Building Community for Profit

The Cooperative Business Model

Who Owns, Controls & Uses the Business

The Sole Proprietorship/Partnership

Examples: Jimbo’s, Blue Stocking Books, Kung Food, Café India

The Investor-owned Corporation

Examples: Whole Foods, Bank of America, Shell, Microsoft

The CooperativeExamples: O.B. People’s

Organic Food Co-op, REI, ACE Hardware, Tillamook Dairy Co-op

Opening a Business is Serious Business!What to Consider:

Definition of “value” and “profit”

Consumer need and willingness pay for goods or services offered

Consequences of current production processes

Benefits of natural-based-production

Capital investment

Tax and profit benefits of each type of business model

Global Corporate Tenets

& Assumptions 1Human Labor and Production

Employers’ viewEconomists’ view

ConsumptionStandard of living Financial profit and growth

Global Corporate Tenets & Assumptions 2

Modern Economics Lack of distinction between renewable and non-renewable

materials

Prices are based on a definition of “cost” which often excludes the free goods of natural capital

Industries set financial targets, often without regard to any damage they might be inflicting on other parts of the economy

Gives vastly more weight to the short-term rather than the long-term

Natural attributes such as beauty, health, and cleanliness are valued only in idealized terms

What’s different about a cooperative?

Capitalist Model Capital hires labor People become another input of cost, so the whole purpose of business becomes the generation of maximum return on investment for the people who supply the capital—the investors.

Cooperative Model Labor/owner hires capital

Capital becomes merely another resource that the business requires to do its services, to provide good terms and conditions for employees, to be fair to suppliers, to provide limited returns on investment for investors, to support local communities, and to respect the environment.

What is a cooperative?

A cooperative (co-op) 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.

A co-op provides the same products and services as any other like business.  It exists to serve its customers who are the owners of the business.  A co-op allows the people it serves to have a direct say in business’s policies and practices; rewards patronage instead of speculative investment and limits each owner to one share.

A co-op has an operating structure that compensates people based on experience, level of responsibility and education; a co-op does not mean that the business ignores a hierarchy of salaries.

What does that mean?

User-owned—the people who own and finance the cooperative are those who use the cooperative.

User-controlled—the people who control the cooperative are those who use the cooperative.

User-benefiting—the cooperative’s sole purpose is to provide and distribute benefits to its users on the basis of their use.

7 Cooperative Principles

1. Voluntary and Open Membership

2. Democratic Member Control

3. Member Economic Participation

4. Autonomy and Independence

5. Education, Training, and Information

6. Cooperation among Cooperatives

7. Concern for Community

Types of Co-opsConsumer Co-ops

Examples: Ocean Beach People’s Food Co-op, REI, and all credit unions.

Worker Co-ops Examples: Rainbow Grocery in San Francisco, Bob’s Red Mill Natural Foods, Equal Exchange

Producer Co-ops Examples: Organic Valley, Ocean Spray, Sunkist oranges, Blue Diamond, Maple Valley Cooperative

Purchasing Co-ops Example: ACE Hardware

Cooperative Organizations Examples: National Cooperative Business Association (NCBA), whose mission is to develop, advance, and protect cooperative enterprise. Ex. Mondragón Cooperative Corporation.

Social/Cultural Values & Considerations

How are we going to deal with a new definition of “profit,” including profits that stay in the community and the 7 Cooperative Principles?

How do we re-define the current necessity for growth? How do profit and growth fit with sustainability? (Prosperity without Growth, by Tim Jackson, offers some ideas.)

What needs are important? What desires are important? What products will serve our needs and desires? (i.e., food, shelter, clothing, beauty)

How do we measure returns for our efforts? (i.e., the question of selling environmental products in order to save the world, such as T-shirts)

What skills must we develop in order to succeed in working democratically? How can we learn to reach consensus?

Case Study:

1971: Ocean Beach activists create small neighborhood buying club with dreams for a store that belongs to the community it serves and provides healthy, non-polluting, cruelty-free foods at a fair price.

1972: Fast-growing enterprise moves to apartment storefront at 4859 Voltaire Street. Customers look for perishable foods in the refrigerator and add up their own purchases for the cashier.

1973: O.B. People's moves to former pool and dance hall, becomes known as a truly people-oriented store with a unique selection of foods and uncompromising standards for quality.

1985: People’s changes from workers’ collective to food cooperative.

2002: Co-op moves to new building to meet growing needs and serve as model of conscious construction.

Now: Sales—over $14 million per year.

Now: Ownership—over 12,000 owners. BOD has 9 members.

People’s Organizational Chart

How to Start a Cooperative

Research cooperative business model choices.

Form a provisional board and identify possible funding sources.

Create mission/vision statements and by-laws (membership requirements, duties, responsibilities and other operational procedures). Comply with state laws, which differ from state to state.

Apply for funding from identified sources.

File articles of incorporation (name, business location, purpose, duration of existence, names of incorporators, capital structure).

Create a membership application (include names, signatures of Board of Directors and member rights and benefits).

Conduct a charter meeting and elect directors.

Obtain licenses and permits.

Hire employees.

How might a new co-op look? People decide they want to operate in a certain way,

and the co-op model makes sense for them.

