Starting a cooperative presents a unique opportunity for a group of people to meet a shared economic, social, or cultural need. Like any other start-up, cooperatives are subject to the same market forces and economic conditions that other businesses face. The demand for the cooperative’s goods and services must generate enough revenue to offset both the risk of investing and the costs of operating the business. As with any new venture, starting a cooperative requires good ideas, expertise, time, energy, and money. The following are basic guidelines for starting a new cooperative, but each new cooperative is unique. The way the momentum, people, and money come together will vary. Often the circumstances of a particular start-up venture require that some elements occur simultaneously or in a different sequence. However, each of the elements described below offers a logical point for organizers to assess a cooperative’s progress and determine whether to continue the effort.
Cooperatives thrive when there is a strong commitment to continuous learning. This learning should start when a group first starts exploring an idea and continue throughout the life of the cooperative.
- Element 1: Explore and Clarify
- Element 2: Build the Team
- Element 3: Assess and Plan
- Element 4: Make it Legal
- Element 5: Fund and Promote
- Element 6: Operate and Govern
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Element 1: Explore and Clarify
Identify the problem and gauge interest
What conversations are you having with other people who have a similar set of needs or ideas? What needs do you see in your community that you think people could work together to address? Many cooperatives start as a result of conversations and observations like these.
During exploration, a group of individuals or a network of community members with a common unmet need or aspiration begin discussing a solution to their shared goal, and how the cooperative business model could be part of that solution. The group studies cooperative structures to understand their legal and practical implications; develops and refines a business idea along with its initial mission, purpose, and goals; clarifies member relationships to the cooperative business; gauges interest from the larger community; and recruits others who have the skills and expertise required to lead the cooperative development process.
Form a steering committee
If there is enough interest in the cooperative idea, this group forms a steering committee consisting of likely members and primary stakeholders.
The steering committee should be made up of trustworthy individuals who have good business sense, will champion the project, and can put the group’s interests before their own. Many potential cooperative members will base their support of the cooperative on the credibility of the steering committee members.
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Element 2: Build the Team
Form a steering committee
Once the steering committee members are identified, they will begin to formalize the work and processes necessary for the cooperative idea to become a reality. Even if your steering committee is mostly people you know or have worked with in some capacity before, it is important to dedicate time to learning, documenting, and practicing how you will function as a decision-making group. The steering committee will:
- meet regularly, document their progress, and establish roles and responsibilities of its members;
- gather more information on the cooperative option and potential member support;
- further refine the business idea and its initial mission, vision, values, and goals;
- assess internal skills and identify needs for training and support related to running meetings, facilitating decision-making processes, and navigating conflict;
- set norms and expectations around meetings, decision-making, and communication;
- identify and build relationships with partners that form an ecosystem of support for the start-up business; and
- manage financial matters in a responsible and trustworthy manner.
Set the foundation
All cooperatives are expected to evolve over time, and the cooperative’s initial core values, mission, vision, and governing documents are the foundation for future growth. The steering committee plays an essential role, not only in drafting these founding documents but also in establishing values-aligned governing practices and a healthy cooperative culture. Groups that invest time and effort in focusing on values, collective decision-making tools, effective facilitation, conflict mediation, and trust-building throughout the development process will succeed in designing systems that promote functional democracy and member satisfaction.
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Element 3: Assess and Plan
Conduct a feasibility study
The steering committee should engage in both a feasibility assessment of their business idea to see if it can succeed and a business planning process that tells the story of how it will succeed.
A feasibility study can be an assessment to use as an internal tool of the steering committee or a more formal study that could be shared with funders. A formal study often requires hiring a person knowledgeable in your industry or in your cooperative sector to complete the study. It should be used to assess the potential for financial success, areas needing further planning, and areas requiring changes.
A feasibility assessment should answer questions such as:
- What is the market for your business idea? Who will use the cooperative’s services or buy the cooperative’s products?
- How much money do you need to get started and where will it come from?
- What staffing, equipment, facilities, and licensing will your business need?
- How much revenue can the business realistically earn?
- Can the predicted revenue cover all the start-up and ongoing costs needed to operate?
- How many members and consumers do you need to be sustainable?
