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Starting Worker Cooperatives

Table of Content

Introduction
Traditional Startup
Cooperative Startup
Learn from Experience
The Cooperative Advantage
Gathering Your Team
Who is a Good Candidate for a Cooperative?
Vision and Shared Values
What Industries are Best for Worker Cooperatives?
Governing the Cooperative
Business Plan

Introduction

In some ways, worker cooperatives are like other companies. In other ways, they are different. They are different in the way they are owned and controlled. What they do is very similar to all other companies. All companies provide a service or make a product. All fill a need in the marketplace. This means that, like all other companies, worker cooperatives need to do or make something buyers are willing to pay for. If they don’t, like all other companies, they will fail and be forced to close.

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Traditional Startup

Most traditional companies are started by an individual with an idea or a vision. Sometimes, the individual realizes his/her vision alone and never joins with others. We call them self-employed or solopreneurs. Others may start out alone, but soon realize that in order to grow, they need to join with others. Some bring in equal partners, but most hire employees. The person has transitioned from being self-employed to being a business owner.

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Cooperative Startup

Like a traditional company, a cooperative can be started by an individual, but this individual is reluctant to take on the responsibility of business owner and decides to share that role with others.

He/she gathers a group of individuals who share his/her values and vision. The company will be a cooperative from the beginning, even in the planning stage.

It could also be a group of people who have a shared need for income or to avoid abuses in their current workplace. In order to meet those needs, they join together, take inventory of their skills, do some market research and form a new cooperative to meet the needs of the marketplace while meeting their own.

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Learn from Experience

Worker Cooperatives may not be common in the United States, but enough are out there that we can learn from them. We do not have to reinvent the wheel all over again. There is lots of literature about successful startups available. No matter what problem you are trying to solve, someone has already found a solution. Learn from them.

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The Cooperative Advantage

Companies organized as worker cooperatives have a much higher survival rate than traditional companies.

First, most cooperatives practice participatory management. This provides a much larger pool of ideas on the table. Workers are more committed to solutions they have been involved in crafting than to solutions simply imposed on them.

Second, worker cooperatives are generally more conservative than traditional companies. They are more reluctant to experiment with risky and unproven methods. They tend to stick with what they know to be working.

Third, worker/owners are more committed. They are less prone to engage in wasteful and inefficient procedures. Because they are actual owners, they tend to behave like owners. How they perform their tasks on a daily basis directly impacts their paychecks.

Fourth, worker/owners are not treated as expenses and thus being expendable. They are treated more like assets. They are less likely to be laid off during a downturn like traditional workers are. Instead, they tend to share available work among themselves or they actively pursue other sources of income.

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Gathering Your Team

As a startup, you are in a unique position to choose who you want to work with. Those of us who have been traditionally employed for a while know all too well how important coworkers are for your job satisfaction.

Worker cooperatives are a little like intentional communities in that they bring different personalities together for a common purpose. Some intentional communities thrive, but most fail, so what is it that increases the success rate?

Traditional companies are often founded on an idea or vision and the people with appropriate skills are brought in as necessary. That works because the decisions are being made either by an individual or a small group with the power to do so. That does not work so well in organizations with a flat leadership structure like cooperatives and intentional communities. Conflicts may result unless handled properly.

It is vitally important for everyone to be in agreement about what you are trying to do and how you are going to do it.

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Who is a Good Candidate for a Cooperative?

When employment ads specify “team player” as a qualification, it can mean either of two things. At one extreme, it can mean someone who accepts every demand, reasonable or unreasonable, without question. That happens a lot in traditional companies. At the other end of the spectrum, it can mean someone who willingly contributes for the good of the community but also offers criticism when appropriate. In short, a person who is willing to consider the interests of the community superior to his/her own; someone who can see that in order for the individual can get what he/she wants, the community must be satisfied first.

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Vision and Shared Values

Selecting the right cooperators is important, but open and honest communication takes you from OK to great.

What surviving intentional communities are doing different than failing ones is being very, very clear about their vision and shared values. What makes projects fall apart more than any other factor is when participants’ expectations are different from their actual experiences. Thus it begins with a statement of vision and shared values.

Many projects start with an idea but only a vague idea of how it will manifest itself in real life. It may change significantly as it develops. It is tempting to jump right in and invest money and energy in equipment and advertising before you have developed the idea as far as you can and there is agreement. It is not meant to be a contract, but a test to ensure that everyone has the same understanding of what you are trying to do.

