Entrepreneurial Money Management

Marci talks about the financial issues & concerns business owners’ face when running their own company.

Pros & Cons of a Referral-Based Business

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Most of us start out as entrepreneurs by leaving our 'day jobs' over one or two very hot prospects for solo work. We run the numbers and figure out that we could actually make more money by working from home in our pajamas, so we dive out of the corporate waters and into the sea of uncertainty. 

In an ideal world, these one or two customers that we start out with begin spreading some referral business to us, and then these referrals send referrals, and so on.  Many soloists can operate like this for decades. Many of us find the referrals drying up after about two years.  

Let's look at the pros & cons of a referral based business:


  • Generating new business doesn't cost any money (no ads, no traveling, no time spent networking)
  • Referrals are usually hot prospects by the time we talk to them, so we don't need to learn how to sell
  • The relationship our clients have with the referral builds credibility for our products/services


  • We don't get to choose who we do business with. Referrals happen any time anywhere with anybody
  • If we have a customer service issue with one client, it affects all of their referrals
  • When the referrals stop (if they stop) we have to start our business over again, or go back to "work" 

Personally, I prefer the blended approach where I take referrals as they come, but also spend 30% of my time building new relationships that may turn into referral sources. With this plan, I can target vertical industries that are personally interesting, or seek out companies of a particular size or geographic location.  

By being a little more pro-active about business development, I've seen my business stabilize financially, and the kind of work I'm doing is more rewarding because I am doing projects that I chose.

Do you have a referral-based business? What are your plans for business growth?

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