Steps for Start-Ups

 

Each new cooperative business situation is unique, and the manner in which the momentum, the people and the money come together will vary. The steps that are described here are typically part of a successful start-up venture, but they are only guidelines. Often the circumstances of a particular start-up venture require that some steps occur simultaneously or in a different sequence. However, each of the steps described below are logical points at which organizers can evaluate a cooperative's progress, and decide whether the effort should move forward to the next stage.

1. Identify the problem or opportunity and gauge broader interest.              

A core group of committed and trustworthy individuals explores the common need for a particular product or service and identifies the benefits that a cooperative might offer. The core group reaches out to the larger community to gauge interest in the co-op idea, and to further define a common need. This group organizes informational meetings for potential members and uses these opportunities to recruit others who have the skills and expertise required to start the cooperative. Existing co-ops also can be a valuable source of information and assistance.

2. Form a steering committee and further explore the co-op business option.

If there is sufficient interest in the idea of a co-op, a steering committee of committed individuals is established. The steering committee further evaluates the cooperative business option by surveying potential members to determine interest levels and potential business volume. The committee refines the business idea, and drafts the initial mission, purpose and goals of the proposed cooperative business.

The steering committee will be responsible for financial matters, handling confidential information, and leading the decision-making process about the cooperative business opportunity. It is essential that the committee be made up of trustworthy individuals who have good business sense, will champion the project, and be capable of putting the interests of the group before their own. Many potential cooperative members will base their support of the cooperative on the credibility of the steering committee members.

3. Conduct a feasibility study and evaluate the results.                    

To determine whether the proposed cooperative is a viable business venture, the steering committee often conducts a feasibility study. The feasibility study examines whether there is a market for the new co-op's products or services, and whether the proposed co-op can generate enough revenue to cover the risks and costs of operating the business. A feasibility study includes:

This is a key step in the development of the co-op, and outside expertise may be necessary. Frequently the steering committee brings in a consultant to perform all or a portion of the feasibility study. It is important that the consultant be knowledgeable about the particular business sector, and not have a vested interest in the study's outcome.

Often the first phase of a membership drive is undertaken at this point, so that seed money is available to pay for a feasibility study, consultants and other related expenses. Other sources of funding for a study might be available from existing cooperatives, government or non-profit agencies. The results of the feasibility study are shared with members or interested stakeholders, and the steering committee decides whether to continue the cooperative development process.

 

4. Establish the cooperative by adopting statutes and bylaws.

The steering committee, acting as the interim board of directors, may draw up the statutes, but these should be reviewed by a notary familiar with cooperatives. The statutes specify basic facts about the co-op.

The initial bylaws, which describe how the cooperative is governed, may also be drawn up by the steering committee, acting as the interim board. Thereafter bylaws must be adopted or amended by the cooperative's members.

Once the cooperative is established, a bank account can be opened for the deposit of member equity payments and other funds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

 



5. Prepare a business plan.                   

The business plan is an in-depth analysis of the co-op's business idea and includes an operational plan for how the business will be run. The business plan is an important communication tool for answering questions that potential members will have about the proposed co-op. Lending institutions and other funding sources will also want to review the business plan.

The business plan includes:

  • A market analysis

  • A description of the product that the cooperative will be selling and how it meets a need in the marketplace.

  • Marketing and sales strategies.

  • Operations.

  • Management and ownership.

  • Sources and uses of start-up funds.

  • Projected financial data for the first five years of operations.

6. Begin a membership equity drive.    

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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

7. Elect a board of directors and secure start-up capital.

A membership meeting is held to elect the first board of directors, and the statutes are presented and approved. The board of directors begins coordinating the business plan implementation and works to secure start-up capital in the form of loans from financial cooperatives or other lending institutions.

Financial cooperatives and other lending institutions will evaluate the risks associated with making a loan to the start-up cooperative business by analyzing the cash flow and financial projections in the business plan. They also will look at the amount of member equity invested in the cooperative, since this indicates the level of risk and commitment that members are willing to assume. Lending institutions that are specifically oriented to cooperatives, and understand their unique structure, can be an important resource at this juncture.

Although staff recruitment cannot go forward until financing has been secured, some cooperatives identify possible management personnel earlier in the process or retain them as consultants. Because knowledgeable staff is so essential to running the day-to-day business operations, lenders also pay close attention to personnel and management planning as part of their risk assessment.

8. Secure site, vendors and staff so that operations can begin.

Once hired, key management personnel play an important role in securing the operations site, developing vendor networks and hiring staff. 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 the business can begin operations.

Ongoing member education and board training are vital to developing a sustainable foundation for successful cooperative operations.


Success Factors

Successful new cooperatives share certain common characteristics that are often cited as requirements for effective operations.

Successful new co-ops:

  • Use committees, advisers and outside expertise effectively.

  • Keep members informed so that they stay involved and supportive.

  • Conduct businesslike meetings by using agendas, parliamentary procedures and democratic decision-making.

  • Maintain good board-management relations by clearly defining roles and responsibilities.

  • Follow sound accounting practices, and present financial reports regularly.

  • Develop alliances with other cooperatives.

  • Develop clear policies on confidentiality and conflict of interest.


Risks

Potential risks to a new co-op include:

  • Lack of a clearly defined mission, purpose and focus.

  • Lack of member leadership.

  • Inadequate feasibility study and/or business plan.

  • Failure to use experienced advisors and consultants.

  • Lack of financial commitment from members.

  • Lack of competent management to run the cooperative's operations.

  • Failure to identify and minimize business risks.

  • Lack of adequate financing.

  • Inadequate communications.