My neighbor called me the other day looking for an electrician to install some fixtures. I gave him the number to ‘my guy’ along with some color on the high quality of his work. Even with lower bids from two other qualified companies he found online, he gave the job to the contractor I had referred. Obviously, his decision wasn’t based merely on my referral – particularly since my knowledge of electricity pretty much ends once the switch has been flipped to the ‘on’ position. That said, the introduction undoubtedly influenced his mindset – even if just subconsciously.
The reason that a reputation-based referral works is well-studied. The buyer is ‘primed’ to be more open-minded to a third-party than they might typically be, as the result of an endorsement from a trusted source. It’s effectively, trust by association.
A referrals, of course, plays a major role in fundraising. Investors take meetings and look at deals that might otherwise go unnoticed simply based on a ‘relationship’ with a placement agent or banker. While it may not result in anything more than a look – it still provides a good running start.
But keep in mind, that’s all it is – a start.
Getting into the room with an LP once based primarily on the reputation of an intermediary, only gets you so far. If you aren’t quickly perceived as additive on your own merits, (and returns are only a part of that), then the introduction is unlikely to blossom into that independent trusted relationship you need to garner a long-term commitment.
So, here’s the question…since trust cannot be ‘manufactured,’ how do you replicate that level of quality and momentum in a new relationship without always having to rely on a referral from someone else?
##The answer is, it must be approached organically – at least if you want to be perceived as genuine and build something sustainable. Think about it… how many genuine relationships do you really have that started with someone asking you for money? That doesn’t mean you have to play golf 200 times a year or do a Vegas trip every other weekend in order to build relationships. It also doesn’t mean that you stop leaning on a referral for warm introductions. It just means you can’t only lean on referrals.
It means that at some point, you have to make the commitment to care about them – just like they have to make a commitment to care about you. I realize that it is a ‘get rich slow’ approach – but if done right, it will ultimately result in stronger relationships, greater client retention. That’s because you will have earned their trust directly.
This can be accomplished a lot of ways – and like any relationship, simply requires patience and commitment. The same way you built the rest of your business.
Specifically, this could boil down to nothing more than an occasional call or email with value-added insights or an alternative market perspective. It could be a random introduction that you think might generate a constructive relationship (for them, not you) – possibly with one of your own LPs whose views are aligned with theirs, or a banker or placement agent that has interesting flow. It could be an invitation to an industry conference, a head’s up on a piece of sell-side research, or a software tool that other LPs find useful.
It’s doing any authentic gesture meant for their benefit, not yours (at least not directly). Every call shouldn’t be about your portfolio, your fund, or your returns. And what’s most interesting is – the more value you provide, the more value you will end up receiving in return – providing more ammo to make your next call.
In sum – you have to make an effort. Just like every other relationship you have built in your life.