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What Industries are Best for Worker Cooperatives?

Fundamentally, there is no limit to what kind of business can be organized as a worker cooperative. Some are more suitable than others, though, not because they are cooperatives, but because they are startups.

Most people know that startups have a really high failure rate. Most agree that it boils down to management inexperience. Entrepreneurs, in general, are risk takers. They are willing to take steps without knowing exactly where they will take them. That is how innovations come about, but it is usually best to leave that to those who can afford to lose their shirt. You are probably not one of them. You need to be certain, to the extent possible, that what you are doing will work out the way you planned. New entrepreneurs are notorious for underestimating how much capital it takes to start a business. They underestimate how much they are going to sell. They underestimate how much it is going to cost to produce what they are making. Getting just one of these wrong could sink your project not to mention what missing all three would do.

There is something exhilarating about creating something from scratch, but that might not be the best approach. Buying an existing business provided it is a healthy one is a much better option. You might object that you do not have enough money to buy an existing business. My answer is that then you probably do not have enough to start one either.

Another alternative, and this is probably the safest option, is to buy a franchise. One of the reasons franchises have a much higher survival rate is that they build on what is known to work. Nothing is left to chance. Every function is documented and implemented. Just look at your local fast food place to observe this in action. The downside, of course, is that you have to pay franchise fees. One company, True Value Hardware Stores, has found a way around this problem. The stores are individually owned, but the franchise is a cooperative owned by the store owners. In other words, they are at once both franchisees and franchisors, so all the profits go back to the store owners.

If you must start from scratch and you want to stretch limited funds as much as possible, look for opportunities that are labor intensive first. After all, that is the main commodity you have to sell. Next, look for something with minimal capital requirement. Finally, look for something that is easy to learn.

After all that, you will probably end up with a list of service businesses. To pare it down further, eliminate the ones with a lot of competition or government red tape. There is a reason that, while it is easy to get into, only few make any money in multi-level marketing schemes. A little competition, but not too much, is OK. It only means people are making money in it.

Keep an eye on the future. While a service business can get you started, it can be more difficult to grow. Selling products has unlimited growth potential. Providing a service may mean you have to physically show up where the service is needed. Products can easily be shipped around the world.

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Governing the Cooperative

Governance is the most significant difference from a traditional company. It can be time consuming and frustrating, but when done the right way, it can be the greatest source of job satisfaction.

In traditional companies, the decisions are made at the top and everybody else must obey. In cooperatives, it is far more complicated. Some decisions are made at the top level, but who sits at the top level is decided by the individual members; one member, one vote. Top level management is mostly concerned with policy type decisions. They are less concerned with day-to-day decisions.

Those decisions are more technical or economic in nature. They have less to do with values, but more with what makes sense under particular circumstances. This kind of decisions are mostly made by management as directed by policies set by top level management who in turn get their authority from the membership.

Ideally, every worker would be able to make every decision about his workday. You could probably imagine the chaos that would result, but having maximum control is still a goal for many cooperatives and they have come up with their own solutions.

Fundamentally, the individual member is the highest authority in the company. As a matter of practicality, he delegates that authority to the Board of Directors who in turn delegates authority back through managers. As a matter of practical implementation, some cooperatives form autonomous workgroups. They make all decisions themselves except when those decisions impact other workgroups. When that happens, the workgroups form committees to work out the details of how they can work together. The committees also make independent decisions except when they impact another committee and so on until a solution that works for everyone has been found.

It may sound overly complicated. It would be so much easier if everybody would just do as I say, but that is the reality of being part of a community. You have a say, exactly the same say as the guy next to you. The beauty of it is that, as a community, you can design your decision making process exactly the way that works for you. This is the kind of stuff that has the potential to either sink or make your cooperative thrive. It is vitally important for its survival. Again, you do not have to create it from scratch. There is lots of material available about what has worked for others. Learn from them. Cooperatives in general willingly share their experiences.

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Business Plan

There are two main reasons for creating a business plan:
1. You can easily explain to others, especially lenders, what you are trying to do.
2. You can easily compare what you plan to do with what actually happens.

Worker cooperatives, like all other companies, owe their existence to their customers. Without customers they will not survive very long. Therefore, while a desire for personal fulfillment may be important, determining what customers want even more so. It is not only important for you, it is also important should you need to convince a lender to lend you money for this purpose.

It is also a tool to keep you on track and to evaluate if you need to make adjustments as you progress.

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