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How to Start or Convert to a Co-op Business

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How to Start or Convert to a Co-op Business

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This presentation was part the Co-op Track at the 2019 NOFA Summer Conference. Looking to start a business or for a business succession plan that retains jobs and builds economic sustainability? Co-ops root business in communities, strengthen buy-in, and build resilient and sustainable economy and food systems. Learn how co-ops work, the startup process, benefits of conversion, financing, and history. Presenters will shares stories of the process of converting businesses to the co-op model, starting worker co-ops, food co-ops and producer co-ops.

Presenters:

-Larisa Demos, Worker/member-owner Green Mountain Spinnery, Board of Directors, Valley Alliance of Worker Co-operatives.
-Suzette Snow-Cobb, Has been involved with co-ops since the '80s, works for the Neighboring Food Co-op Association.

This presentation was part the Co-op Track at the 2019 NOFA Summer Conference. Looking to start a business or for a business succession plan that retains jobs and builds economic sustainability? Co-ops root business in communities, strengthen buy-in, and build resilient and sustainable economy and food systems. Learn how co-ops work, the startup process, benefits of conversion, financing, and history. Presenters will shares stories of the process of converting businesses to the co-op model, starting worker co-ops, food co-ops and producer co-ops.

Presenters:

-Larisa Demos, Worker/member-owner Green Mountain Spinnery, Board of Directors, Valley Alliance of Worker Co-operatives.
-Suzette Snow-Cobb, Has been involved with co-ops since the '80s, works for the Neighboring Food Co-op Association.

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How to Start or Convert to a Co-op Business

