in advertising," he says. "Using referrals puts every other way of building a business to shame."

While most successful business owners know that referrals are important, few employ a consistent system to target, approach and follow up referrals. Yet many experts agree that a well-planned and executed referral strategy can bolster business by as much as 80 percent.

Here's a three-step process anyone can use to build referrals:

1. Target people most likely to give you referrals. Bob Burg, author of Endless Referrals (see sidebar below), suggests starting with your "sphere of influence," which means everyone you know. Make a list of friends, relatives, casual acquaintances, business associates, suppliers, and professional service providers, such as doctors, lawyers, accountants, dentists, teachers-even the person who delivers your mail. If you're already running a business, the list will naturally include your customers. Don't forget ex-employees, or people you've met through religious groups, classes, or alumni associations.

If you've left a company to start your own business, your best referral source could be your ex-boss or a former colleague. That's how it was for Sakrison. When he left his job as the editor of two aviation magazines to start his own business, he didn't burn his bridges at the publishing company. Instead, his former boss agreed to spread Sakrison's name to advertisers who might need help with public relations articles or other business writing. It was a win/win situation all around: By including Sakrison's flyer in their mailings, they provided their customers with the name of a reputable editorial consultant at no cost; at the same time, Sakrison received a subtle endorsement to a vast group of potential clients.

Bankers are another good referral source, according to Alyce Ann Bergkamp, assistant dean of the School of Arts and Sciences at Catholic University of America and an expert in general business management. "Bankers tend to know a lot of business people," says Bergkamp. "If you prove yourself a good risk for a loan and establish a good relationship with your banker, your name may well come to mind when he's talking with other clients who can use your services. And what more believable referral source could you want working for you than a banker?"

2. Structure your approach. The success of any referral strategy will depend on how it's carried out. Start planning by considering how many referrals you want to pursue each week. Pick a number, then determine which methods will help you reach your goal.

The most obvious way to secure referrals is to ask for them, but as easy as that sounds, many people find it difficult to do. Some unseasoned entrepreneurs feel a little embarrassed to ask for referrals, for fear of imposing on their clients. Nonsense, say the experts! How will anyone know you want referrals if you don't ask?

According to Mark Lovas, district sales manager for Vector Marketing in Seattle, "It's fear that holds people back from asking for referrals-the same fear that holds them back from calling leads once they get them. But if you believe in your product, your service and yourself, why is there any hesitation?" His suggestion: Get into the habit of asking for referrals. "The more it becomes a part of your business, the less you will have to think about it." Once you've made a decision to seek leads, he says, "Just ask, again and again."

But you need to be careful how you ask-never beg, coerce or embarrass a source. Carefully word your appeal, indicating that you get most of your clients by referrals and would really appreciate their suggestions. Better yet, follow Burg's strategy: "People need to realize that the best way to get referrals is to give them." Burg makes it a practice to position himself as someone on whom others depend for referrals. He asserts, "If your attitude is How can I help people? rather than How can people help me?, you will have no trouble cultivating referrals."

Collecting referrals from your current clients should be a priority. To ensure that your clients will want to give referrals, provide top-notch products and service before, during and after the sale. The most satisfied clients are the ones most likely to offer referrals.

Kimberly Stanséll, owner of Research Done Write! in Los Angeles, was referred to the company that became her second-biggest client by a woman she had never met. When they talked on the phone, Stanséll evidently made such a positive impression that the woman called a company that she knew was looking for people with Stanséll's expertise and recommended her. "I often get referrals from people who see me in action although they're not using my services," Stanséll says.

When asking for referrals face to face, avoid using blanket statements like, "Who do you know who might benefit from my service?" Instead, Burg suggests you help clients narrow their lists. "Be specific," he says. "Lead your client to good referrals by asking about their associates. For instance, if your client is a golfer, ask if he plays in a weekly foursome. If he answers 'yes,' ask if any of his partners could use your services."

Make it easy for people to refer you. Be sure everyone who might refer you to others has a supply of your business cards and that your name, phone number and address appear on every piece of paper that leaves your store or office. And if you're in a situation where you'll be asking for referrals, keep a notebook and pen handy. You don't want your referral source to be searching his pockets for the tools you should have.

3. Track and follow up. When you receive a referral, follow up immediately. Your client may have already told the referral you'd call, so you'll look bad if you don't. Sakrison has a follow-up method that works like a charm. When someone offers referrals, Sakrison tells them, "I promise you, I'll call them." When he calls referrals, Sakrison greets them with, "I promised so-and-so I'd give you a call."

