Sales leads vs referrals when starting a business

Some time around 2017, I spent a very enjoyable evening on an island in Southeast Asia. My wife and I had been diving, and were fortunate enough to be introduced to the owner of the island. Coincidentally he was holidaying there too. Very kindly, the owner and his family invited us to join them for dinner (followed by a rather nice bottle of whisky).

It turned out that this chap was a very successful businessman, with a diverse range of commercial interests. As well as the holiday island, he owned multiple properties, businesses, at least one university, a stadium, and a large plantation. He was Chinese, but not from China - a distinction he made very clearly.

When discussing work and business, I told him about one of my brother’s experiences. Despite signing seemingly robust contracts, when working with Chinese partners, my brother had struggled to agree on certain terms. I remember him using the phrase, “continual renegotiation”. My new Chinese friend showed no surprise. He explained that the Chinese don’t do business with pieces of paper. Much more important is honour and respect (his viewpoint, not mine). He explained that, in order to do business with someone, you had to be connected to them somehow. You have to know someone, who knows someone, who knows someone, who… You get the picture. That way, there is a personal responsibility upon both parties to deliver on the terms of the agreement. He said he would never do business without having such a connection. I have not heard that explanation before or since, but it stuck with me.

There’s a reason I’m telling you that story.

Although we incorporated DQ in July 2020, the only marketing we have done is to tell people what we’re doing. We have spent no promotional budget whatsoever, and we’ve done little more than create a simple, one-page website. Until now we’ve also kept quiet on LinkedIn. We did not want random sales leads.

This was our strategy because, quite simply, we weren’t ready for an influx of wannabe founders. By coincidence, luck, or both, we had managed to start work on our first ventures almost immediately. The entrepreneurs came from our immediate network. We either knew them directly, or people we trusted had referred them to us. It was a very encouraging start. Just as importantly, though, it meant we didn’t have to spend time creating, responding to, and filtering sales leads.

This was a very fortunate situation to be in, but it taught us the value of a referral. Every founder we spoke with was special: smart, driven, enthusiastic, well connected, and tenacious. These were exactly the people we wanted. We felt blessed. As time progressed though, we realised that the quality of the leads we were getting was more than a coincidence. The people who were referring us those leads were doing the first level of filtering on our behalf. In hindsight it’s obvious. It may be possible to get a good impression about someone when you first meet them, but knowing what they’re really like takes months, if not years. Of course we couldn’t afford to take that long – we needed to evaluate potential business partners relatively quickly – but what we had done was the next best thing. We had used our network as a quality filter, showing quite clearly how we needed to approach sales and marketing going forward.

People don’t tend to refer people they don’t believe in, as it reflects badly on them. In a business like ours, where quality is far more important than volume, this makes referrals the ideal way to generate leads. But word-of-mouth has two more distinct advantages. First, it is very cost-effective. Done right it can be a very powerful form of marketing, without costing a cent. Second, and coming back to the story above (are you still with me?), referrals create answerability. When someone makes a referral, it is incumbent upon the referred not to let down the referrer. Put another way, as my Chinese acquaintance believed, referrals keep people honest. At DQventures, we’re not worried about honesty, but what is important is that we choose founders who are not going to throw in the towel. Founding a startup can be one of the hardest things you ever do, so we need people who can face extreme adversity, stay positive, maybe pivot to a new business model, and stay the distance. A never-say-die attitude is a hard thing to judge from a few Zoom calls, but it’s often obvious to close friends and contacts. Putting it simply, we believe referrals help us pick better, more committed entrepreneurs.

So we decided to put referrals at the heart of our process.

It is key to our marketing strategy that we do not try to produce direct enquiries. You won’t find a contact form on our website, and we tend not to ask people to connect with us directly. Instead, we want to build an expanding, trusted community, from which we can obtain referrals. We look for a human chain between us and the founders we work with. Until now, this has happened organically, but as we scale, we’ll be putting technology to work.

We already have some ideas about to do this at scale, but if this is a problem you believe you are already solving, we’d be happy to discuss it with you.

Likewise, if you’re a potential founder, and the idea of partnering with DQventures appeals, please don’t simply fire over a connection request on LinkedIn. We might miss you. We know there are thousands of entrepreneurs who are trapped in the body of an employee. Our job is identify those we have the best chance of building a successful business with. So of course, please look us up on LinkedIn, but instead of clicking that blue button, take a look and see if we have any mutual connections. As the number of enquiries we receive continues to grow, being referred to you by someone we already know will mean a whole lot more.

Thank you!

Image credits:
Diving image thanks to OrcaNation and ScubaPro.
Thumbs up thumbs down image by Oberholster Venita from Pixabay