  1. 1. Co-operatives for Succession or Conversion Suzette Snow-Cobb - Sourcing Coordinator, Neighboring Food Co-op Association (NFCA) Larisa Demos – worker-member, Green Mountain Spinnery, Board member, Valley Alliance of Worker Co-operatives (VAWC) Northeast Organic Faming Association (NOFA) Summer Conference, 10th August 2019 Hampshire College
  2. 2. Your Presenters Suzette Snow-Cobb • Sourcing Coordinator, NFCA • Franklin Community Co-op/Green Fields Market & McCusker’s Market, Co-op Manager 1997-2017 • Stakeholder Director, VAWC Board of Directors • Board of Directors, Valley Co-operative Business Association • Master of Management, Co-operatives & Credit Unions Larisa Demos • Worker/member Green Mountain Spinnery since 2014 • Board of Directors, Valley Alliance of Worker Co-operatives •Part of leadership in transitioning generation shift of members 2
  3. 3. Outline 1. Thoughts on co-ops and the economy 2. What is a Co-op? 3. Co-ops & Economic Democracy 4. Conversions: Case Studies 5. Examples from the field 6. Suggested Guidelines: Go Co-op 7. Discussion, Questions, Ideas 3
  4. 4. Consider: What comes to mind when you think of co-ops? What do you think of when you think of the economy?
  5. 5. 1. Traditional Economy Concepts • An unaccountable food system & economy • Crisis of global economy • Unemployment • Dramatic inequality in wealth • Diminished democracy in political systems • Hunger for alternatives • Corporate consolidation of food system • Relocalization & regional economies 5
  6. 6. The Challenge of Succession • Sole proprietorships rarely pass to the next generation • Winding down of a business represents lost community jobs and infrastructure • Closures impacts the wider community (workers, producers, local government, etc.) • Conventional path for successful business is selling off to a larger business or to investors • Community investment in the success of these local enterprises is unrecognized 6
  7. 7. What If…? There was an alternative business model that... • …was democratically controlled? • …was accountable to the people it served? • …was rooted in our local communities? • …was part of a values-based movement? • …put common good before private gain? • …was flexible and innovative? • …was successful and more sustainable? • …was accessible for everyday people? 7
  8. 8. We Do! Co-operatives
  9. 9. 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. 9
  10. 10. Co-operative Principles 1.Voluntary & Open Membership 2. Democratic Member Control 3. Member Economic Participation 4. Autonomy & Independence 5. Education, Training & Information 6. Co-operation among Co-operatives 7. Concern for Community
  11. 11. England in the 1800s • Dislocation of local economies • Dramatic shifts in wealth • Concentration of economic control • Poor working conditions • Contaminated, low quality food • Birth of the modern Co-operative Movement 11
  12. 12. Rochdale Society of Equitable Pioneers • Founded 1844, Rochdale, England • Weavers, Unionists, Community Activists • Member-Owned Grocery Store • Pure, Affordable Food • Basic Co-op Principles 12
  13. 13. 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.” 13
  14. 14. Basic Co-op Structure
  15. 15. A Flexible Business Model: 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 purchase inputs, process and market their products. •Multistakeholder Co-ops: Owned and controlled by combination of member types. 15
  16. 16. 3. Co-ops & Economic Democracy Co-operative Enterprises… — 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 • 39,000 co-ops in all sectors of US economy 16
  17. 17. Co-operatives & Resilience • Because they are community owned, co-ops root jobs, wealth and infrastructure locally. • Because they are more resilient, co-ops contribute to more stable local food systems, infrastructure, employment, services, and economy over time. 17
  18. 18. 4. Conversions Case Study: Real Pickles Co-op •Founded as sole proprietorship in 2001 •Naturally fermented foods (pickles, sauerkraut, etc.) •Incorporated as a worker co-op in 2014, with 5 founding members, including original owners •$500,000 community investment raised to fund transition •Loans from CFNE & local bank •$700,000 revenue annually •Core goals: Preservation of mission, local ownership and control, retention of staff over time 18
  19. 19. Conversions Case Study: Green Mountain Spinnery v Founded as sole proprietorship in 1981 v Certified Vermont organic processor v Designing and producing richly colored, must-touch yarns & classic & contemporary patterns for hand knitters 19
  20. 20. v Converted to worker co-op in 2007 v Member of Valley Alliance of Worker Co-ops, NOFA Vermont v Core goals: Retain high quality yarn production skill set in Vermont v Preservation of mission, local ownership and control, retention of staff over time 20
  21. 21. Conversions Case Study: Old Creamery Co-op • Founded as dairy co-op, 1886; Rural grocery since 1930s • Recent owners operated for 12 yrs • Community hub • Converted to co-op in 2010, NFCA food co-ops provide peer support • 807 members • 35 employees • $1.7 million revenue • $455,000 sales of local product (2018) 21
  22. 22. 5. Examples from the field - data Co-ops in New England: • 1,400 businesses •Food co-ops, farmer co-ops, worker co-ops, credit unions, etc. • Locally owned by 5 million members • Earn $9 billion in annual revenue • Employ 22,000 people • Pay $1 billion in wages Source: http://reic.uwcc.wisc.edu/ (2008) 22
  23. 23. Federations: Co-ops of co-ops “Nurturing participation at grass- roots level therefore strengthens the legitimacy and authority both of front-line co-operative organizations, but also and particularly of their representative bodies such as the ICA.” - Blueprint for a Co-operative Decade 23 Federations unite individual co-ops to address larger issues and work toward common goals: § Educational Programming § Addressing social, environmental and economic issues § Unite to form a democratic, co-op economy § Co-op development and support
