Episode 56: The Danger of Relying on Referrals

Most creative entrepreneurs build their businesses on referrals. There is something quite wonderful about doing such great work that your clients become active promoters of your business. That druglike affirmation that comes with a referral—combined with the joy of having new clients arrive at your door through word of mouth alone—who doesn’t love that? But there is a dark side to this tempting new business channel, and like drug addiction, it could lead you to hitting rock bottom.

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Since most creatives rely on referrals, it’s critical that we understand the downside. Though referrals deliver clients without any extra effort on your part, the biggest liability is the flip side of that benefit—that no effort on your part controls when you get a referral. If you decide to ride the referral train, you don’t get to choose where you end up, and if it breaks down—you can be left in the middle of nowhere.

Lack of control is the biggest liability of overly relying on referrals. And if you have great success with referrals—you might mistakenly believe that this source will work forever—in which case you’ll never learn to exercise your marketing muscles.

But lack of control is not the only problem. Another liability of this model is the inability to improve your client base with better clients. You see referrals tend to run along the lines of peer relationships, or downward on the path of social influence. Rarely do referrals move up. For example, suppose you needed to find a professional photographer for a project—and you happen to mention it at a family party. Your uncle Joe recommends the portrait photographer he used down at the mall. You’re not likely to take that recommendation. But if you know a creative director at a big award winning agency, and she gives you a name—you’ll take it, though you might worry that you can’t afford them.

Referrals carry a correlated value perception. If you did go to the mall photographer your uncle recommended you would absolutely expect to get a bargain. But if you reached out to the creative director’s recommendation—you’d likely be a bit worried that you’d be wasting their time as you anticipate being quoted a high fee.

So when you get a call from a prospect that was referred by an existing client, you can assume this prospect has come with a price expectation that has little to do with your actual value, and everything to do with what they expect the person who referred them would be able to afford. This dynamic is even more problematic if you’ve built a reputation, with your client base, as a cheap alternative, or as more affordable than the big guys.

Another liability of referral reliance is the lack of control over the kinds of clients you end up with. Whenever your phone rings, or you get an email from a referred prospect, it’s quite likely that you’ll know very little about their particular business—and they will likely have very little knowledge of your particular expertise.

Referrals are a form of relational marketing—so at the start all you have is a common connection. It’s up to you to figure out all the details of this new prospect’s needs. What kind of company are they? What is their actual need (not just their perceived need)? Who are their competitors? Who will be involved in decision making? What are their brand standards (do they even have any brand standards)? And the most important questions, what is their budget? You’ll have to educate yourself from scratch on every aspect of this new random client, and that education represents more overhead and inefficiency.

Finally, referral based practices do actually involve effort, through indirect. Referral driven businesses often engage in frequent networking activities. When I encounter creatives who have made this model work for a long time, the owners tend to be the extroverted type, that enjoy the hustle, and are highly relational by nature. Therefore the referral model is even more risky for introverts—and frankly even extroverts can get worn down over time. This liability is multiplied whenever referrals so slow down. Since you lack control over your marketing, the only thing you can do is hustle harder, and scramble to “touch base” with all your connections.

Referrals are often what get creatives started down the road of entrepreneurship. But they are not the best foundation to build on.

Until next week: don’t let the business of creativity overwhelm your creative business.