Thinking about Starting up a Co-op?
Starting a new business and wondering if a cooperative structure might be right for you? Co-ops are a great option for all sorts of businesses, agriculture and knowledge-workers alike. Here are some tips to help you explore your options.
Over the last few years in the SCORE program, I have mentored a number of small businesses on their start-up plans. While most US businesses start as single-person corporations (LLCs), I am increasingly getting questions about establishing worker cooperative businesses — from a wide range of professions and service areas including teachers, masseurs, and artists.
What is a co-op?
I live in Wisconsin, which has a rich history of consumer and producer agricultural co-ops for everything including maple syrup, cranberries, cheese and dairy, hops and barley, livestock, honey, and ginseng. Currently there are over 700 operating cooperatives in Wisconsin alone, and a growing number of worker coops in education, media, healthcare, housing, arts, and cab driver businesses.
There are 3 million cooperatives on earth, of which about 12% of the world’s population is a member, and which provide employment to 10% of the world’s labor force, as shown in the 2021 report by the World Cooperative Monitor.
But, you may ask, what is a co-op, really? The International Cooperative Association (ICA) defines a cooperative as an “autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.”
Cooperatives are for-profit businesses based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. Cooperatives share internationally agreed principles and act together to create sustainable enterprises that generate long-term jobs and prosperity.
Cooperatives are owned by their members, not shareholders, so the economic and social benefits of their activity stay in the communities where they are established. Profits generated are either reinvested in the enterprise or returned to the members.
Really, now, what is a co-op?
That all sounds great, but, you may ask again, really, what is a co-op?
In general, a worker coop is an organization in which workers are member-owners, each having one vote in the governance of the organization, irrespective of the amount of equity the worker may have. In co-ops, the organization’s operating agreement is integrated into its legal documents. This embedded control over strategy and decisions is very different from LLCs in which operating agreements are … often unwritten, shareholders are the owners, and decisions are made based on equity stake in the company.
In 2016, the ICA released Guidance Notes on the Cooperative Principles, giving detailed guidance and advice on the practical application of the Principles to cooperative enterprise.
In the United States, businesses are registered and managed at the state level. While there are uniform legal requirements for LLCs across states (with some exceptions and variations), co-ops are more organic. States regulate co-ops by statute, which tends to center on type of co-op (producer, consumer, dairy, cranberries).
How to find out if a co-op is right for you?
Co-ops come with a lot of positives, but most of us were raised in command and control cultures. It can be a bit of a brain twist to work in non-hierarchical organizations. A co-op structure may be the right fit for your organization, but some of us may need to walk before we can run. You might need to evolve your organization to become a co-op.
There are some wonderful open-source courses available to explore what co-ops are. One is Community Enterprise Legal Design, which focuses on Limited Cooperative Associations LCAs). This structure has emerged over the last 20 years, and brings into the co-op legal framework a new “investor” member class that can enlarge the fundraising options for co-ops while still maintaining member control over decisions through the one-vote policy.
Getting started
Another resource is start.coop, which has created an open-source course that brings together aspects of Lean Business concepts with those of co-operative principles, and helps you develop a co-op business plan and operating agreement. Folks who complete the course can apply for the start.coop accelerator program.
Zebra’s Unite is a co-op alternative to Unicorn investment strategies. They host a collaborative conversation space with a special emphasis on worker cooperative start-up operations and revenue options. Check it out!
As interest in sustainable purpose-driven organizations rises, as decentralized decision-making socio-technical infrastructures becomes more available, more people are looking to co-operative business structures as a natural fit for the present and future of work. I encourage you to take a look!
