The Birth of the referral economy

written by Steven Rosenbaum for Forbes in May 2014

Sometimes, it takes a series of events to turn a number of unrelated instances into a glimpse into the future.

The other day I was talking to a friend about hiring. It’s gotten hard, harder than ever. Not because the tools are hard, but in fact because they’re easy and cheap.

Anyone can post a craigslist ad. The most expensive ones cost $25. And anyone can respond to a craigslist ad, and they do. So a post the other day for a Senior Sales Manager resulted in resumes from an Undertaker, an IRS Agent, and a High School Student. Seriously. Hundreds of responses, few of them even remotely responsive;  SPAM resumes. Yes, I know -it’s my fault for using craigslist. Fine,  I also posted to LinkedIn LNKD -0.83%, and a number of other quality pubs. So far, no luck. 

But – the truth is – what I really want is a referral. Someone I know who can say “here’s the perfect person for you.”

That would be sweet. And, I’d pay them for the referral.
Chances are – we may be about to arrive there.

Marketers are calling this trend; the birth of the Referral Economy. It’s a self-help system where people share and monetize their social network. Because these recommendations happen between trusted friends, the customers trust referring users and the recommendation is inherently non-commercial.
In real estate, the potential to change the way apartments are listed and rented is huge.  The founders of a startup called Circumrent see their mission clearly.

“From being scammed by brokers to spending weeks trying to find the perfect no-fee apartment and save money, it’s safe to say that we’ve ran the gauntlet of renting an apartment in New York”,  writes 20-something founders Nikhil Gregg and Vamsi Katragadda. T

he way that Circumrent works, the current tenant shares his plans to move out with his or her social network. The result – qualified renters see the space first,  landlords and tenants are able to save broker fees, and the former tenant (the referrer   gets paid for sharing the apartment with his network.) Not only does it save costs and get qualified tenants,  Nikhil told me that New York apartments are vacant for 28 days on average, costing landlords money. So efficiently connecting tenants with rentals reduces vacancy rates as well.
Once you see the power of referrals, the impact easily spreads across sectors and markets. 

Danielle Morrill of Refer.ly told TechCrunch: ““The entire internet is monetized this way and people are often getting monetized without them even knowing it,” Morrill said. “Any site that has a ‘Buy’ button has an affiliate program. 

But it’s hard to become an affiliate. The process for signing up is pretty long.”At Refer.ly, you can create your own product links. If a product you suggest ends up with someone in your social network buying something, you get paid. The comissions are small, but heck, it’s the thought that counts. If you’re endorsing a product, why not get a bit of cash for helping the product along?

The “recommendation economy” is increasingly important as growing number of consumers are tuning out traditional advertising and relying instead on their peers’ recommendations according to Deloitte. Smart and, engaged consumers are sharing their interests and broadcasting their opinions about the products and services they like. Through posting on social networks, blogs, and community sites, they share their decisions  and why others should trust their experiences.  Says Deloitte; “A recent Nielsen study found that 84 percent of global respondents trust word-of-mouth recommendations from friends and family—making it the most highly trusted among digital and traditional methods of receiving recommendations.”

There’s no doubt  - the power in marketing is moving from the brand with the largest checkbook,  to the consumer with the largest social network. 

 As this happens,  thought leaders and social ‘alpha’s’  are going to find their recommendations and leadership gives them a newfound economic value in the world.  Media noise is replaced by human recommendations - and that makes creates a new economy around the power of the Referral.
Bad landlords and bait-and-switch brands beware. The Referral Economy has arrived.

Creating a Lifestyle Business - Strengthening your referral network: Relationship Development Meetings

Referrals are the lifeblood of and usually the most effective way to market any business especially a Lifestyle Business.  Cultivating your referral network requires time energy and effort.

Relationship development meetings with centres of influence can provide excellent return on investment when done effectively.  Following are some guidelines for conducting relationship development meetings:

Purpose:
The prime purpose of the relationship development meeting is to develop trust.  Trust is manifest when we are meeting 4 criteria:

1. Propriety - Are you proper?
2. Competence - Can you do the job?
3. Commonality - What do we have in common?
4. Intent - How do you do business? What are the rules?

This list is in order of importance 4 being the most important.

Process:
• Set a time and place that is suitable to both people - a cafe can be good.
• Be on time - Being late says loudly that you are not reliable.  If you get caught up in traffic, SMS or phone to let them know you are running late.  - this helps to establish propriety
• Divide the 1 hour into two sessions. - ideally 30 minutes each but not necessarily
• Establish trust by confirming the purpose of the meeting, how you expect the meeting will run and what benefit they and you will gain from your time together. -  this process helps to establish intent the most important element of trust.
Invite your guest to go first by asking them to tell you about their business.  The law of psychological reciprocity tells us that if we ask someone to talk about themselves eventually they will feel the need to ask about you.
In the first part:
• Tell them a little of what you already know about them and confirm your understanding
• Seek commonality through shared attitudes values and beliefs?
• What does their business do?
• Who is their target market?
• What is a good referral or connection for them?
• Ask them for a simple way for you to tell other people about what they do.
• Important note - ask permission to take notes. - this reinforces positive intent
In the second part:
• Get them to tell you what they know about you
• Clarify any misconceptions.
• Seek commonality through shared attitudes values and beliefs?
• Define your business and purpose succinctly so that it is easier for them to explain to others
• What does their business do?
• Who is their target market?

Tell stories about how you have helped other people like them or their clients - competence
Thank them for their time and establish rules for follow up - intent

Other notes:

Have a book to record your notes in that is specifically set aside for Coffee Meetings.  You can then refer back to it when you are able to give them a referral.  It also keeps you on track during the meeting.

When it is your turn to talk about your business, keep to the facts about what you do.  Do not waffle.
Write down in the front of your Coffee Morning Book points that you want to cover about your business.

Invite them to come along to a networking event that you are attending and offer to be their 'Wingman'.  This will quickly build a greater level of trust.

Make a second appointment with them in one month's time at this meeting.  Diarise together.  Let them choose the next venue.
At the second meeting let them know you are specifically going to see how you can bring them a referral or an introduction and ask them to do the same.  You will be amazed at how effective this is for a referral for you.

Please make sure that you pay any bill..  They are your guest....

If you have any question, or comments or you would like some help in creating and preserving your own Lifestyle Business feel free to phone +61 (0)417 883 688 or email me at leonard@actioncyclelearning.com.au to arrange an obligation free initial appointment.