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Retiring? Consider Converting Your Business to a Co-Op

Co-Op

Baby boomers are retiring in droves – by some estimates in the tens of thousands every day. As they retire, they leave a marked absence in the business world. Who will run their businesses?

While many company owners fall back on selling, closing, or passing the business on to hand-picked successors, they may overlook a unique option – transforming their companies into cooperatives.

What is a cooperative?

A cooperative, also called a co-op, is a business that runs on the simple premise of one worker, one vote. Members own and manage the company and profits are shared by all. Instead of a board or executives calling the shots, a co-op reflects a flat management structure. Decisions are made through democratic procedures. For example, members vote on initiatives and meetings are led by a different person each time. Many “employee-owned” businesses are run this way.

The co-op structure dates to the 1700s, and countries such as Spain and France have host a large number of them. In the U.S., there are roughly 400 co-ops and 26% of those started as traditional, for-profit companies.

What’s attractive about a co-op?

Co-ops offer some exciting benefits that business owners or those interested in starting one should consider.

First, members are more invested since they each own part of the co-op. When there’s profit, everyone profits. Everyone wants to encourage and maintain success. In fact, one study found that worker co-ops are more productive than traditional enterprises. The work is diverse as well. One day, a member may clean restrooms. The next, she is working with customers.

Next, co-ops emphasize values. That means taking care of the member community or even positioning charitable endeavors is at its core. This focus can be attractive to millennials and members of Generation Z who often want to contribute professionally but with a purpose. And speaking of generations, the distributed structure of co-ops enables them to exist for decades or even centuries. For example, Sunkist Growers was founded in 1893 and Tillamook County Creamery Association opened in 1909. Both are still thriving to this day.

Finally, co-ops give every member a say. Shedding management-only employees reduces friction within the ranks. Each member gets a vote on everything from changing suppliers to expanding (or decreasing) the workforce.   

Co-op drawbacks

Co-ops aren’t for everyone.

On the surface, a democratic approach sounds intriguing. But it requires a reset of work behaviors. No CEO is calling the shots. Instead, all members make the decision – a process that calls for patience, tolerance, and support. For example, imagine a co-op bakery. It requires a larger oven to bake enough goods. While a regular business may simply budget for the expense and make it happen relatively quickly, the same business decision would be much more drawn out in a co-op environment.

Likewise, people who value a traditional business structure that is less collaborative may struggle with the fundamental principles of co-ops. A successful co-op must be very selective about whom it allows to join, ensuring that new hires exhibit co-op friendly qualities such as a strong belief in its principles, advanced listening and empathy skills, and ability to handle conflict and critical feedback.

Co-ops may also have a hard time finding funding. The business structure may deter traditional investors, who value profit first and foremost. Banks may hesitate to loan to co-ops as well, viewing them as risky endeavors. Many co-ops turn to less traditional means of raising money such as Kickstarter. The government also offers grants for cooperatives.

To co-op or not to co-op?

While we can’t give you a definitive answer to that question, here are some ideas on how to make a decision:

  1. Dig into the basics. Turn to co-op industry organizations for more information, such as the National Cooperative Business Association CLUSA International or the United States Federation of Worker Cooperatives. These organizations offer valuable resources and educational opportunities for cooperatives.
  2. Get your hands dirty. Co-ops thrive on the local level, so chances are there are several within 50 miles of you. Visit them and learn first-hand about co-ops and get a feel for how they operate on a day-to-day basis. You may even want to join one yourself for an invaluable experience.
  3. Find out your type. There are different types of co-ops. Some also blend LLCs into their structure. Read up on the various options to find out what works best.

 

 

 

 

 

August 22, 2018
Tanya Roberts
VP of Corporate Marketing, Bill.com
Tanya is a marketing visionary seasoned in establishing strong corporate brands and growth. Prior to Bill.com, she served as SVP of Marketing for GreenRoad, acting VP of Marketing for Drivewyze, and held executive roles at Intuit, SugarSync and PayCycle. Tanya holds a bachelor of science degree from University of Denver.