27/09/10

By John Rosling, UK CEO of Shirlaws

Networking and referrals will quantifiably contribute to your bottom line. Yet surprisingly few businesses take a truly strategic approach to developing their network of contacts into a fruitful source of revenue.

Having examined strategies around your product portfolio and your company intellectual property last month and your positioning in the article above, we obviously need to look at gaining more customers or clients.

Clearly your business already has a successful marketing and sales strategy and this will be specific to your sector or market (and if not there are many advisors, not least my own firm, who can support you in developing these skills). In this Article I’ll therefore concentrate on other routes to winning profitable new business.

Networking

First, let’s look at “networking” as an approach to winning profitable new business. Referrals are often the best source of new customers so it makes sense to look at maximising opportunities from networking existing contacts. The hardest parts of a sale — creating awareness and credibility in your company, products or services — is already taken care of when someone is referred to you by a third party that they trust. Plus a referral is “pre sold” — they are coming to you because they genuinely need what you offer.

Yet, despite this, surprisingly few businesses take a truly strategic approach to developing their network of contacts into a fruitful source of revenue. Networking and a pro-active referral strategy will quantifiably contribute to your bottom line - if you are prepared to devote senior resource to it. You need to develop a plan of action with set targets that you are prepared to monitor actively and to which you have committed sufficient resources.

The first step is to identify the type of new business you want to attract. Should you take on any business that comes your way? Most of us accept that there is some business that is more profitable than others. Your referral strategy can proactively develop these more profitable clients and the way to recognise them is to develop a planned approach to client management. The initial task is to analyse your client list to identify those clients that produce the most ongoing business revenue and then agree and design a profitable client rating and categorisation system.

Everyone connected with the sales process needs to understand what a profitable client looks like in terms of minimum spend requirement and level of servicing required and any other particular determinates.

To give you an example, one company that sells IT hardware found it was unable to sell profitably to the small and medium enterprise (SME) sector. It carried out some research to understand how SMEs purchased IT and identified that the critical factor was not industry, company size, system or applications, but rather the presence or absence of a full-time IT manager. Businesses with a full-time IT manager spent between three and five times as much on IT as a business that was identical in every way except the use of a part-time IT manager. The question on the full- or part-time status was added to the start of every sales and marketing contact activity to ensure that expenditure was focused only on potentially valuable prospects.

You will see that you will have to spend some time on researching your data in this area, understanding the criteria for new business that will help you grow and then formally setting it out by size sector, value etc.

You can then list those of your established contacts that can offer suitable introductions to this type of business.

Individual directors and managers within a business often have their own relationships with potential contacts and these need to be transferred from the individual to the company database. In addition you can look at organisations outside your known contacts that could open up the right type of opportunities for your business. As well as setting up your own network of contacts you should also investigate established business networks in your area with member companies that match your criteria. Good networking organisations will have an emphasis on referring business and monitor how effectively the organisation is operating.

Distribution

When looking at another company with which you could jointly refer business, it’s important to ensure there is a similar ‘energy’ in both the businesses. Are you both in a similar growth phase — or in a comparable stage of your lifecycle? If you are then there will be a momentum on both sides to build business together. If not and the ‘high’ energy is one-sided - that is with you - the relationship will probably stagnate.

The starting point for any network relationship is an open meeting between both sides to discuss joint opportunities and benefits, and assess energy levels. But it is also the time to be completely honest about any fears. To build a successful distribution strategy - that is a programme of increased sales through referrals - then you have to fully understand what fears exist, and there always are some, and look at ways to alleviate them. No matter how good the benefits appear, unless you remove the fears — the reasons for resistance — on both sides, you will never really move forward.

Here’s an analogy of how fears can jeopardise successful distribution: imagine you produce a brand of cornflakes that are full of vitamins, low in calories and without artificial additives. The consumer who buys them gets the benefit - a healthy food product that tastes good and is an excellent addition to their diet. However, as the manufacturer you have to get the product to the customer through distributors such as supermarkets. The supermarket will have a number of fears: will the product be of a consistently high standard, is the packaging acceptable, can the manufacturer supply enough product, and so on? The supermarket’s fears will outweigh any of the benefits of stocking the new line. Unless the manufacturer can address the supermarket’s fears the consumer is never going to see the product on the shelves and get the benefits it offers.

