\Andy Lopata, a London native, was educated at The University of Birmingham. The Financial Times calls this London-based author (www.lopata.co.uk) one of Europe’s leading business networking strategists. The coauthor of two books on networking, Andy’s third title is, Recommended: How to Sell Through Networking and Referrals. He is a Fellow of the Professional Speaking Association of the UK and a blogger for The Huffington Post (www.huffingtonpost.co.uk/andy-lopata). Andy gives this exclusive interview about the under-used tactic of referrals to drum up business to Victor Fic, our special correspondent for economics and politics.
Andy, explain why you believe that businesspeople have an ineffective approach to referrals and how this committed you to encouraging them.
For eight years, I was managing director of a national business network in the UK. Its members, predominantly small businesses, primarily aimed to generate referrals for each other. Yet day after day, I witnessed companies failing to think about why they existed or ask for referrals in a way that would actually generate them. In various talks that I gave, I asked business owners what their most effective source of new business was. Time and again, they answered referrals, recommendations and “word of mouth.” But when I asked what they did to generate such activity, I saw blank looks. Recommendation and referral are vital for business growth, yet we put more time, money and effort into other routes to market, such as cold calling, PR and advertising. I felt that it was time for a change. We need to build teams of “champions,” meaning people who will seek out opportunities to refer us.
Cite examples of how referrals can work.
Following eight years running the national referrals-focused business network, and developing all of the training for our members, I spent much of the last four years working with a range of businesses, of all sizes, to develop their own referrals strategy. I worked with a team of wealth managers from a global investment bank who exceeded their annual target by 50 percent after implementing my ideas. Also, I saw partners at a law firm pick up the conversation with former ‘champions,’ meaning people who had previously referred them but then drifted away.
Are referrals, leads and recommendations similar?
The key difference is that someone to whom you are referred recognizes that he may need your help and he is expecting your call. A lead is a name and number of someone who may be a prospective client, but he knows nothing about you. A recommendation means someone knows about you and how you might help him, but you either don’t know that he is interested or you don’t have permission to contact him. The best type of business introduction is someone who is expecting your call and interested in doing business.
Why can they help a business?
People are far more comfortable buying products or services after a trusted contact recommends them. Having a strategy to encourage people to make such recommendations or referrals is vital for any business. It is so important to be proactive when looking to generate new customers and you want the best possible new leads -- and that means referrals. Referrals are easier to convert into business than any other source of new lead. Customers coming through referral are more likely to be loyal when the opportunity comes to buy again and they, in turn, are more likely to refer others in the future.
What mistakes do businesses make when implementing a referrals strategy?
Most businesses don’t have a strategy at all, and where they do recognize the importance of referrals, you will find very little in the way of strategic thinking. Many businesses will simply wait for customers to recommend them, yet we know that more people are willing to spread bad news than good. So that can backfire. Other businesses may ask prospects for some names of “other people who may be interested” but this is a poorly-timed and lazy approach that, at best, leads to low quality leads. Neither approach is effective.
How do you inspire people to refer you?
Many businesses automatically assume that you should pay people to refer you, but in my experience financial reward does not motivate most people. People will refer you because they trust and like you, because they are easily able to recognize who you help and when they need your product or service and when they are having the right conversations with the right people. So you need to look at how to develop that trust and understanding, and make it easy for people by asking for the referrals they have the opportunity to make. Look at every potential champion individually and ask yourself what will inspire him. Tailor your approach to his personality, background and your relationship with him. Financial incentives may play a part, but don’t make them your first port of call. Tell us about using LinkedIn as a key part of that strategy.
LinkedIn is a tremendous tool to help ask for referrals, but many people miss this. LinkedIn is based on the theory of “six degrees of separation,” meaning the idea that we are connected to everyone in the world by no more than five steps. In the case of LinkedIn, it tracks three degrees of connection from you. So if I searched for you, it might tell me that I know someone who knows somebody who knows you.
You can identify people you’d like to meet, search for them on the site and then find out through it to whom you are connected. If you have the right relationships with your mutual connections, you can then ask to be introduced. You can either use the site for research and then ask for the introduction separately, or ask through the site.
