I have had great success with referrals.
I treat all families the same and if there was a problem with one and or had to terminate, I feel that the families in my care know I'm fair and honest so wouldn't see it as a problem. Like Momof4 says, apples and oranges.

I have one family who came to me as they weren't happy with their provider and that provider was referred to them by their best friend who has their little one there. I think it was more of a personality mix match but their best friend still has their little one at the other providers' place and loves their little one at that daycare and loves the provider....no hard feelings there. It just wasn't a fit.

I agree with you though, I keep my distance from clients. I never take on family or friends ~ neighbours as the line of friendship and business always get blurry.