Just recently, I’ve been thinking more and more about the power of referrals as applied on to Internet businesses.
Think about Digg.com. I “digg” an news article, so I hit the “digg” button and it gets tossed onto the Digg.com list. Because I “digg” it, I am essentially referring it those who subscribe to the Digg feed of news articles. In aggregation with the crowd’s opinions, as well as with some newly discovered editorial color on top of it, my referral could get sent to the those who like the Digg referral style of consuming news, as a way of uncovering interesting news.
On NYTimes.com, I just learned that they consider the number of times a story is emailed a better measure of popularity than just the number of clicks to read a story. If you think about it, calculating most popular based on clicks can have a self-fulfilling prophecy aspect to it; those on the most popular list are seen by more users who click on them more, and those stories inevitably stay on the most popular lists longer than they should. But, if you think the number of times a story is emailed, then you realize that if someone were to think this story is great, then they’re going to refer it to friends. It’s an added metric on top of how many times the story is read and helps fine tune out of self-fulfilling prophecies.
A new site I was just introduced to works on the same referral principle: downfly.com. It is a simple application which allows you to post a link on the site and it gets “passed” to your social network. Every now and then, I’ll get an email from the system that sends me links that get passed to me. As I use it more, I find it to be entertaining, a great way to discover new sites, and I also get to see what people in my network are thinking about and consider important enough to pass down their social network chain. But as I become a “passer” of links, I can’t help but think about what I’m passing and why and the ramifications of passing. I want to pass good links, not junk. I don’t want to waste peoples’ time by passing stupid links. I think about the value they’re going to get and make sure they get some from whatever site/link I’m passing them. I also can’t help but think about what they think of me as they’re receiving my link passes. That would be something interesting to implement is a feedback system that allows people to easily comment or feedback on the stuff they’re getting, as a mechanism to see if I’m doing a good job or not.
I see this referral aspect also in my advising/investing business. I see part of my job eventually is to help my early stage companies raise funding. I also see part of my job is to utilize my network to bring them valuable business partnership opportunities. But I told myself long ago that I need to build trust in my referrals to these folks. Investors don’t want to keep seeing junk from you; they’ll never take your call if you keep wasting their time with lame businesses. Potential business partners don’t want to see junk either. I think deeply about whether there is true value in a partnership with someone before I introduce them. I don’t want to make frivolous introductions, again because I want to continue building trust in my network that when I refer somebody to them, that I’m not doing that randomly, and that 10 times out of 10 it will be something they should look at.
Look at the effects of referral:
1. You the referrer have a desire to bring value to the receivers of the referrals. This altruistic notion forms the basis of the positive effects and power of referrals.
2. You think heavily on what could be interesting or valuable to them, so you’re careful at referring things to them. Thus, you as a referrer need to get to know your receivers at some level to know what could be interesting to them. If you don’t know them well, your referrals could have a negative effect on you as the referrer as your referrals could be perceived as random or junk. They may ask you to stop. Refer effectively by getting to know your receivers.
3. Successful or valuable referring can have positive effects on your reputation. It builds trust in your receivers of the referrals that you are giving them something valuable. It also builds trust in the thing you’re referring, like a website, or business opportunity, or news story. It was checked out by the referrer, whom you trust, and thus you have a tendency to trust it more too.
4. If they like your referrals, you may get value back, in the form of good referrals or otherwise. If there is some measure of how good a referrer you are, like a ratings system, you can gain in reputation in a visible way. That rating is value to referrer, as is other things.
5. Referrals can be a better measure of popularity and “this is valuable or good” based on all of the above, and helps remove self-fulfilling prophecy effects of other forms of popularity measures.
6. You refer poorly, or annoyingly, and people will shut you off. Trust is lost, and thus reputation is lowered. And also they will lose trust in the thing you refer. As an entrepreneur, make sure you get referred by someone who is trustworthy as a referrer, and not somebody who has low or potentially low trust amongst the people you’re trying to get referred to. This can be very hard to determine who is trustworthy as a referrer and who is not, so tread carefully.
7. The system which enables referring effectively can use this as a viral marketing tool to gain more customers or users.
As I think on the effects of referral, I am going to try to employ it more often in thinking on product strategy with my companies.