You guys are crazy.
You can definitely make money on referrals. Referrals are not limited to just having a friend or family member do business with you or giving your card to their friends.
Referrals come from branding yourself as well, and I'd say much moreso than just hitting up your friends and family. What you guys are talking about is network marketing, or the dreaded MLM approach.
I interpret "referrals" the same as I do "word-of-mouth advertising". Absolutely nothing wrong with it, and if you can get it, it's the best kind of advertising you can have. But, as always, just my opinion.