Twitter for prospecting

It's become accepted wisdom that Twitter is a great way to communicate with customers and get feedback about your products. I've actually had success using Twitter for prospecting. Here's my process (which I picked up from Mike Dubrall):

1. Identify your prospects, and put them in a list. These should be people who could benefit from your service, and people that post quality content to Twitter. Make this list private.
2. Using HootSuite, TweetDeck or any other type of Twitter app, set up a Twitter feed with all of your prospects' tweets.
3. Respond to tweets as appropriate. This part has to be genuine--make sure you're adding to the conversation and not becoming an annoyance.
4. Once a relationship has been established (this part should take a few months), I will reach out to engage the prospect at their work about my product via phone or email. I don't do this via direct message, as I think it is important to keep my Twitter persona conversational, and to send the signal that any sales engagement is separate from any Twitter engagement.

So that's my process. The trick is that there is no trick. If you're insincere or simply commenting so that the prospect will recognize your name you might have some success, but I have found that truly engaging the prospect over a period of time gives you a much better understanding of their needs, and leads to better sales conversations.

I would be interested to hear what others are doing. What do you think, is it appropriate to send a direct message within Twitter or is phone/email the way to go?