Steps to Starting a Cooperative Margaret M. Bau Cooperative Development Specialist USDA Rural Development January 20, 2016 Ways to Form a Co-op Member Initiated Start up idea dreamed up and explored by the eventual members - Following a recipe - Taking a cooking class Incubated Start-up idea incubated by a development group and transplanted among recruited members Conversion Transfer an existing business to shared ownership - Succession planning - Making lemonade Steps to take when working with a Member Initiated Co-op Analogy of cooking with the help of a recipe It All Starts With Idea! Could a group effort address the issue? 4 Explore the Idea What is the business concept? Is a co-op the best structure to meet our shared need? Discuss the idea in a Margaret Mead group 5 Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, its the only thing that ever has. -Margaret Mead 6 Gather Information Co-op structure What is a co-op? Co-op vs other legal structures? Other co-ops in industry and region Co-op principles and values Ownership culture, participatory democracy Discuss your mission and values Indentify resources Project coordinator (paid task master) Co-op and business consultants Define the business concept 7 Key Questions Sound business idea? Advantage to work as a group rather than alone? Co-op model the best structure? Idea worth doing? Time, resources, and energy Major difference in life? Business, not a hobby 8 Exploratory Meeting At your discretion, depending on the project Present the concept If interest exists, form a STEERING COMMITTEE Ask for earnest money Cover organizing expenses Good indicator of commitment 9 Decision Point If Proposal is realistic Co-op is a possible solution People show interest Then Proceed to feasibility study If not STOP 10 Conduct a Feasibility Study Is concept viable? Industry analysis Market potential Technical aspects Capital requirements Financial projections Scenarios Independent analysis Conducted by 3 rd party Decision Point If Concept seems viable After thorough review, the steering committee wishes to pursue the business Then Proceed to conducting a business plan If not STOP 12 Conduct a Business Plan Details of your venture Description of product Marketing plan Operations Management and organization Financial plan Equity and capitalization Conducted internally use information from feasibility study Decision Point If Market potential is sufficient Member participation is sufficient Capitalization chances look reasonable Then Proceed to incorporate If not STOP 14 Legal and Policy Documents Draft bylaws and articles of incorporation Review by co-op attorney Select incorporators usually the steering committee will serve as the interim board Incorporate with a state Develop policies and controls Accounting checks and balances Personnel policy handbook Membership agreements Board policies (conflict of interest) Your State Statutes (or a co-op friendly state) 15 Organizational Meeting Present findings of the feasibility study and business plan answer questions Adopt bylaws Elect Board of Directors Collect member equity 16 Funding a Co-op Membership equity Initial Annual Transaction fees Per unit retains (i.e. 5% surcharge on each item sold) Hourly withholding (worker co-ops) Equity drive Common stock to members Preferred stock to members and community investors very limited voting rights Subsidized loans, grants Loans from members Market rate loan 17 Business Start-Up Immediate tasks after incorporation Tax ID number, IRS Subchapter T: farmer co-op board & business insurance any licenses workers compensation Hire manager Manager hires other employees Acquire facilities, equipment 18 Begin Operations This is just the beginning 19 Get Co-op on Its Feet Board training - foster long term thinking Model good board behavior and policies Strategic plan Annual manager review Board self-evaluation Member education and involvement Require co-op education for membership Committees, conference calls Annual membership meeting 20 Member Initiated Co-op Follow the recipe How about a Cooking Course? Getting to scale in specific industries Sectors with Cooking Shows Several industry sectors enjoy targeted co-op development assistance Historical - Rural Electric Cooperatives 1935 Rural Electric Administration Extensive federal government loans Network of co-op developers and local groups Today - Food Co-op Initiative Retail natural food consumer co-ops Extensive industry knowledge Network of technical assistance Limited seed money Incubated Co-op (of new business ventures) Analogy of growing tomatoes in northern climates Examples of Incubated Co-ops (new business development) Co-op development in a specific industry Arizmendi bakeries in San Francisco, CA Co-op development with targeted groups Prospera with Latina immigrants in Oakland, CA Initially house cleaning, now food production Co-op development in a region Evergreen Co-ops in inner city Cleveland Underemployed, people with blemished records Anchor institution approach Select industries to supply local hospitals, universities Incubating a Co-op Sponsoring organization comes up with idea: Picks industry, does feasibility study Conducts market analysis and business plan for proposed co-op sites Figures out financing Go/No Go decision point If go - Sponsor recruits members to proposed co-op Recruiting Members Advertise positions Require co-op training Co-op principles Understanding financials Personal Business Democratic workplace Provide task specific training Mentor operations management Open for business Ongoing care of co-op board and membership Ongoing support of business Pros and Cons of Incubated Co-ops Strengths Proven industry Streamlined financing Member perspective: Quicker start-up Less burn-out of leadership People with limited business experience can still enjoy ownership Weaknesses Group trust building process missing Member perspective: Idea isnt from the members Members may not have deep industry knowledge Danger of convenient membership and employee mentality Converting an Existing Business to Cooperative Ownership Examples of Conversions Consumer Co-ops manufactured home parks ROC USA Worker Co-ops Retiring owners (succession planning) Select Machine, Kent, OH Current owners expanding ownership to employees Real Pickles, Greenfield, MA Ideal Environment for Conversion Willing seller Owner wants to phase out of the business Concerned about business legacy No logical successors Willing buyers Business has a major impact on their lives Viable business Profitable business, limited debt Industry has a future Conversion Steps Willingness Current Situation New Structure Do the Deal Summary Member Initiated Start up business -Members go through the steps of the entire start-up process Incubated Start-up business -Organization does development process -Hire and orient eventual owners Conversion Existing business - Evaluate viability and seller willingness - Members go through process steps For More Information Margaret Bau Co-op Development Specialist USDA Rural Development (715) ext Crave co-op developer training? Cooperation Works (all co-ops) National network of co-op development centers and co-op development professionals June 27-30, 2016, in Madison, WI University of Wisconsin Center for Cooperatives Contact Sarah Pike atDemocracy At Work Institute (worker co-ops) National think-and-do tank for worker co-ops Worker cooperative start-up webinars First Friday or the month through Nonprofits interested in incubating worker co-ops 2016 Co-op Developer Fellowship Program