  24. 24. Valley Alliance of Worker Co-ops • 4 member worker co-ops in Western MA & Southern VT • Member Supported & Owned Loan Fund • Supported six conversions in seven years • Collaboration with other sectors – co-founded Valley Co-operative Business Association (cross sector) • UMass Co-op Enterprise Collaborative 24
  25. 25. Collective Copies Ø A worker co-op copy shop Ø Founded from a strike in 1983 Ø 10 worker members, union shop Ø 2 locations in Western MA Ø 2:1 pay ratio highest to lowest Ø Health insurance, IRA, 2-4 wks vacation, holidays, etc. Ø 10% of gross profit to community Ø Stocks only recycled paper Ø Launched publishing wing, Levellers' Press 25
  26. 26. •Employing 2,300 people • 60% are also owners • $340 million revenue • $93 million in local purchases •28 Co-ops across New England and New York --Majority in operation 30+ yrs • 7 Start-Ups --New jobs, infrastructure • Locally owned by 150,000 members Neighboring Food Co-op Association
  27. 27. Monadnock Food Co-op •Start-up opened 2013 •3,200 members •95 employees •$12.7 million in revenue •$5.2 mill in local purchases •Sustainability initiatives: Green Team, green building, solar panels, composting, reuse and recycling •Community partners •Keene, NH (2018) 27
  28. 28. 6. Go Co-op For… • Converting an existing business – Existing customer base, systems – Retain existing jobs, infrastructure – Current owners’ skills and knowledge • Launching a new co-op – Can be a longer process – More flexible in terms of mission and purpose – New jobs and infrastructure 28
  29. 29. Converting an Existing Business Basic Questions: •Is there a willing seller? •Who are the potential member owners? •Will current owner(s) stay on as member(s)? •Is the business viable and sustainable? •What does the transaction look like? •Is there a plan for ongoing investment in education and training? •Is there a support system among existing co-op networks? 29
  30. 30. Potential Challenges • Financing and capital: Is business sustainable over time? What will the transaction look like? • Is the current owner supportive? Will they stay involved or will the business lose their experience and expertise? • Shift from sole proprietor governance to a co-operative culture. • Lack of member financial literacy, governance experience and management experience. • Expensive, irregular and often bad advice from professionals unfamiliar with co-operative model. 30
  31. 31. Launching a Co-operative Activities: • Define overall purpose/goal • Connect with existing Federation or support • Create steering committee • Raise pre-development funds • Hire a coordinator, if possible/desired • Conduct feasibility study & create marketing plan • Establish the founding board 31
  32. 32. Launching a Co-operative Activities, continued: • Incorporate as a co-op and adopt by-laws • Develop a business plan • Create membership agreements • Recruit members and equity investment • Access necessary debt financing • Hire key management • Open for business 32
  33. 33. Basic Development Process Timeline • 12-18 months to incorporate (varies widely) • Open doors – 2 yrs, 4 yrs, 12 yrs • Existing business can be faster! Resources needed • Committed, visionary leadership • Co-op specific business, legal, and financial support • Member equity investment • Start-up financing • Peer support & guidance 33
  34. 34. Concerns for Co-operators • Understanding group dynamics • Facilitation of process • Shared vision • Defining roles/responsibilities early • Professional standards • Participatory but focused environment • Recognizing strengths and weaknesses 34
  35. 35. Concerns for Co-operators 35 • 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
  36. 36. Some Guidelines for Success • Strong, committed member leaders • Set realistic goals & 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 36
  37. 37. Co-operative Statutes CT: Conn. Gen. Stat. 33-183 •Co-operative Associations •Co-operative Marketing Associations •Workers Co-operatives ME: 13 M.R.S. 1501 •Consumer co-op •Agricultural Marketing & Bargaining Co-operative •Employee Co-operative Corporations •Fish Marketing Associations 37 Growing a Food System for the Future: a manual for co-operative enterprise development Six States with One Voice at the National Table
  38. 38. Co-operative Statutes MA: ALM GL Ch. 157 • Co-operative Corporations • Co-operatives without Stock • Employee Co-operative Corporations (157-A) NH: RSA Title XXVII, Ch. 301 • Co-operative Marketing & Rural Electrification Assocs • Consumers Co-operative (Ch. 301-A) NY: Consolidated Code • Co-operative Corporations • Worker Co-operatives • Agricultural Co-operatives 38 RI: R.I. Gen Laws 7-7-1 • Producers Co-operative • Consumers Co-operative VT: 8 V.S.A. 31101 • Marketing Co-operative • Consumers Co-operative • Worker Co-operative (Title 11, Ch. 8) Other Options • Incorporate in a neighboring state using appropriate co-operative statute
  39. 39. Why Go Co-op? Co-operative Enterprises… •…put people before profit, •…are accountable to their members and communities •…retain local economic infrastructure, •…are successful and resilient, •…strengthen local economies, •…build a better, more sustainable food system and economy. 39
  40. 40. Small Group Discussion Small groups Ideas you have Each share This is idea sharing Brainstorming Can be totally fictitious Questions to Ask: 1. Converting or Start-up? 2. What type of membership? 3. Who are you serving? 4. Why this type of co-op? 5. What’s the need to fill? 6. What are the resources? 7. What’s your next step?
  41. 41. 6. Discussion Your… •Questions •Feedback •Ideas for Future Workshops 41
  42. 42. Contact Suzette Snow-Cobb suzette@nfca.coop Larisa Demos larisa@spinnery.com Neighboring Food Co-op Association: www.nfca.coop Valley Alliance of Worker Co-operatives: www.valleyworker.coop 42
  43. 43. Why Co-ops & Economic Democracy? • Community ownership & control • Focus on service, meeting needs before profit • Develop local skills & assets • Ability to pool limited resources • Build 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… 43

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