Evaluate feasibility study results
The results of the feasibility study help the steering committee decide whether to continue forming their cooperative. This is a critical decision point during the development process.
Prepare a business plan
OA business plan pulls from the feasibility study and solidifies the details of the business idea for the group and to external supporters and stakeholders. Lenders and other funding sources will want to assess the business plan as part of their financing decisions. The business plan is an in-depth analysis of your ideas and assumptions and provides a plan for moving forward. The business plan includes:
- A description of the goods or services you will offer;
- An analysis of your market identifying potential customers;
- A marketing plan with suggestions for branding and messaging to reach new customers;
- A plan for operating your business;
- A description of the management and ownership structures;
- The source of startup funds and how you are using them; and
- A projection of your expected financial data for the first five years in business.
The steering committee uses the business plan as a blueprint for moving forward.
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Element 4: Make it Legal
Decide on legal structure
Another major decision point in your cooperative journey is deciding what legal structure your cooperative will adopt. This decision determines what paperwork you file with the state to become a legal entity. In Wisconsin, a group can choose to incorporate as a cooperative under Chapter 185 or Chapter 193 of the state statutes by filing Articles of Incorporation (Ch 185) or Articles of Organization (Ch 193) with the Wisconsin Department of Financial Institutions. Your group can still operate on a cooperative basis even if you incorporate under a different state statute.
Draft Articles of Incorporation or Organization
Next, the steering committee will draft the Articles of Incorporation or Organization, providing the basic organizational information required by the corresponding Statute. The steering committee should also begin to draft the cooperative’s bylaws. This key guiding document will outline membership eligibility; member rights and responsibilities; shape the board of directors; and how patronage is defined and profits distributed. An attorney familiar with cooperatives should review your Articles of Incorporation or Organization before they are filed with the state, and also your bylaws to ensure they comply with state statute.
Finalize Bylaws and Elect Board of Directors
The people who sign the Articles of Incorporation or Organization typically become the interim board of directors. This interim board will finish drafting the bylaws if needed, and adhere to them until the cooperative has its first annual membership meeting. At this meeting the full membership of the cooperative will elect the first board of directors and ratify the bylaws. Bylaws can be amended in future meetings.
Apply for EIN
Once your cooperative is incorporated, you will be able to apply for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS) and open a credit union or bank account for financial transactions. In many cases, a group will incorporate early in the development process so the cooperative can receive funds and pay initial expenses.
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Element 5: Fund and Promote
Secure start-up capital
A cooperative may raise money through a variety of channels to secure the total capital it needs for start-up. Members always contribute some amount of capital, called member equity. Other sources can include crowdfunding, grants, loans from financial institutions, member loans, and the sale of preferred stock. Lending institutions and buyers of preferred stock will evaluate the risks associated with making a loan or stock purchase to the start-up cooperative business by analyzing the financial projections in the business plan and ensuring the cooperative has capable leadership and management lined up. Lenders will also look at the amount of member equity invested in the cooperative, since this indicates the level of risk and commitment members are willing to assume. Banks, credit unions, and loan funds that are specifically oriented to cooperatives and understand their unique structure can be important resources.
Build membership and awareness
The membership drive will indicate whether there is sufficient member support for the new cooperative. Materials for prospective members should clearly explain the cooperative’s mission, the financial requirements for membership, and the risks and benefits of membership. Some groups launch the membership drive earlier in the development process.
The cooperative should also begin building awareness and support in the community. This could be early marketing to possible customers, raising more capital through crowd-funding or preferred stock campaigns, and identifying additional supporters and publicity that will help boost revenue once operations begin.
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Element 6: Operate and Govern
Hire staff
The board hires a general manager or CEO, who plays a key role in securing the operations site, developing vendor networks, and hiring additional staff. Some groups hire staff earlier to assist with the development process.
Address licensing, regulatory, and insurance requirements
There are often specific licensing or regulatory requirements that must be met before the business can begin operations. Legal, insurance, and risk management issues must also be addressed before launching.
Commit to ongoing training and education
Ongoing member education and board training are vital to establishing a sustainable foundation for successful cooperative operations. Education topics might include the cooperative model, cooperative finance and governance, industry trends, and working together effectively.
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