Compensating Introductions

Josh Bohls Founder at Inkscreen

February 19th, 2014

My company is launching a new service and I asked a long time friend (20+ years) to help by introducing us to some of his contacts that we identified as prospects. He is in commercial real estate where it is common for referring brokers to offer a slice of the commission. We are dealing with what will initially be a low margin service offering, and all we are asking him to do is reach out (phone call and email) to six specific contacts. In my own experience, I happily introduce people all the time and expect nothing in return unless I remain involved with the project, however, because of his real estate experience he is expecting (and asking for) some kind of compensation. Any advice on how we handle this?

Brian McConnell

February 19th, 2014

I've generally found that when people make a stink about being compensated for introductions, this is a predictor that they will not add much value. I would suggest offering equity similar to what you'd offer an early sales/biz dev hire (< 1%). If this person is uninterested at that point, they probably aren't going to add much value.

Leena MBA Content & Publication Manager at NetApp

February 19th, 2014

I agree with Kieran. Friend or no, why shouldn't the guy get something for putting his neck out? Whenever I ask someone for help, I immediately follow up with an offer of my own. I could never go to someone empty-handed, I would hate to be known as that person. Would you go to a friend's house for dinner without a bottle of wine, or some flowers, or some small gift of appreciation? I don't even do that with friends I know very well...because I feel like there is dignity in offering something even when they aren't expecting it.

I was recently asked for help to intro someone to an important VC who is not only managing his multi-billion dollar company/portfolios, but has thrown in a gubernatorial bid. I have spent FIVE years building and nurturing this relationship, have eaten dinner in his home, and know his kids. Introducing anyone to him is not just a risk to him, but, by extension, to me also. Why wouldn't I want someone to show me some skin in the game if I am going to make a connection?

It's not much to ask, considering the risk on our side.

Again, that's just my humble opinion/2 cents.

Paul Weiss Panthera Leasing

February 19th, 2014

If these are really quality contacts of his, he should be very pleased to provide the intro and see what happens, trusting you to do right by him. There is an inverse relationship between the ask for compensation early in the process and the quality of the opportunity and the introducer in my experience (which is vast on this type of matter). I think that, inasmuch as it is only 6 prospects and you believe you have a quality offering, you should do it yourself. His value only exists if there is no chance that you can make the sale without him; in my view, if he insists on commission talk before he even makes the intro, you are better off going elsewhere. You did not say if your product/service is real estate related, if not then there is even less reason to work with this fellow.

Keiran Betteley

February 19th, 2014

I'd say grease the wheels. At the end of the day, business works best where there's something in it for everyone. How much is it worth to you to get these six contacts? Probably a lot more than your friend is asking for in commission. If things are free people don't assign any value to them. If they cost something, then they're instantly seen as more valuable. So give him a slice, and actually you might find that instead of it being a 'favour' he starts to view it as something where he got something out of it, and thus still owes you. Or is interested in doing you another favour in the future, rather than not mixing business with friendship, as is often sensible... Anyway, just my two-penneth. Keiran Betteley *Managing Partner* Mobile: +44 (0) 7885 997 874 Tel: +44 (0) 203 380 7144 The contents of this email remain the property of Carpela Ltd, any reproduction or reuse is unauthorised in the absence of written permission signed by one of the directors.

Mike Moyer

February 19th, 2014

If all he is doing is making a connection you could offer him a small commission on the sale. If he is helping you close you could give him a larger commission. The small commission should be about 10% of the industry standard. So, if a typical commission in your industry is 10%, you would pay him 1% -Mike

Jacob Kojfman Experienced technology and corporate lawyer, focusing on SAAS

February 19th, 2014

Good question. What kind of industry does your product target? If it is real estate related, then you may have to look at the fee as the cost of doing business, but it does put into question how good a friend this person is. Just my humble opinion. Jacob Kojfman 604 318 4539

Rob G

February 19th, 2014

some friend. slippery slope and sets a bad precedence, but you have to do what you have to do to move the ball forward. If he can really add value then you might consider adding him to your advisory board and the board as a group can help define if/how members are compensated for making intros. for most boards, making intros goes with the territory and is part of their overall comp (typically equity which aligns their interest with the company's). He may listen to a board of professionals from other industries where compensation is not expected for a simple intro. You might also ask him if he will pay you a commission for introducing him to a property owner. If that is not desired then as Mike suggested i would consider (reluctantly) some fraction of what he makes when he actually closes a deal - if he makes 5% for actually closing a real estate deal then making a warm intro is worth close to zero and arranging a face-to-face over lunch is worth 1-2%, helping to work the deal is worth 3-4%, etc. He's used to working on 'gross' so i would tie his comp to net if possible to limit your downside.

Lawrence Lerner Digitalization and Transformation Coach

February 19th, 2014

This happens a lot in consulting. If it's just a warm handoff to you, we've generally done an introduction fee. That fee is relative to the seniority and [buying] authority of the contact.

Tim Scott

February 19th, 2014

I second what Paul Weiss and Mike Moyer said.

If you have a product that's interesting to these prospects, with a little effort you should be able to get their attention on your own. If it's not interesting, the introductions are not worth anything. If you cannot get their attention, you need sales help, not just introductions.

If this guy wants to do some actual work to help you sell, offer him a commission. If he just want a quick dime with no work, he's probably overselling the value of the introductions. My 2 cents.

Archer Hobson

February 19th, 2014

I am the same way. Sometimes you luck out with the pay it forward mentality and other times you find people want something in return. Its gonna come down to your ability to find a leverage point and negotiate on that, if you don't have cash offer equity percentage, if want to retain equity, find some other avenue that solves his needs while getting what you want. Rarely is there one road to victory, so if your friend won't play ball then find another contact who will. Use LinkedIn to see who is connected to those contacts and ask for introductions that way. Don't sacrifice the long term health of the company, or your financial health for a deal that odds are won't make or break the outcome of the company. But you need to decide that.

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