Hey everyone! I post regularly about business ideas and opportunities. If you want to see more, you can do so here
Here's what I've been thinking about this week -
Warm Intros are Effective, But Hard To Get The Pain Point:
This week’s pain point comes from an account executive looking for warm intros -
“I’m in sales and do a lot of cold emailing or cold calling. It’s hard work, but the commission is more than worth it. One hack I’ve found is when I have a personal connection to someone I’m trying to sell to and they give me a warm introduction, I almost always close. Unfortunately, I have a limited network, so I struggle to find people who can introduce me to potential customers.”- Account Executive at Software Company Market Background
Life is about who you know, not what you know. Whether that old adage resonates with you or not, I think we all can agree that your personal network is a powerful thing.
Before we get too deep, let’s first define two key terms we’ll be using a lot, warm introduction and finder’s fee. A warm introduction/referral occurs when person A introduces person B to person C. Typically, person A’s intro includes a recommendation of person B. A finder’s fee is the same as a warm introduction, but person A is compensated financially for doing so.
Here are some interesting stats published by Hubspot about the warm introduction -
- Buyers are 5x more likely to engage when they’ve been introduced to a salesperson in advance
- 84% of B2B decision-makers start the buying process with an introduction
- Referral leads convert 30% more than leads from other channels
While it’s clear that warm introductions work, it’s unclear how many companies have formalized a finder's fee program or are even giving incentives for warm introductions. This leaves room for innovation and opportunity. Let’s take a look at some major players. Major Players LinkedIn
- Founded in 2002
- Roughly 16,000 employees
- Acquired for $26.2B
- Founded in 2017
- Roughly 700 employees
- Raised $557.3M
Note: These companies don’t specifically focus on solving the warm introduction problem, but they are majors players helping people network with one another and find connections. The Opportunity
- Roughly 130 employees
- Raised 171.4M
Getting a warm intro can be challenging. First, you need to be well-connected, become well-connected, or leverage someone who is well-connected. Next, you need to endure the awkwardness of asking someone to risk their social capital to open a door on your behalf.
On the other side, the person making the connection needs to allow you to leverage their network, give the introduction (thus using their social capital), and unless there's a finders fee, they get nothing in return.
Here’s the idea - create a way to turn people’s social capital into cash. One way to do this is to build a marketplace to facilitate the buying and selling of warm introductions. On one side, you have people looking for warm introductions to specific companies, departments, and people. On the other side, you have people willing to make warm introductions to those companies, departments, and people for a fee.
For those seeking warm introductions, the marketplace solves the problem of having to build a network/find a person with a network and make an awkward ask. Conversely, the person giving the warm introduction is now rewarded monetarily for using their social capital on giving those introductions. Current Solutions
Note: I did find three companies, Just Mention, Wintro, and Finders Crowd, that provide a solution for facilitating warm introductions. When trying to sign up for their services, I either couldn't get in or they didn't have any active deals. This tells me they are still in development or aren't in business any longer. How to Execute
- Bravado brands itself as a community for sales professionals, but in Oct of 2020, they launched Warm Intros. This feature allows people to pay for introductions. This is very similar to the idea mentioned above, but, they are only focused on facilitating intros to B2B software engineering departments. Also, this is the only solution that I’ve found that directly addresses the problem.
- Private Online Communities (Slack, Facebook, WhatsApp, etc…)
- There are thousands of networking groups that exist on platforms like Facebook and Slack. I can say from experience that some of these are great and others are junk. They can be effective ways of getting introduced to people who would otherwise be inaccessible, but you still face all the challenges listed above.
- These are arguably the most effective ways to meet high-quality individuals and form lasting personal relationships. That said, the pandemic has left all conferences canceled, and even before that they were generally pretty expensive. Also, while these may be effective methods to grow your network you still have the challenges outlined above.
If I were building this business, here’s what I would do -
Pro-tip: Rather than build a marketplace from scratch, check out Sharetribe, an affordable white-labeled marketplace tool. This should make creating an MVP relatively easy. Challenges
- Pick a Niche: There are many different verticals and industries that this idea could apply to - which is a good long term. To start, rather than offering intros for any use case, I’d focus on a specific niche industry. This will make it easier to find relevant people on both sides and build the marketplace. One industry is venture capitalists and founders. I found dozens of articles talking about the difficulty of getting warm intros to VC.
- Start with a Directory: With two-sided markets, typically you need to make a hard decision on which side to build first. I’d scrape the web looking for companies who already offer finders fees and create a directory for a niche. You’ll easily have seeded one side of your market with little to no effort. Then you can focus on building your connector side.
- Focus on Quality > Quantity: One of the challenges (which I’ll talk more about below) is sourcing high-quality customers on both sides. I’d implement a vetting process prior to accepting intro requests, or people claiming they can fulfill requests. This will keep bad actors out, and help you build a strong, reputable brand. Look to how freelance marketplaces vet their users - there is probably a lot of overlap.
- Build a Community: Because acquiring customers will be a challenge, I’d recommend taking a page out of Bravado’s playbook and creating a community. This will help you get high-quality, like-minded people together. If you provide value in the community, selling them on making introductions for each other will be much easier!
I’m going to preface this section with this - I think this is a tough business to build, but could be massive if you get it right. Rather than list all
the challenges, I’m going to give you what I consider the top three:
- Two-Sided Market: Innately, two-sided markets are just harder. You have two different value propositions that you need to get right, two times the customer segments to grow, and this usually means two times the headaches. The upside is if you get it right, it makes your business valuable and defensible.
- High-Quality Connections/Asks: A critical factor in getting this right is making sure you have great customers on both sides. If you have low-quality people asking for intros or connectors who can’t actually deliver on those intros, then your business will fall apart quickly. A review system could help increase customer retention rates and ensure the platform is healthy.
- Disintermediation: People may try to circumvent your platform and go directly to the companies paying the finder's fee - resulting in you getting cut out of the deal. The best way to prevent this is to add enough value to both customers that cutting you out isn’t worth the lost value. Financial protection, quality guarantees, and smooth transaction processes are all great value propositions to keep your customers on your platform.
Thanks for reading! I'll be handing out in the comments for a while to answer any questions or have a discussion.