How To Start A Cooperative

Starting a cooperative is a complex project. A small group of prospective members discuss a common need and develop an idea of how to fulfill it.

A cooperative, or co-op, is an organization owned and controlled by the people who use the products or services the business produces. Cooperatives differ from other forms of businesses because they operate more for the benefit of members, rather than to earn profits for investors.

Cooperative businesses can be as small as a community buying club or as large as a Fortune 500 company. People typically join a cooperative business to enjoy the benefits of group purchasing, pooled risk, and the empowerment of owning and controlling the company.

Co-ops are organized to provide competition, improve bargaining power, reduce costs, expand new and existing market opportunities, improve product or service quality, and obtain unavailable products or services (products or services that profit-driven companies don’t offer because they see them as unprofitable).

Organizing Steps

Business Climate

Starting a cooperative is a complex project. A small group of prospective members discuss a common need and develop an idea of how to fulfill it.

Depending on the situation generating the idea, a new cooperative may be welcomed with enthusiasm or may be met with vigorous competitive opposition. If opposed, leaders must be prepared to react to various strategies of competitors such as, price changes to retain potential cooperative members’ business; better contract terms or canceled contracts; attempts to influence lenders against providing credit; and even publicity, misstatements, and rumors attacking the cooperative business concept.

Regardless of the business climate for the proposed cooperative, leaders must demonstrate a combination of expertise, enthusiasm, practicality, dedication, and determination to see that the project is completed.

Sequence of Events Outline

1) Invite leading potential member-users to meet and discuss issues.

2) Identify the economic need a cooperative might fill.

3) Conduct an exploratory meeting with potential member-users. If the group votes to continue, select a steering committee.

4) Survey prospective members to determine the potential use of a cooperative.

5) Discuss survey results at a second general meeting of all potential members and vote on whether to proceed.

6) Conduct a needs or use cost analysis.

7) Discuss results of the cost analysis at a third general meeting. Vote by secret ballot on whether to proceed.

8) Conduct a feasibility analysis and develop a business plan.

9) Present results of the feasibility analysis at the fourth general meeting. If participants agree to proceed, decide whether to keep or change the steering committee members

10) Prepare legal papers and incorporate.

11) Call a meeting of charter members and all potential members to review and adopt the proposed bylaws. Elect a board of directors.

12) Convene the first meeting of the board and elect officers. Assign responsibilities to implement the business plan.

13) Conduct a membership drive.

14) Acquire capital and develop a loan application package.

15) Hire the manager.

16) Acquire facilities.

17) Begin operations.

Top Reasons Cooperatives Succeed

A cooperative usually succeeds because it: (1) Meets member needs, including several members sharing a similar vision. (2) Fills a gap or need in the community. (3) Is owned and controlled by the member/users of the coop, who are the coop customers. (4) Returns profits to the members/users of the coop, creating benefit. (5) Shares the risks and rewards among several people rather than one. (6) Consists of checks and balances, i.e. a board of directors and manager. (7) Includes the talents of many members/users in one single business.

General Rules for Success

Several basic rules for successful formation of a cooperative apply to more than one step of the process and to continuing operations. Some rules are unique to the cooperative form of business. They include effective use of advisers and committees, keeping members informed and involved, maintaining good board/manager relations, following sound business practices, conducting businesslike meetings, and forging links with other cooperatives.

1) Use Advisers and Committees Effectively

Organizing human resources and effectively using their expertise, along with maximum participation by potential members is central to any successful business and crucial to the success of the cooperative.

2) Keep Members Informed and Involved

Member responsibilities start with the conception of the cooperative and remain throughout its life to assure successful organization, sound management, and operation.Members’ participation in affairs of their cooperative increases their feeling of ownership and responsibility for its success.

3) Maintain Good Board-Manager Relations

The differing responsibilities of the board of directors and the manager must be clearly understood and carried out.

Responsibilities of Board & Manager in Cooperative

Factors to consider on overlap/division between board & manager:

Board Responsibilities

• Make long term decisions
• Introduce ideas
• Decide on policies
• Run broad, primary activities
• Hires manager

Manager Responsibilities

• Make short term decisions
• Implement ideas
• Decide on cooperative functions
• Run short-run operations
• Hires staff

4) Conduct Businesslike Meetings

A cooperative is a business so its meetings should be conducted in a businesslike manner.
A good meeting results in carrying out several successive steps:

1. Planning ahead
2. Involving members
3. Following a published agenda
4. Following through on meeting actions

5) Follow Sound Business Practices

The major challenge to cooperative members, the board of directors, and operating management occurs after business operations begin because many of the startup responsibilities continue after the cooperative begins operating.

These responsibilities include:

1. Complete & accurate documentation of income & expenses
2. Exact member records
3. Periodic operating statements & balance sheets
4. Annual full reports
5. Annual independent audits
6. Future Planning

6) Forge Links With Other Cooperatives

An early exercise to determine whether to start a new cooperative is to investigate the alternative of linking with an existing cooperative that could expand its service territory. Even if starting a new cooperative is the best course of action, the search for beneficial links with other cooperatives should continue.

• Alliances with regional cooperatives or other businesses may be valuable sources for supplies, marketing outlets, and related services.
• Membership in State and National cooperative associations can keep the new cooperative abreast of what others around the country are doing.

These associations can be sources of:

1. Education & training programs
2. Legislative & public relations support activities
3. Help identifying sources of special expertise

Top Reasons Cooperatives Succeed

1. Meet member needs, similar vision is shared among several
2. Fill a gap/need in the community
3. Owned and controlled by the member/users of the coop (customers)
4. Profits are returned to members/users (benefit)
5. Risks and rewards shared among several (rather than one)
6. Check and balances (board of directors/managers)
7. Talents of many (members/users) shared by one single business

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Avoiding Potential Pitfalls * Legal Considerations * Reasons Why Yes or No