Can small businesses live off referrals?

Mountains don't travel well!

In my work I talk to many small business owners, and on a daily basis. Some in professional services are doing pretty well without making any effort to market. This is because they provide their clients with reliable, dependable support, and in return their clients recommend them to others. That way they have a steady stream of new business to replace the natural wastage, which is often due to other clients retiring and very often selling up.

These established businesses living off recommendations generally are not looking to grow too much, but their owners find themselves able to live a comfortable living. That’s great, isn’t it, in a time when the general business is difficult?

The whole world of small business isn’t like that though. I was talking to the owner of a start-up business two years old, and he told me that business was really very poor. They had hardly any clients coming to them. I commented that they did not seem to have a website and that they were almost invisible in the search engines. The owner said “But in our line we get all our business through word of mouth”; in other words through referrals. Except they aren’t getting any. This is two years down the line.

In some ways I understand my friend’s comment. I believe that once he worked in one of those established businesses I mentioned at the beginning; one where the work just kept coming in because their good service reputation was passed on by word of mouth. In a start up business you just don’t have that. You have to take the initiative. It is no good expecting the mountain to come to Mohamed.

A small business has to market. Any professional service business must have a website, and preferably a blog or good content showing the expertise of the owners. Content marketing for goodness sake! Then once a few clients come along and sign up, rightly convinced you know what you are talking about, they will talk about you. Your best marketers are your client advocates, but you have to have a virtual shop to display your wares.

It’s no good hiding your light under a bushel, especially as we all need money to live on. It’s really not true that if you build it they will come (sorry, Kevin).  You need publicity, your potential clients need to know where to come and they need to know what great stuff they will get when they arrive.

Are you hiding or is it easy to find you?

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How will your customers find you?

It struck me the other day while I was waiting for a hair cut that there are different ways of attracting customers. Some businesses are totally passive in their marketing, some can get away with only a little marketing, and there are those who will not be noticed without taking the trouble to market in the ways that suit them.

A men’s hairdresser (barber if you prefer) on a main street may come into the first category. They open a shop, potential customers notice it and decide to give it a try. If they have a good experience they will come again and will recommend the place to their friends. Following on from having a business in the right place for its type in geographical terms, a good service will bring its rewards. A convenience store in a good location has the same attributes, but in a popular location this sort of passive marketing has its cost in the rents or cost of the premises.

Then there is the sort of business that needs recommendations, but also needs a fairly central location, though not necessarily in a prime position to catch passing trade. A firm of solicitors (lawyers) or indeed a useful hardware store might be in this category. They need to advertise, could do with some networking to build a reputation, and have to provide great customer service to get great recommendations and word of mouth referrals. No one just drops in to a firm of lawyers on the off-chance. People go because of a name they have heard through advertising, or on recommendation.

Then there is the third type of business. It does not have the main street location. It may be out-of-the-way. It relies on the ability of the owners and employees to provide a great product or service. It might be a country restaurant, it might be a firm of accountants and it might be a country farm shop selling local produce. Then, there will have to be very active marketing to get known, a concerted campaign, publicity, networking with many other businesses, a good website and so on. Again, great customer service is essential to build reputation and gain word of mouth referrals, but a business like this needs to get customers in the first place.

All this seems obvious, but many new businesses do not understand which category they are in. Across the road from the men’s hairdresser is a new gift shop in place of a jewellers which went out of business. On the same side of the road as the hairdresser was another gift shop which also went out of business. Are the new gift shop owners marketing as they should, getting out of their premises to meet people to tell them about the business and helping others along the way?

The trouble is that what might be a prime location for a hairdressers with ready-made business and trades people passing is not a prime location for a gift shop, which is less likely to benefit than the hairdresser. A gift shop needs to differentiate itself from the rest, perhaps rely on the personality and personal touches of the owners. If people don’t know about it the business will fail. Are they treating their marketing seriously?

It worries me and when I have a minute I will visit the gift shop to see if I can help.

Do you agree with my perspective? What do you think?

© Jon Stow 2010

Related post:

Why we need to have the right business in the right place


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