Start a Worker Co-op or Convert an Existing Business

Erbin Crowell, Neighboring Food Co-op Association Adam Trott, Valley Alliance of Worker Co-operatives

NOFA Summer Conference, 10th Aug 2013

University of Massachusetts, Amherst

Workshop Description

Participants will learn the basics of the co-operative model, its relevance to local economies, and the process for business development. We’ll focus on worker co-ops in the food system, and also consider multi-stakeholder models, which include producers and consumers. We’ll provide guidance for people exploring a co-operative business start-up or conversion.

Outline 1.  Our Context 2.  What is a Co-op? 3.  Why Co-ops Matter 4.  Regional Impact 5.  Case Studies: Start-Ups & Conversions 6.  Suggested Guidelines 7.  Discussion, Ideas, Questions 8.  Resources

1. Our Context

•  Crisis of Global Economic System •  Unemployment •  Dramatic Shifts in Wealth •  Diminished Democracy •  Instability & Change •  Hunger for Alternatives

What If…? There was a business model that... …was democratic. …was rooted in our local communities. …was part of a values based movement. …put common good before private gain. …delivered tangible benefits. …was flexible and innovative. …was successful and resilient.

England in the 1800s

•  Dislocation of Local Economies •  Dramatic Shifts in Wealth •  Concentration of Economic Control •  Poor Working Conditions •  Limited Access to Healthy Food •  Birth of the Co-operative Movement

Rochdale Equitable Pioneers

•  Founded 1844

•  Weavers, Unionists, Community Activists •  Member-Owned Store

•  Pure, Affordable Food

•  Co-op Principles

Co-ops & Food Security

“What was the motivation of the Rochdale Pioneers, who

codified the values and principles on which the co-operative movement has

based since 1844?

We know it today as food security.”

Dame Pauline Green, President International Co-operative Alliance

Vision: A Co-operative Economy

“Co-operative housing, worker co-operatives, even collective agricultural co-operatives, can all

look back to the original Rochdale plan for inspiration. In 1844 these pieces were not

separate… The Rochdale pioneers conceived in one association of what would now make a

multisectoral co-operative movement.” Brett Fairbairn, The Meaning of Rochdale • www.usaskstudies.coop

2. What is a Co-op?

A co-operative is 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.

International Co-operative Alliance • www.ica.coop

In Other Words…

A co-op is a business that is equitably owned and democratically controlled by its members for

their common good, the good of the community and to accomplish a shared goal or purpose.

Any surplus (profit) is distributed among members in proportion to their use of the business

(purchases, labor, or supply), or is reinvested in the enterprise.

Values Based Business

Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their

founders, co-operative members believe in the ethical values of honesty, openness, social

responsibility and caring for others.

International Co-operative Alliance, 1995 • www.ica.coop

Co-operative Business Principles

•  Voluntary & Open Membership •  Democratic Member Control •  Member Economic Participation •  Autonomy & Independence •  Education, Training & Information •  Co-operation among Co-operatives •  Concern for Community

International Co-operative Alliance, 1995 • www.ica.coop

Flexibility: Purpose

•  Provide Employment and a livelihood. •  Purchase needed products or services as a

group. •  Produce a product or service together. •  Process and add value to raw materials

produced by members. •  Market products produced by members or by

the co-op.

Flexibility: Industry

•  Worker Co-ops •  Food Co-ops •  Agricultural Co-ops •  Fishing Co-ops •  Artisan Co-ops

•  Housing Co-ops •  Credit Unions •  Communications •  Utilities Co-ops •  Health & Insurance

Flexibility: Stakeholders •  Worker Co-ops: Owned and operated by the

people who contribute their labor to the business. •  Consumer Co-ops: Owned by the people who

purchase goods or services. •  Producer Co-ops: Owned by producers who

process and market their products. •  Community Co-ops: Owned and governed by

members of community. •  Multistakeholder Co-ops: Owned and

controlled by combination of stakeholders.

Basic Co-op Structure

MEMBERS

BOARD OF DIRECTORS

EMPLOYEES

Elect

Hire

Hire

MANAGEMENT

Worker Co-op

CONSUMERS OR PRODUCERS

Consumer or Producer Co-op

Product or Service A Multistakeholder Co-op includes a combination of member types in ownership and governance.

Collectives flatten organizational

layers, emphasizing consensus and group decision-making.

3. Why Co-ops Matter

Co-ops “in their various forms, promote the fullest possible participation in the economic and social development of all people, including women, youth, older persons, persons with disabilities and indigenous peoples, are becoming a major factor of economic and social development and contribute to the eradication of poverty.”