This analogy highlights the issue you will face in creating a relationship with a “distribution partner” — in this case an organisation with strong existing relationships with the customers you would like to serve. Like the supermarket you will need to really understand the fears held by the distribution partner and then ensure there are clear benefits to both in referring customers to each other.
It’s often assumed that the only benefit that would make a third party refer customers to you is the receiving of a commission. But there are many reasons the right partner will refer ideal customers to you. I refer customers to other firms and have never sought a commission. I have a network of exhaustively researched and matched partners to ensure I can make the perfect introductions if a client would benefit from it. Our focus is on a happy client with a growing business, and if other firms (accountants, banks, lawyers, marketing companies) can help achieve that our “benefit” in referring the client to the right advisor is in terms of client loyalty. We also learn a great from our at distribution partners so an exchange of knowledge and expertise can be another powerful motivator to refer. It’s important when developing potential relationships to fully understand how that relationship will benefit the other party. But not before overcoming their natural fears.

Typical fears centre on whether the two potential partners can genuinely trust each other, whether the other will deliver consistent excellent quality to important customers the partner might refer, and whether by referring customers to the other, the partner may lose a sense of control over the relationship with their customer.

To take this partnership seriously and genuinely overcome these fears is clearly going to take time in engaging in a series of open conversations to establish if you have the potential for a relationship, understand what reservations or fears each party has and look to address them, understand the benefits to each, agree written guidelines so both sides understand what is expected from the relationship and monitor and revisit the relationship on a quarterly basis, keeping a check on the value of new business that is coming from the relationship.

Is it Safe?

The reason referral relationships usually don’t deliver is because fears are never properly resolved (or even discussed) and not enough time in regular meetings is given to the relationship. When I take my boys to rugby on a Saturday I’ll often get chatting to another Dad. Imagine we meet again on a subsequent Saturday and the other guy asks us all back for tea. And the following Saturday we reciprocate. Maybe after a few of these convivial occasions he might suggest he picks up my boys one Saturday to save me turning out on a cold winter morning and I may very well accept. But imagine another scenario in which I meet that Dad and at that first game he offers to collect my boys the next weekend. Would I agree?! Yet the only difference is in the time it has taken to overcome fears of trust, “quality” and control. It’s obvious in social relationships but we disregard it in professional ones. For most of us our customers are perhaps not quite as precious to us as our kids — but it can be a close run thing.

Of course, this is a significant investment in your time. But the reward can be a network of partner businesses that understand the value that your business can offer their customers (based on your culture values and position) and are actively and regularly referring pre-sold, profitable target customers to you. I cannot stress enough the value of this. I once owned an outsourcing business and, under Shirlaws coaching, I created a focused distribution strategy for the business. We doubled revenue in nine months and I was able to re-task my sales team away from direct sales and into professional relationships. I found I already had unpaid sales force!

TOP TIPS

- Set down the criteria for potentially profitable clients i.e. what type of business is going to grow your company profitably?

- Explore which companies might offer mutually beneficial relationships. Check that both of you have similar ‘energy’ levels.

- Rigorously explore fears and benefits and ultimately formalise guidelines on working together and monitoring progress.

- Review the relationship in terms of profitability. If it isn’t providing business for both parties it’s not worth wasting resources on it.

- The more distribution channels you can build the more profitable and valuable in equity terms your business will be.

Shirlaws is an international business coaching firm that specialises in helping businesses to grow, no matter what stage of development they are at. Founded in Australia in 1999, it has since grown to have bases in Europe, North America, New Zealand and the UAE servicing approximately 600 clients.

We work alongside entrepreneurs and business owners to drive both commercial and cultural change, enabling our clients to experience:

• increased revenues and profits;

• improved business culture and personal lifestyle; and

• a sustainable business that is less reliant on key stakeholders.

www.shirlawsonline.com

shirlawsuk@shirlawscoaching.com

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