Track referrals with a database. Weekly, monthly and annually, compute the number and types of referrals you've accumulated. Note who referred each person so you can thank them. Study how many referrals were converted to clients. These statistics should become the basis for an annual review of your referral strategy and the basis for any changes you make.

Always send a thank-you note or letter to referral sources, whether or not referrals become customers; those who do convert should generate a more meaningful thank you.

When Joan Kisver, an Aventura, Florida, organizational consultant, receives a referral who becomes a buyer, she gives the referring party one free hour of consulting. Others say thanks with flowers, movie tickets or, best of all, something personally meaningful to the client. For example, if the referral source is a horse lover, a box of notecards or a calendar featuring horses would be appropriate; a gourmet cook might enjoy a regional cookbook or kitchen gadget.

Plan a quarterly reminder to the referrals and clients in your database. If you send a newsletter, include a story about referrals and how much they mean to your business. Include a form and a self-addressed, stamped envelope to be returned to you with a list of referrals. Offer a small gift or discount if it's returned. Don't just ask for names; be specific. Request names and addresses of the customer's dentist, chiropractor, mechanic, travel agent or whomever fits your customer profile. Keep the list to five or fewer names. Be sure to include a space for clients to sign the card so you can thank them.

Melissa Giovagnoli, author of Make Your Connections Count! (Dearborn Publishing, $15.95, 800-829-7934), believes that when you get one good referral from a source, you're likely to win three to five more if you follow up and say thank you in a personal way-with a gift or card that shows your appreciation. "The way you get an endless stream of referrals," she says, "is to do a good job, keep building relationships, focus on quality sources, and practice, practice, practice good networking strategies."

Money Matters

Borrowing Basics

When borrowing money from a bank, it's important to make sure you look out for your business's best financial and legal interests. The following three borrower tips are taken from "Words to the Wary: 10 Rules to Remember When Borrowing Money From a Bank," a booklet published by Cappello & McCann, a Santa Barbara, California-based law firm that specializes in the field of lender liability.

1. Don't rely on what your banker tells you; get it in writing. A legal doctrine known as the "parol evidence rule" enables lenders to keep out of court any evidence about oral agreements they made with their borrowers if that evidence conflicts in any way with the written loan documents. This means that if your lender makes you an oral promise that is not reflected in the written loan documents or if your loan documents don't match exactly the agreement you've reached with your lender, then you may not testify about the oral promise or statements that were made to you.

2. Read every document before you sign it; if you have any questions, ask. In the past, courts were lenient about enforcing the strict terms of loan agreements. They understood that not everyone reads, let alone understands, every single word buried in the small print.

But those days are over. Courts are now strictly enforcing all the terms of the loan documents, regardless of how onerous they are, whether the borrower read them, or even whether or not the borrower speaks English. Borrowers must remember that virtually every clause in a loan document is there for one reason: To protect the lender. That is why it is so important to read and understand everything in your loan documents.

If your deed of trust says that your bank can foreclose if you are one day late in payment and that it can do this without providing you any notice of your default, that is obviously something you should know. If your loan officer assures you that the lender never enforces a troublesome provision, then ask that it be deleted. If your loan officer refuses, be prepared for the worst.

3. If your banker tells you something that sounds unusual, check it out. Borrowers must remember that lenders are selling, just like any other business. When lenders exaggerate or "puff" about what they can or will do, borrowers must take that with the same grain of salt that they do when dealing with any other salesperson.

If your loan officer says he or she can do something for you that doesn't sound realistic, try to confirm those statements with the officer's superior. Better yet, don't rely on those statements until whatever the officer promised actually occurs.

For a free copy of "Words to the Wary" in its entirety, send a SASE to A. Barry Cappello, Cappello & McCann, 831 State St., Santa Barbara, CA 93101.-Karin Moeller

Contact Sources

Burg Communications, P.O. Box 7002, Jupiter, FL 33468-7002, (800) 726-3667.

Catholic University of America, Undergraduate Office for the School of Arts & Sciences, 107 McMahon Hall, Washington, DC 20064, (202) 319-5114.

Research Done Write!, 8726 S. Sepulveda Blvd., B-261/BS, Los Angeles, CA 90045-4082, (310) 568-9861.

Sakrison Communications, P.O. Box 405, Ripon, WI 54971, (414) 748-6125.

Vector Marketing, 2150 N. 170th St., #280, Seattle, WA 98133, (206) 364-9244.

WorkSmart, P.O. Box 800443, Aventura, FL 33280-0443, (305) 931-8562.