United Nations Resolution 64/136

A Co-operative Decade

“The real opportunity, of course, is to use 2012 to help achieve a longer-term vision. ICA is committed to turning the International Year of Co-operatives into a Co-operative Decade, with the goal of the co-operative being the fastest-growing model of enterprise by 2020.” Charles Gould, Secretary General

International Co-operative Alliance

Co-ops Today… •  Are more common than we think

•  1 billion members worldwide (1 in 3 in the US) •  More people than own stock in multinationals •  Majority of US farmers are co-op members

•  Are innovative •  Healthy food, organic agriculture, Fair Trade,

relocalization, regional aggregation and distribution

•  Are successful •  30,000 co-ops in all sectors of US economy

Co-ops & Local Economies •  Community ownership & control •  Focus on service, meeting needs before profit •  Develop local skills & assets •  Ability to pool limited resources •  Regional economic efficiencies •  Difficult to move or buy-out •  Root wealth in community, not markets •  Member, customer loyalty •  Low business failure rate & are long-lived…

Co-ops & Local

Economies

Ontario Co-op Association // ontario.coop

Co-ops & Local Economies Results: •  Co-ops contribute to more stable local food systems, infrastructure, employment, services, and economy. •  Jobs and wealth are rooted in community members. •  Increased expertise in managing financial responsibilities, legislative engagement and community resources.

Mondragón Co-operative Corporation " Located in Basque region, Spain " First co-op in 1956 (Started with 5 employees, now has 8,000) " $22 Billion in Sales (2009) " 103,700 Employee (2009) " Premised on Import substitution and social entrepreneurship " Started co-op bank with entrepreneurial division (1959) " Utilized internal capital accounts for development and retirement

The Region of Emilia Romagna

" National law that co-ops in Italy pay 3% of surplus into co-op development written by co-ops themselves " 7,500+ co-ops (2/3 are worker co-ops) " 30-40% of GDP " 2 out 3 are members of co-ops " Most co-ops per capita " 10% employed by co-ops " Cross-sector collaboration

4. Regional Co-op Networks

Neighboring Food Co-op Association

•  35 Co-ops & Start-Ups •  80,000 memberships •  1,450 employees •  $28.6 million in wages •  $200 million revenue •  $30 million in local

purchases

http://nfca.coop/members

Neighboring Food Co-op Association

“Our vision is of a thriving regional economy, rooted in a healthy, just and sustainable food system and a vibrant community of co-operative enterprise.”

Food Co-ops in the Food System PROCESSING

DISTRIBUTION: MARKETING

DISTRIBUTION: TRANSPORTATION

DISTRIBUTION: SOURCING

NFCA Member

Food Co-ops

CONSUMPTION NFCA

Food Co-op Member-owners

PRODUCTION

WASTE & NUTRIENT MANAGEMENT

Based on Components of a Food System

(Nickerson, 2008)

NFCA

Leveraging the shared impact of food co-ops in the food system…

Opportunities for Co-op Development PROCESSING

DISTRIBUTION: MARKETING

DISTRIBUTION: TRANSPORTATION

DISTRIBUTION: SOURCING

NFCA Member

Food Co-ops

CONSUMPTION NFCA

Food Co-op Member-owners

PRODUCTION

WASTE & NUTRIENT MANAGEMENT

Based on Components of a Food System

(Nickerson, 2008)

NFCA

Where are the key opportunities for new co-ops & conversions?

" VAWC: 10 member worker co-operatives

" Tradition of collective management

" 60+ worker members

" $7.1 million revenue (2012)

" VAWC system has increased in revenue and membership annually for the last three years

" Linked to/founded from social justice and/or environmental movements

" Advertises in co-op movement media including food co-op and worker co-op newsletters

VAWC Region Characteristics Worker Co-operation in western Massachusetts and southern Vermont

" Ten Member Co-ops direct and fund support and development " Co-ops are founded with support from a system – not expected to

perform/grow while isolated " 5% of Member Co-op's surplus paid to a development fund

directed by VAWC members for co-op expansion or new co-ops " Staff, supervised and directed byBoard of Directors and VAWC

Member Co-op representatives " Shared knowledge and resources save time, energy and funds:

Model bylaws and articles of incorporation; legal, lending, accounting, training and process support, etc.

" Development, support and funding is based on long term goals

VAWC Co-operative Development A Co-op driven Model

Case Study: Valley Green Feast Collective Started in 2007 by sole proprietor endeavor to support local farms

sustainable agriculture & access to their produce. Converted in 2010.

VAWC support centered on facilitating shift in ownership that included former sole proprietor; hiring of new worker/members; Articles of Incorporation and Bylaws

Co-operative operation turned a decline in customers into growth

Currently delivers over 500 pounds of food a week to 70 locations

4 Worker/Members

Case Study: Brattleboro Holistic Health Co-op Team of six potential worker/members converted long time alternative

health center in downtown Brattleboro.

VAWC support centered on assembling scarce financial resources; facilitating loan application from Co-operative Fund of New England; meeting support and design of a member package of benefits; Articles of Incorporation and Bylaws.

BHHC has massage, chiropractic, acupuncture and herbalist services along with an apothecary.

6 worker/members

Case Study: Simple Diaper and Linen One potential worker/member joined current sole proprietor in

converting to worker co-operative.

VAWC support centered on long term direction and support for conversion discussion (over 3 years); implementation of business plan for growth; facilitating loan application from Co-operative Fund of New England; structure and governance support.

