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SMALL BUSINESS | Learning Curve: Business Lessons From
Southern California Entrepreneurs

Building Up Referrals Pays Off

Three friends called on their computer industry contacts to put together the client list for their Web design company.

July 07, 1999|KAREN E. KLEIN | Karen E. Klein is a freelance writer

Two years ago Michael Weiss was teaching high school and working for his father's computer firm. His brother-in-law Kevin Goldberg worked in the video game industry with an old Beverly Hills High classmate, Marcelo Ziperovich. When the video game division folded, the three friends agreed to contribute $3,000 each and form their own Web design company. Early on, Weiss tapped contacts in larger firms for referrals, a strategy that he says has generated a thriving job list. Weiss was interviewed by freelance writer Karen E. Klein.

We started working out of our homes, with almost no overhead, picking low-hanging fruit from the trees--doing pro bono sites, very small entertainment sites and some corporate sites in the $5,000 to $10,000 price range.

Since we had all worked in the computer industry, we knew a lot of people who had moved into Internet businesses, including some who'd built larger firms. We figured that with their overhead, in terms of offices and employees, they were probably turning down jobs under $50,000 because of profit margin considerations. Meanwhile, we were trying to get those very jobs.

I decided to seek out mutually beneficial arrangements with some of these companies. I drew up lists of friends and contacts and set up dinners and lunches, proposing that when they declined jobs, we would give them a percentage if they would refer them to our company.

We set up the referral agreement so that payment is based on the relationship the larger firm has with the lead. If there's a straight referral and we get the job, we pay 5%. If the referring agency does a proposal and starts work on a job, then realizes it isn't going to pay off for them and turns it over to us, we give them 10% of the total job. If they've done some work for a client but can't complete the job, or they need help meeting the deadline, we'll take over and give them 15% of the total.

Some of the executives I met with jumped at the idea and signed a deal memo with us immediately, because we weren't a threat to them and it was a way to make some money off the business they were turning away. Plus, they were friends, and they felt some altruism because they had started out small and knew where we were coming from.

One company sent us one lead, and I approached them with this idea and they simply weren't interested. Another large company agreed to give our name to people asking about small jobs, but said they didn't want a percentage from us.

Three companies we still have agreements with are Web design agencies Internet Outfitters, USWeb/CKS and Razorfish. Not only have they sent us work--our job list is 75% referral-based--but they have helped get our name out in the marketplace. Two years after start-up, we're still getting five to 10 calls a month based on these referrals. It is much easier to do business when you get a warm lead instead of a cold one. I've probably made no more than three cold calls in the history of the firm.

Now we are getting jobs through customer word-of-mouth and the credibility of our work, which is a great feeling. And we've done some reciprocal referrals, like if we get inquiries about enormous jobs that I know we can't handle yet, I refer it back to one of these agencies or we collaborate with them on it.

As we've gotten bigger, moved out of our homes and into an office and started hiring employees, I'm starting to set up referral deals with smaller shops. Call it karma or whatever you will, but it really feels good to be in the position where we can help some start-ups ourselves now.

If your business can provide a lesson to other entrepreneurs, contact Karen E. Klein at the Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016 or at kklein6349@aol.com. Include your name, address and telephone number.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

At A Glance

Company: Imagistic Media Studios Inc.

Owners: Michael Weiss, Kevin Goldberg and Marcelo Ziperovich

Nature of business: New-media design and production company

Location: 1136 Abbot Kinney Blvd., Venice 90291

Web site: http://www.imagistic.com

E-mail address: info@imagistic.com

Founded: 1997

Employees: 8

Annual revenue: $1.1 million

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