The process of starting a co-op is not a single linear process, but might be better thought of as two processes moving along in parallel. I have described a cooperative as a “democratic association of members” who share a common need or outcome, and who achieve that desired outcome through a “mutually owned business”. I will continue to use that framing to discuss how a group of flower farmers might start a co-op, with one process related to engaging, educating, and growing a group of potential members, and the other process assessing the feasibility of the potential business. Ultimately the two processes are brought together with a refined business proposition being placed before a right-sized group of potential members, with a request to capitalize the business.
The essential pieces of the process are described here, but especially for those preferring a more visual presentation, check out www.cdsus.coop/wp-content/uploads/2020/05/co-op_101.pdf
Growing That Democratic Association Vision
Vision, Steering Committee, and Champions. A co-op often starts when individuals ask each other “What if we worked together to…?” The conversation that follows begins framing a vision for things that might be possible: aggregating demand to improve buying power or logistics; bigger, better-paying markets for expanded product lines or seasonal market extensions; increased efficiency by sharing specialized equipment or responsibilities for tasks; greater knowledge of production or marketing trends from shared insights and experiences; the list goes on. The vision for the co-op will be refined as information is gained and potential members are engaged in the conversation. But keeping the vision active and relevant to the shared needs of the potential members is critical throughout the process.
The process should be led by a steering committee of grower leaders with knowledge of the industry, a reputation for integrity, and the respect of other growers. Ideally you would recruit your “dream team” of leaders rather than simply putting out a sign-up sheet. The role of the steering committee is not to ensure that a co-op gets started; it is to ensure that good business development process is used to assess ability of a co-op to meet the needs of members. In essence, the role of the steering committee will be to hold the vision of the cooperative in trust for its eventual owners.
While the steering committee members will ideally bring a diversity of perspectives, experience, and knowledge to the overall process, there will always be need for a “project champion” to ensure that the steering committee stays on task. Sometimes that role can be shared with two people, and sometimes it is played by one person at time but different people over time. Regardless, there is need for someone to provide overall leadership.
Incorporation. Groups have a choice about when to incorporate. By incorporating early in the development process, the group is able to secure its own bank account, transact business, and the reasonable business decisions of the steering committee are protected by the “corporate veil”. Alternatively, a group can wait to incorporate until after it completes a business planning process; typically, the group would rely on a local fiscal sponsor to handle finances in the meantime. In either case, it is always wise to get legal assistance for the incorporation and bylaws process, as each state has its own statutes governing cooperative structures.
Financing the development process. There will be expenses incurred during the early (preoperational) development stages. Costs might include legal fees for incorporation and bylaws, or hiring of business consultants to assist with feasibility assessment. There are no magic formulas for how groups seek to pay for these expenses. Sometimes members will make loans to the co-op to finance early expenses with the understanding these will be paid back if/when the cooperative is operational. Other times the steering committee holds local fundraising events. Sometimes business development grants are available.
Cultivating interest of potential members. Often some members of the steering committee will focus on creating/maintaining a website or listserv to provide information to prospective members. Periodic meetings to share information about what the group is learning are also recommended. Ultimately, you want to have an appropriately-sized group of potential members identified to receive the results of the business plan, and to consider membership and investment.
Assessing the Business Opportunity
Feasibility assessment. Starting any business always includes some risk, and the potential for loss of investment. Good business development process involves the disciplined assessment of various feasibility issues, typically related to product supply, market identification and quantification, operational requirements, and financial projections. If your vision is especially robust, or if you anticipate needing a bank loan to capitalize the business, there may be need for a feasibility study. Typically delivered by a consultant, the feasibility study assesses these questions and asks whether there is at least one way that the business could be feasible. (There may be more than one option). If the conclusion supports continuing work, the next step is a business plan. If the conclusion does not support continuing effort, then throw a party to celebrate all that you have learned and the new relationships that have been created in the process. You and colleagues know more now than you did beforehand, and that’s worth recognizing.
Business planning. Whereas the feasibility study asks if there is “at least one way” to build the enterprise, the business plan describes “the way” you intend to operate. If the envisioned business is not terribly complex, a group might forego a feasibility study and move directly to a business plan. Sometimes steering committee members will have experience with business plan development, but if not, local Small Business Development Centers can often assist your group. The end result of the plan is to provide potential members, lenders, and stakeholders with information about why the cooperative is needed and how it is intended to function.
Financing the co-op. The business plan is placed in front of the crowd of potential members along with a request for membership and investment. It is the members who are primarily responsible for capitalizing the business, though often member equity is leveraged by loans or grants. The financial projections in the business plan should clearly identify the necessary amount and sources of capital needed to launch the business. This call for membership and investment, also known as an equity drive, is its own go/no go decision point. If insufficient membership and investment is obtained, it’s another reason for a party. But if the equity drive meets its goals, the work of the steering complete: the cooperative now has members and capital and is in position to begin implementing the business plan.
Leadership transitions. The success of the equity drive is a time to profusely thank the steering committee for their work, and to relieve them of further responsibility. They have successfully held the vision of the cooperative in trust for its eventual owners. The co-op will hold its first annual meeting where members elect its first board of directors. While some steering committee members may seek election to the board, this should not be assumed. The members should be intentional about electing a board with the knowledge needed to govern the new organization.
Help is Available!
The process of starting and growing a cooperative business can be challenging but also very rewarding. Fortunately, help is available to assist groups in using good processes; connecting to local or regional resources; and identifying partnerships that can help the co-op succeed. To see if there is a co-op development organization in your state or region, check out www.cooperationworks.coop. This association of co-op development organizations can be of great assistance to startups.
Executive Director of Cooperative Development Services,
Kevin Edberg is Executive Director of Cooperative Development Services, Eagan, Minnesota. Learn about the at www.cdsus.coop or contact him at [email protected]