Simple moved to a new location, purchased state of the art machinery that has more read outs than most cars and added horse blankets to their services.

2 worker/members going on 3

Case Study: Broadfork Permaculture Co-op Two potential worker/member joined current sole proprietor in

converting to worker co-operative.

VAWC support centered on structure and governance; formulation of marketing and advertising programming; facilitating purchase from sole proprietor.

Broadfork seeks to assemble permaculturists in a format of collective co-operation over individual competition in their industry. Long term support for business co-ownership and financial literacy are important aspects to assert in the establishment of the co-op.

3 worker/members

Case Study: Real Pickles Co-op Founded as sole proprietorship in 2001 Naturally fermented foods (pickles, sauerkraut, etc.) Incorporated as a worker co-op, May 9, 2013, with 5 founding

members, including current owners $500,000 outside investment raised to fund transition $700,000 revenue Core goals: Preservation of mission, local ownership and control,

retention of staff over time

  Currently co-owned by 5 people   Incorporated as an LLC   Operates as a worker-owned collective   Grossing an average of $120,000/year

Benefits of a �Collective

  Work as core value   Equity   Multiple perspectives   Shared responsibility

 Shared political vision   More capacity   More fun   Worker-owners ensure quality

6. Suggested Guidelines

•  Launch a new co-op •  Convert an existing business

Launching a New Co-op Activities: •  Define overall purpose or goal •  Create steering committee •  Raise pre-development funds •  Hire a coordinator, if possible •  Conduct feasibility study •  Establish the founding board •  Incorporate and adopt by-laws

Launching a New Co-op

Activities, continued: •  Develop a business plan •  Create membership agreements •  Recruit members and equity investment •  Access necessary debt financing •  Hire appropriate management •  Open for business

Co-operative Development Challenges to conversions

" Sole proprietors lack of trust in process of conversions and co-op model to preserve business dynasty. Is seller willing? " Shift away from dependence on conventional system to a co-operative culture. Need for ongoing education and training. " Financing and capital: Is business viable? What will the transaction look like? " Lack of business expertise in financial literacy, governance, meeting structure, marketing. Where is the support system? " Expensive, irregular and often bad advice from professionals in legal, accounting and bookkeeping, professional training and meeting structures.

Basic Development Process

Timeline •  12-18 months to incorporate (varies widely!) •  Open doors – 2 yrs, 4 yrs, 12 yrs •  Existing facility or business can be faster Resources needed •  Committed, visionary leadership •  Co-op business, legal, and financial support •  Member equity investment •  Start-up financing •  Peer support & guidance

Legal Statutes

Worker Co-op Statutes •  VT: Title 11, Ch. 8: Worker Cooperative

Corporations •  MA: Title XXII, Ch. 157A. Employee Cooperative

Corporations •  CT: Ch. 599a Worker Cooperative Corporations

General Co-op Statutes •  MA: Title XXII, Ch. 157 •  ME: Title 13, Chapter 85: Cooperatives

Concerns for Co-operators

•  Understanding group dynamics •  Facilitation of process, shared vision •  Defining roles and responsibilities early •  Professional standards •  Participatory but focused environment •  Recognizing strengths and weaknesses

Concerns for Co-operators

•  Engagement of members •  Encourage and develop broad leadership •  Ongoing training in:

•  Co-operative values & principles •  Board leadership and accountability to members •  Fiscal oversight •  Project & strategic planning •  Communication, facilitation, conflict resolution

Suggested Guidelines Characteristics in strong co-op conversions

" Building businesses and members with strong co-op identities and sense of history. " Sound, strong governance and structure " Educated worker/members with sustained contacts to veteran co-operators " Use concrete market research and business planning " Maintaining long term support for challenges – market competition, financial literacy, marketing and advertising, plug in to co-operative networks " Contact support co-operatives and other co-ops: acting as node of knowledge for exposure for current owners and potential co-owners with examples, recent conversions.

Why Go Co-op? Co-operative enterprises: …put people before profit, …are community owned, …are accountable to members, …are successful businesses, …strengthen local economies, …are resilient, …build a better, more sustainable food system.

Conversions Basic Questions: •  Is there a willing seller? •  Are there potential member owners? •  Is the business viable? •  Is there a support system? •  Designing the transaction •  Completing the transaction •  Ongoing investment in education and training •  Linkage with existing co-op networks

Suggested Guidelines for Success •  Strong, committed member leadership •  Set realistic goals and focus on them •  Base decisions on concrete market research

and business planning •  Invest in member education and keep

members informed and involved •  Use technical assistance from co-op networks

and reputable co-op developers •  Join regional co-op networks and seek out

peer support from other co-ops

Resources

Valley Alliance of Worker Co-operatives www.valleyworker.org

US Federation of Worker Co-operatives www.usworker.coop

Neighboring Food Co-op Association www.nfca.coop

International Co-operative Alliance www.ica.coop

Adam Trott • adam@valleyworker.org

Erbin Crowell • erbin@nfca.coop