The world that we live in trades on reputation. What that means is that eventually whether you are raising capital or landing new customers, your references will matter. If you are an entrepreneur, a VC will want to do some deep reference checks on you and also on any major customers or partners. If you are trying to land that big customer, naturally the sales propsect will ask to speak with other customers to get a better understanding of the technology and your service. How you handle and manage these reference calls is crucial to moving to the next step in a funding round or to closing a sale. I have seen some entrepreneurs take the nonchalant approach, feeling quite secure in their relationships, and freely passing on contact information for their personal references and partners/customers. Many times these calls will turn out just fine but there is still a big chance that they might not turn out as planned.
In my opinion, the best way to deal with reference calls is to carefully manage the process. First, I would identify the 4 or 5 best references (customers/partners/personal) and have a call with them to make sure they are willing and have the right attitude and to pre-screen them with questions to make sure they convey the right information to the interested party. Secondly, I would make sure that you don’t inundate your references with too many calls as they may tire of helping you after awhile. Finally, I would also set expectations and be quite clear with the VC or potential customer about what to expect from the call. For example, I was talking to a CEO yesterday, and he mentioned that our strategic partner would take a call from a VC but that the partner was not the most effusive individual and would clearly state the facts but nothing more. Well, if that is your only reference for that partner, make sure you convey this to the interested party to set expectations (see my earlier post about that).
As a side note, a couple of my portfolio companies gave pretty big discounts to their first customers but also made sure that as part of the deal they would serve as lead references for other prospective customers and for VCs. The discounts got the customers to take the leap of faith to buy the portfolio companies’ products and also got them quite excited to freely promote our technology to others. The point is that you should always think about your reputation, who will be your best reference, and then to cultivate them to really make sure that they can help you grow your business.