What are the current industry or social trends that relate to referrals?
In today’s economic climate, when many companies are carefully examining their marketing spending, more recognize that networking is the most effective and least expensive way of generating new business. People are flattered to be recommended and this is even more true when they are examining every cost. The surge in online social networking has transformed the business scene and emphasized the importance of good networking. LinkedIn in particular has enjoyed substantial growth in membership, but most of its members don’t understand how to use it effectively.
Can you offer hard stats that show that referrals work?
In July 2009, a Nielsen Global Online Consumer Survey on what influences people’s buying decisions showed how trust in friends’ recommendations outweighed any other influencing factor by three to one. The survey found that “peer recommendation” is trusted “completely” or “somewhat” by 9 out of every 10 people worldwide. For more information, see http://blog.nielsen.com/nielsenwire/wpcontent/uploads/2009/07/trustinadv...
Will cold calls and direct marketing disappear?
People are less responsive than ever to cold calls and direct marketing. Targeted ads on social networks, particularly Facebook, have changed our relationship with the people who sell and market to us and, more than ever, we expect sales messages to be directly relevant to us. Referrals from the people who know us best and recognize our needs at that time are the most targeted sales message possible.
Is Facebook a more powerful tool than Linkedin?
LinkedIn is a more powerful tool for people seeking direct referrals to specified individuals or positions within companies. For that reason, it works best for companies selling business to business, or seeking key joint venture partners or intermediaries. Facebook is probably the stronger network for people targeting consumers at the moment, effectively tapping into the power of word of mouth and recommendation rather than referral.
Why do you suggest that traditional marketing books ignore referrals?
It’s not so much that they ignore referrals, but that referral generation is rarely treated with the same import as other routes to market.
The networking advice currently available predominantly focuses on how to build your network, meaning how to work a room for example, rather than leveraging that network and understanding the return on investment from that activity. My book, Recommended, takes that understanding of networking’s role and converts it into a practical, measurable return.
How is your book specifically better?
It takes the reader on a practical journey through the stages of referrals generation, leaving them with a process they can implement in their business with ease. It focuses on looking at the sources of your referrals as individuals rather than taking a mass approach, and targeting specific referrals through those people. As a result, the quality of referrals and the value they bring to the business can be higher.
So what are your key tips for any business seeking to implement a referrals strategy?
First, be clear about which referrals you want and the quality of the introduction you seek. Many of the people I talk to cannot tell me who their ideal referral would be. If they don’t know, how can their network possibly guess? So get that right first. Then look to your network and understand who can refer you. Not just the obvious people, such as clients and intermediaries, but examine your wider network. Be sure to consider your suppliers, former colleagues, family and friends as possible sources of referrals. Even your competitors, in many industries, may be happy to refer you in the right circumstances. You need to challenge your existing beliefs.
Then understand what their inspiration will be to do so and get your message right so that you can make it as easy as possible for them to refer you. Finally, put a strategy into place that allows you to track your activity and, most importantly, the results of your actions. Above all, it’s a question of attitude. Be prepared to help and refer others in your network rather than simply expecting them to refer you.
Who is your primary audience?
Referrals are vital for any business where new business generation is important, and beyond. But I particularly focus on owner managed and start up businesses, professional services firms and sales teams focusing on business to business sales where the transaction value is high and each successful referral can really promote success. Start-ups need to grow through word of mouth predominantly as they often lack the finances needed to pursue effective marketing campaigns in other ways. Professional services firms traditionally don’t like to advertise and thrive on referrals.
Your book ‘And Death Came Third!’ has such a strange title for business. What does it mean?
In 1984, a New York Times survey asked people what most frightened them. Death came third! The top two fears in the survey were walking into a room full of strangers and speaking in public. So, in the book, my co-author Peter Roper and I share tips and techniques to help people overcome these fears. In my section, on networking, I focused on how to “work the room” at a networking event from the preparation and strategy through approaching individuals and opening a conversation to following up and developing the relationship.
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