This post is a special Make a Referral Week guest post featuring education on the subject of referrals and word of mouth marketing and making 1000 referrals to 1000 small businesses – check it out at Make a Referral Week 2010

Not that I want to be a wet blanket during referral week, but sometimes there’s room for reminders when things are not necessarily all that rosy. I love referrals and referral marketing, and I believe in the cause of referral week. Still, it’s good to keep the full spectrum in the picture. There are some dangers there.

1. Don’t recommend without knowing who you’re recommending

Back in the early days of Palo Alto Software we included a list of business planning consultants on bplans.com, our free business planning resource. The listing was free for users and consultants, and we certainly had no resources to check and validate the information included. So we offered it as a useful resource to some with some obvious buyer beware and check references advisories.

One day eight years ago I got a call from somebody saying a consultant on that list had taken $3,000 from him and never completed a business plan. He was blaming us for listing the consultant. I knew nothing about him and next to nothing about the consultant. Although we had put everything we could on the site to make it clear we were listing, rather than recommending, how do you think I felt? How satisfied do you think our customer was to be told that using somebody on our list was his fault, not ours? Technically, we were right. Commercially, we lost a customer. And we didn’t know the people on the list. Bad move. Business mistake.

Another time I got a similar call from a different customer making almost the same complaint about a different consultant. That second time, unlike the first, I knew that consultant. He had done business planning for an old college friend of mine, and my friend was very happy with the results. He was involved with getting several of our bplans.com sample companies financed. He was a good professional consultant.

So this second time, I called the accused consultant. And he said he’d been trying to give the client back the initial money because he couldn’t stand working with him. The client, my friend said, had been exaggerating the truth in the plan, had “sketchy ethics,” and, in a nutshell, wasn’t somebody he wanted to work with. But the client wouldn’t take the money back, because he wanted the consultant to get him financed, not to give him the money back.

The second story was better than the first, but neither is much fun. We pulled the consultant listings off of bplans.com as a result.

2. Don’t risk dollars for nickels and dimes

The saving grace for us in both of the two stories above was that we weren’t taking any money. That makes a huge difference. When things go bad (and sometimes they do) your situation is way worse if you’ve been taking money for referrals. In that case, maybe you have legal language like disclaimers and all, so you might not be legally liable (I’m not an attorney, I don’t know).

I’m always amazed when I see experts whose time is worth hundreds of dollars per hour getting involved with small shares of add-on products worth a few extra dollars. Does it make sense to stake your professional reputation on what amounts to as much as a free lunch every so often? I don’t think so. I say recommend cleanly, without financial interest, to preserve your credibility as an expert.

3. Don’t call revenue sharing or comarketing referral business

I think this is basic ethics, and doesn’t need saying. Still, especially during referral week, let’s agree that when you get a cut or a commission that’s not a referral. That’s a revenue share or a sale. And it’s not fair to pretend you’re just recommending somebody out of good will or generosity.

Tim is the president and founder of Palo Alto Software, founder of bplans.com, and a co-founder of Borland International.