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.
Hey Ed-
I think there is an additional pov on this, which is that VC’s need to “earn” the right to make reference calls based upon how much work they have done. I always make it clear that we have lots of good references, personally, in partners and among customers, and when the VC is far enough along in their process, have done enough work and are ready, we’ll be happy to provide access to them.
THe other thing everyone should expect is to be blind referenced among people who, from your background, should know you but who you haven’t provided as an explicit reference.
john
John-well said. Entrepreneurs need to protect their references by making sure VCs are serious enough about investing before they make calls. As for back channel references, I couldn’t agree more. Here is an earlier post on that topic http://www.beyondvc.com/2005/11/the_importance_.html
Reputation is definitely critical in this world, and was wondering how you thought this extended to the VC’s/investors?
What are they doing to build/protect/manage their reputations.
Guys like you Fred, and Josh K are all blogging, then there’s sites like The Funded. Any other things you think investors should be doing to develop their reputations?
Great piece, Ed! Just two quick comments:
1. References are, doubtless, important. However, proof of previous achievement which drives reputation in the relevant market, is in itself, a strong reference; perhaps stronger than “references” in the conventional sense, as all “references” are briefed and many may be biased. And the fact that this briefed-and-perhaps-biased characteristic of “references” is known to all, there is nothing quite like past achievement (if any, of course) to serve as a reference.
2. Regarding the protection of references – I feel entrepreneurs should be “reasonably” protective about their references, not overly so. The outlook “I will show my reference to this VC only when I know he’s really interested” may backfire in cases where the VCs outlook is “I will be interested only if I see a good reference”. And since these outlooks are not clearly visible, it is safest to be “reasonably” protective.
Good Call…
However, protecting references is becoming much more difficult, particularly in a web 2.0 environment. While I don’t know if this is consider kosher, people have the easy ability to merely log on to facebook, view relationship and friends of whoever they are targeting, and proceed to contacting. I think this poses more of an issue in terms of protecting references than dishing out a couple of your suggested references… http://www.readtheanswer.com/index.php?RTA=web2