Can Lone Wolves Cooperate?

Reproduced with the permission of Joel Block below:

A few days ago, I shared my view on how entrepreneurs are being squeezed out in this economy - even more so than our bigger company counter-parts who have also been struggling. A lot of people agreed — and a few disagreed – but this topic created a lot of discussion. Now I want to put forth a strategy for entrepreneurs to embrace. One which could help all of us overcome this mess.

If you look back through the last few years to some of the business tragedies that will become business school case studies for years to come, I can't point to a better example than General Motors. When its financing arm, GMAC, fell onto hard times, they thought about the many different ways they could solve their problems. The solution: hire tens of millions of dollars of attorneys to convert GMAC into a bank, and then fly their executives with their lawyers to Washington DC, and put them in line at the federal funds window to take TARP money to rescue that company. You will probably recall that the Trouble Asset Relief Program (TARP) was set up in 2008 to rescue the ailing banks to avert a sub-prime mortgage crash.

I am not aware that car lenders were what the government had in mind when they designed the TARP bailout program, but according to the Detroit News, GMAC, which morphed into Ally Bank, received $12.5 billion in relief.

Think about what would happen to an entrepreneur if he or she ran into trouble. I can promise you, there'd be little if any relief from any source. What's more egregious is that the CEO of General Motors has the nerve to come on television and tell the American public they've paid off all their responsibilities. As much as I'm pro-business, it's shocking to me that by eliminating legacy costs, much of which were on the backs of their pensioners, GMAC has paid off their responsibilities. They wrote off billions of dollars and took away billions of dollars from their former employees. Further, they stiffed their vendors - many of which are entrepreneurial companies - to pay off debts to the government. Now they're telling the story about how great life is. This isn't about knocking General Motors — this is about why entrepreneurs are having so much trouble.

But this isn't all doom and gloom either. Every business has to find an opportunity out of this difficult time, and for me I see it as an opportunity to be a leader in the development of a new kind of entrepreneurship. The days of the Lone Wolf are absolutely over. It's too complicated, it's too expensive, and it's nearly impossible for someone to go at it by themselves. Instead, it's become more important than ever to form partnerships and alliances with other people. Operate like you're a company. Operate like you're one of the bigger guys on the street. You'll find out that maybe you do get some economies of scale. Each industry has the opportunity to reformulate itself with new groups of entrepreneurs. I know people that have created expense-sharing partnership — sharing office space that has shared conference rooms, using the master suite concept so everyone can have a better deal than any one person could arrange by themselves.

I'm creating a model where real estate entrepreneurs band together, each raising smaller sums of money so the aggregate is a large amount where lots of good can be done and profits can be made. The economies of scale are critical. Why pay an attorney a large sum of money to do a small deal when a nearly identical amount of money can be paid for a much larger transaction, which proportionately costs much less.  It’s hard for entrepreneurs to work together, because lone wolves tend to act alone and egos get in the way. But we must find a way to work together and to complement one another.

This isn't idealism in motion, this is the new reality that we all have to deal with. And if we don't deal with that reality, the opportunities of entrepreneurship in America will go away, damaging this country for a very long time to come. A few visionary entrepreneurs really have a new opportunity, and I hope that you'll act on this one fast.