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How to Deal With a Demand for a Referral

A client hooks you up with some new business. That's great—until the client asks for a cut of the action. Here's how one young entrepreneur handled a delicate situation.

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Editor's note: Failure can be a beautiful thing. With the right attitude, an entrepreneur can take the message from what went wrong and turn it into something that will be right in the future. Portfolio.com has partnered with the Young Entrepreneur Council to offer real-world stories of mistakes and the lessons they produce. Come back each Friday for another column in the series.

I was in the park in Chicago when I saw a client’s number (let’s call him Dan) light up my phone. When I answered, Dan was in a meeting with a client of his that needed a new website made (at the time, I was a Web designer).

He wanted to make sure to connect us right then and there, and handed the phone off to the new client. We had a brief chat, and they were ready to go; we discussed rates, what they needed, and when the project would get under way. I had just started my business and was thrilled to receive a referral from a happy customer. I couldn’t believe how well it had gone. And without weeks of back-and-forth.

About 30 minutes later I received another phone call from Dan. I thanked him for the referral and told him how much I was looking forward to the project. “Great," he said, "since it was a referral from me I expect 20 percent of the project revenue.”

I was dumbstruck. I had just started my business a few months ago, and it never occurred to me that when people gave me referrals they would expect a cut. Quickly doing the math in my head, I realized that the referral fee would take this from a decent project to one that was barely worth my time. I felt stupid and green, and on the spot with him on the phone I had no idea what to do.

I muttered out some kind of response, and ended the call as quickly as I could.

Something about it just didn’t feel right to me. Was I being naive, or was he being presumptuous? Maybe this was how business was always done and I didn’t know it?

So I did what any 22-year-old entrepreneur would do; I called my father. He’s had been self-employed as an architect for more than 25 years, and I knew that this situation wouldn’t be new to him. He gave me some advice that helped me navigate this sticky situation.

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