02 December, 2009

What Are You Pretending Not To Know About Referrals and Relationships?

Many of my regular readers are in what I call “R & R” businesses - “Referrals and Relationships”. Many of my readers are HR consultants, financial services consultants, business consultants, advertising and marketing consultants, accountants, lawyers, IT consultants and others who develop an ongoing relationship with their clients and depend on word-of-mouth referrals for new client acquisition.

Because I know who reads me, I know most of my readers don’t have big advertising and marketing budgets. I also know most of my readers would benefit more from some good ol’ word-of-mouth referral than they would from an expensive mass media campaign. Experience has taught my readers that people don’t choose an accountant, marketing consultant or other professional services provider because they saw a newspaper ad or heard a radio ad but if a trusted friend or colleague recommends a particular professional services provider, that provider is likely to get the business.

So today’s question is “If you know the power of word-of-mouth referrals, why aren’t you running your business like you believe in word-of-mouth referrals?”

Let me ask it the way Susan Scott (Fierce Conversations) would ask it: “What are you pretending not to know about the power of word-of-mouth referrals?”

If you believe that word-of-mouth referrals are the lifeblood of your business and you know from experience that you are more likely to choose the lawyer or the accountant or the headhunter or the financial advisor who was referred to you by someone you respect and trust, why aren’t you running your business as if you believe these things?

As I said in yesterday’s Higginbotham At Large and as my “R & R” readers already know from experience, if you provide a professional service and you’re competing with another provider of that service for the same client, it’s the guy with the relationship, not the guy with a radio ad, who’s most likely to get the business. No, I’m not knocking radio. I believe in radio properly used. Back in the 80s I used to buy a lot of radio and a little newspaper and TV when I could get co-op money. In some businesses, sales would drop like a rock if the advertiser slashed the ad budget.

But my readers aren’t in businesses whose stock prices and sales would plummet if they don’t buy TV and radio and slick magazine ads. My readers are in businesses where one casual recommendation in passing is worth more than $10,000 worth of advertising. My readers are in businesses where a service provider with an ad budget is no match for a service provider with a referral.

But they don’t run their businesses as if they know and believe this.

Consider the case of “Rob” (not his real name) who recently asked for my advice. “Rob” is one of the many IT providers out there whose target clients are the businesses with, say, 10 to 20 computers but no full-time “IT department” to take care of their IT needs. “Rob” told me that his business would go from “just getting by” to “crazy profitable” if he could just acquire 10 more clients.

Further, Rob told me, his clients are very cost-sensitive. He told me that if he can’t get new clients and is forced to raise prices, some of his current clients will leave him and go to another IT provider when their contracts are up.

“I’m on the verge of making some real money if I can just figure out how to go from 80 clients to 90” Rob told me. He also told me he had recently spent thousands on an ad campaign that didn’t bring him even one new client. So I said to Rob what I’m saying to my readers today.

“Of your 80 clients, how many are really, really happy with your service and would be willing to tell somebody?” I asked.

“More than half of them” said Rob.

“So when was the last time you put one of your clients in a position to recommend you to a prospect?” I asked. “And, when was the last time you came right out and said to one of your happy clients that he could help you keep prices low if he helped you get a new client?”

Rob admitted that he had never asked a current, happy client to refer business to him and that he had never arranged a meeting of happy clients and prospective clients.

“How much would it cost you in coffee and lunches or coffee and dinners to put your 40 happiest clients in the same room with prospective clients where they can say those magic words that we both know will lead to new contracts?” I asked.

“Way less then I spent on my failed ad campaign” admitted Rob.

While we’re talking about the power of relationships and referrals, let’s talk about that other untapped source of new referrals: your employees. Where did your receptionist or administrative assistant work before he/she came to work for you? Did he/she know businesses that can use your service? Have you asked?

Do you see where I’m going with this? Why would you spend another dollar on advertising when you haven’t walked down the hallway and asked your new architect whom he or she knew from his/her last employer who might be willing to throw some business to your firm? Why would you spend money on advertising when you haven’t yet asked your own happy clients who they know who might want to have lunch or coffee?

By the way, at that same lunch of coffee, make it a foursome. Introduce one of your clients to another so he, too, can meet a prospective new client.

Why not hire people who know how to network? Sales is not just for sales reps. Professionals of all kinds - architects, engineers, lawyers, accountants, etc. - need to learn that nobody gets to just sit at a computer and leave client acquisition to somebody with the words "sales" or "marketing" on their business cards. Turn your entire team into a sales force. Instead of spending precious capital on advertising, why not buy your employees memberships in some professional organizations and require them to attend meetings, exchange business cards with people and swap a few germs grinning and gripping at lunch meetings and "business after hours" meetings. Buy one employee a $370 membership in Society for Marketing Professional Services, buy another a $300 membership in SHRM. For less than it costs to buy a few radio spots or a small newspaper ad you can put your team members in the same room with real live prospects where they can actually start forming relationships that lead to new business.

Again, there’s no need for my advertising readers to send me nasty notes about why I’m knocking advertising. I’m not. I believe in advertising. Perhaps in a future post I’ll even share what I learned about advertising when, back in the 80s and 90s, it was part of my job to create ad campaigns and buy ads for my employers, but for small “R & R” businesses who can’t really afford to advertise and absolutely know for sure that word-of-mouth referrals are the lifeblood of their business, it simply doesn’t make sense to buy ads until you’ve exploited the untapped power of your existing relationships.

So to my “R &R” readers I say two things in closing:

1. What are you pretending not to know about the power of word-of-mouth referrals? Why aren’t you putting the mouths and the ears in the same room with each other? It’s easy and it’s fun. If you’re in an “R & R” business, networking needs to become a way of life.

2. A competitor with an ad campaign is no match for a business that gets word-of-mouth referrals.

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