Example 1: Existing Business

One-owner salon sells the business to one of the salon workers, and business remains much the same with some new decorating and other changes.

But there is always the chance that the new owner will one day sell, move, or close the business, and the workers would be at a potential disadvantage. Why not choose to be a cooperative? What might be the benefits?

Once the salon employees decide they want to form a cooperative, they will need to decide who are the members/owners and what benefits they want from this cooperative. Will this be a worker or consumer co-op, and what specific products/services will it offer to its owners?

Since this is for an already-established business, the process should go smoothly.

Another Co-op Scenario

Example 2: New Business

John is a painter, and he knows Lloyd, a plumber. Another friend is Gina; she installs tile. Frank is a general handyman. At the same time, many of us are often looking for good handy people. We are concerned with sustainability. Why not form a worker or consumer co-op? How can we do that?

Find and identify owners, and fill needs the new business has (i.e., carpenter, additional skilled labor, secretarial help). Consider a market study. Research cooperative business models.

Start with a vision/mission statement; write by-laws and determine business plan.

Elect a Board of Directors, whose job it is to hire and monitor the general manager once the funding is in place for the new co-op.

Process may take many meetings, but all businesses require planning.

The commitment here is to agree that you will agree working democratically. Abolish the “agree to disagree” idea from this process.

How to Work Democratically and Cooperatively

Democracy must be actively practiced.

Skills need to be developed.

Practice: learning & improving.

Promote: providing opportunities to participate.

Perpetuate: doing it again and continually improving.

Protect: remain vigilant about how well the democratic process is working overall.

Money Money, Who’s Got the Money?

Member Patron relationships, seed capital contributions Non-patron investors

(non-ownership shares, offers set return) Venture capital organizations Private organizations

(non-profits, foundations, community dev. programs)

Financial institutions National Cooperative Bank (NCB): http://www.ncb.coop/ National Co-op Grocers Development Fund (TBA) Howard Bowers Fund: http://www.cdf.coop/bowersfund/ Government programs (e.g., U.S. Dept. of Agriculture

Rural Development) http://www.rurdev.usda.gov/LP_CoopPrograms.html

More

National Co-op Organizations National Cooperative Business Association:

http://www.ncba.org/ Cooperative Development Institute:

http://www.cdi.coop/ Cooperative Development Services:

http://www.cdsus.coop/

Cooperative Development Funds Cooperative Development Foundation

http://www.cdf.coop/ California Center for Cooperative Development

http://cccd.coop/ Blooming Prairie Foundation

http://www.bloomingprairiefoundation.org/

Economic Impact of U.S. Cooperatives Why should a business student care about

cooperatives? Nearly 30,000 U.S. cooperatives operate at 73,000 places of

business.

Cooperatives own $3 trillion in assets and generate $654 billion in revenue and $75 billion in wages and benefits.

350 million Americans are member-owners of cooperatives, generating $79 billion in patronage refunds, dividends, and other benefits.

http://www.iatp.org/documents/research-on-the-economic-impact-of-cooperatives-0

Relatively small-scale, more easily able to adjust to changing circumstances, e.g., greater competition, higher energy costs, etc.

Intentional focus is on local, thus escaping the serious detriments of large-scale capitalism and large-scale socialism.

Terms to Define

“green”

“sustainable”

“natural”

“local”

“organic”

“globalization”

Worldview

Media – Mindwalk ”We have to change everything together at the same time.” Director Bernt Amadeus Capra, based on The Turning Point, by Fritjof Capra, author of The Tao of Physics. Nature is treated like a machine; when something goes wrong, we develop technology to “fix” the problem. Nature, the capital which provides resources for survival, doesn’t work like that.

Garret Hardin—The Tragedy of the Commons An economics theory according to which individuals, acting independently and rationally according to each one's self-interest, behave contrary to the whole group's long-term best interests by depleting some common resource. The concept is often cited in connection with sustainable development, meshing economic growth and environmental protection, as well as in the debate over global warming. The discussion suggests that common resources must be managed either through privatization or government regulation, in the form of taxes, say, or limits on use.

Worldviewcontinued…

Elinor Ostrum—Governing the Commons: The Evolution of Institutions for Collective Action Examined how people collaborate, cooperate, and organize themselves to manage common resources like forests or fisheries, even when governments are not involved. Research overturned the conventional wisdom about the need for government regulation of public resources.

Naomi Klein: This Changes Everything: Capitalism vs. the Climate “I think we do need to talk about that fundamental issue of whether our place on earth is to dominate nature—whether we're at war with it. We need to ask ourselves some really tough questions about just how smart we are. We don't want to wallow in ignorance, but there are huge dangers in overestimating our intelligence.”

Bill Clinton: “The only thing that really works in the modern world is cooperation.”

An Exercise: Imagine three very different enterprises (a

small homemade ice cream shop, a large fish hatchery, and a home health care agency, for example) and think about each structured as—

A sole proprietorship An investor-owned company A cooperative

How would the capital structure look different in each case? What effects might this have on market development? On operations? Other issues?

A Video by Ted Howard (20 min.):Building

Community Wealth through Cooperative Ownership