The difference between a "working by referral" business and a "word-of-mouth" business

I just read a short but astute interview in Real Estate News online with a business coach named Kim Ortega, in which she explains the difference between "word of mouth" marketing and referral marketing.  Here's how she boils it down (but do read the interview for more detail):

A word-of-mouth business is defined by salespeople who are passive and wait for referrals to come their way.... You are playing a waiting game versus having a plan of action.... In a working-by-referral business, you have a confident expectation that your actions will produce incoming business. You know who your advocates are, and you have a structure in place that allows them to help you build the quality of your business by asking them to introduce you to the type of client you want to work with.

In the long run, you work harder in a word-of-mouth business, not smarter. Word of mouth depends on chance. You will eventually learn your beloved friends and clients are not concerned about sustaining your business. You are the one who must step up and make the effort.

If you've already read Automatic Referrals, this should sound familiar. Only about 20% of your client base—your "raving fans"—will proactively refer to you. 

Why not the other 80%?  Well, it's not because they don't WANT to refer to you. It's because THEY'RE NOT THINKING ABOUT YOU.

You, of course, are hyper-aware of the need to build your business—and it's only natural to project our own concerns into other people's heads. But your clients have their own problems. In their eyes, you're not a  businessperson worried about making this month's asset goal or mortgage payment. As far as they're concerned, you're the financial expert who helps them manage their money so they can meet their asset goals or make their mortgage payment on that third house they just bought.  And that's pretty much all most of them care about. They're not even thinking much about their friends or extended family, much less you and your business.

Now, none of this is to say that you can't encourage clients to spread the word about you also.  A captivating e-newsletter (free registration required) is one way to do this—especially one that appeals to women (women are much more likely to forward articles and information to their friends and relatives if they think there's value there). 

Telling clients "not to keep you a secret" is another effective way to encourage word-of-mouth business development. But don't think that word of mouth can replace true referral marketing. Think of them as separate and distinct initiatives, and focus the bulk of your energy on the referral side, because that's where the biggest opportunity is.

If you're sitting back and expecting your business to grow by passive "word of mouth," you've got a long wait ahead.  Get proactive. Start building your business "by referral" instead, and take control of your own growth.