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WHAT MAKES CO-OPS SUCCESSFUL?

by R.M. Baseman
Associate Researcher, Prout Research Institute of Venezuela

There are a number of original articles, reports and conference proceedings


available on the Internet that discuss and give opinions on what makes a cooperative
successful. This report has looked at 175 proposed success factors from a number
of different separate sources. By sifting through the various suggestions, answers
and points of view, some clear conclusions develop. But before doing that, let us first
ask the question:

What Does Success Mean for a Co-Op?

How is success for a co-op different than success for any traditional business? The
answer lies in the difference between a co-op and a standard business.

Traditional businesses (Investor Owned Firms or “IOF”s) and co-ops differ in many
respects. It is far beyond the scope of this study to go into these differences in any
great detail as they are involved and complex. But from the point of view of success
the following points are important:

1) A business is governed only by laws and the oversight of the board and investors;
in addition to these, a co-op is also governed by commonly recognized “principles of
cooperation.”
2) The relationship between a co-op and its member-owners-customers is much
closer than the relationship between a traditional business and its investor owners.
For example, investors in a traditional business may not really be aware of, or care
about the long-term environmental impact of its business practices, as long as it
avoids negative publicity and provides a good return on investment. However Co-op
member/owners live in the ecosystem and community where the co-op functions,
and hence are very concerned about the effects on their families!
3) Co-ops are run democratically by member owners, while traditional businesses
are run by managers with limited oversight from a board and shareholders.
4) In traditional businesses, managers decide how profits are recognized and used
“to increase shareholder value.” Co-ops operate on a non-profit basis where
members decide how surplus funds are distributed and reinvested in growth, other
cooperatives, community service projects, etc.
5) Because the goal of a traditional business is to make continual profits and return
value to the investor-owners, the only way to measure success is by longevity and
corporate growth.

But success for a co-op lies in successfully meeting the needs of the member-
owners (both their material and quality of life needs) and promoting commonly
understood cooperative values such as this list agreed upon by the International
Cooperative Alliance (ICA)
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.

How does Co-Op Success Contrast with Traditional Business Success?

Over time, some successful traditional businesses grow into gigantic multinational
organizations primarily serving their huge amassed capital funds. Managers who
seek to remain independent constantly grow “market capitalization,” defined as
number of shares outstanding multiplied by stock price. Without any other principle
to guide their actions, these corporate automatons persist forever, -- blindly serving
the cold mathematical needs of growth.

By making decisions based only on increasing market share, corporations tend to


become “runaways,” ignoring the social and political consequences of their actions.
This problem is impossible with cooperatives, regardless of size, because of the
principles of cooperation and because of direct democratic member control.

Co-ops are designed to be beneficial (or at least harmless) to humanity and the
planet, while traditional capitalist businesses are designed to be indifferent to their
effect on society and nature.

Another way to observe the difference between a co-op and a capitalist business is
after the fact: A medium or large-size company ceases to exist if it becomes unable
to earn a profit or is bought out by a bigger company -- it is no longer economically
viable. But co-ops disappear for many different reasons: they may have failed to
accomplish their objective, they may have been organized for a temporary specific
purpose which is now accomplished, or due to changes in time, place and person,
the co-op’s objectives may have become irrelevant and the members decide to
dissolve.

Method Used in This Survey

A passive Internet survey was conducted to find worldwide consensus on the


question. Search engines were first used to find web pages and documents
containing phrases like “successful cooperative”. Then the web pages and
documents were carefully reviewed, and items which were copies, or secondary
sources (i.e. referring to another primary source) were removed -- in this process
more than 50% of the material was eliminated. Then from the remaining original
items, elements of advice called “success factors” were extracted, such as:

“It is important to avoid creating too high expectations”


“cultivates the support of both the members and the community at large”
“clear-cut national cooperative strategy”
“availability of technical training and technology”

In some cases, inverse success factors – reasons co-ops failed were used, for
example:

” (neg.)Inadequate communications among the members, board, manager, and the


community.”

After reviewing the 175 success factors, they were grouped into 13 categories, and
everything was recorded in a Microsoft Access database, including

1. The category of the answer


2. The answer itself (maximum 255 characters, summary if necessary)
3. The source URL of the document or web page
4. Information about the type of co-op being referred to (consumer, producer,
single-project, financial, etc.)

Having done this, the database of success factors can be queried and sorted and
conclusions can be drawn from the overall body of knowledge. The database file is
contained in the accompanying CD and is called “success2.mdb”; in addition a
version of the data is embedded in this word document.
How Co-Ops Become Successful – The Worldwide Consensus.

The source articles reflected experience from all continents and more than 10
countries, including articles from the International Labor Organization, the
International Cooperative Alliance and the UN. Primary geographic sources for
articles were the USA, followed by Eastern Europe, Western Europe, Australia, India
and South America.

The 175 success factors found on the Internet are categorized as follows:

 7 applied to co-ops in general (the so-called “Madison Principles”)


 102 were from sources on producer co-ops; most of these were agricultural in
nature.
 47 were from consumer or financial co-op sources (including credit unions).
 19 were from an ILO publication on “crisis project" co-ops – recounting success
factors in cases where a community had an immediate need, which was solved by
forming a temporary project-focused co-op. These were classified as consumer co-
ops.

What Makes All Co-Ops Successful:

Answer times
percentage
Category occurred of total

1. supportive environment 28 16
2. sound advance planning 27 15.42
3. real economic benefits for members 21 12
4. skilled management 20 11.42
5. belief in co-op concepts 12 6.85
6. grassroots development & leadership 12 6.85
7. financially self-sustaining 11 6.28
8. innovation & adaptation 11 6.28
9. effective structure & operations 10 5.71
10. networking with other co-ops 8 4.57
11. communications 5 2.85
12. common member interests 4 2.28
13. education 4 2.28

What Makes Consumer Co-Ops Successful:

Answer times
percentage
Category occurred of total

1. supportive environment 13 27.65


2. belief in co-op concepts 6 12.76
3. innovation & adaptation 5 10.63
4. real economic benefits for members 5 10.63
5. financially self-sustaining 4 8.51
6. skilled management 4 8.51
7. grassroots development & leadership 3 6.38
8. networking with other co-ops 3 6.38
9. sound advance planning 2 4.25
10. communications 1 2.12
11. common member interests 1 2.12

What Makes Producer Co-Ops Successful:

Answer times
percentage
Category occurred of total

1. sound advance planning 21 12


2. skilled management 14 8
3. supportive environment 12 6.85
4. real economic benefits for members 11 6.28
5. effective structure & operations 9 5.14
6. grassroots development & leadership 8 4.57
7. innovation & adaptation 6 3.42
8. networking with other co-ops 5 2.85
9. financially self-sustaining 4 2.28
10. communications 4 2.28
11. education 3 1.71
12. belief in co-op concepts 3
1.71
13. common member interests 2 1.14

General Observations

• There are clear differences between consumer and producer co-ops. While the
top two factors for producer co-ops are management and planning related, the top
two factors for consumer co-ops refer to a belief in the co-op concept and a
supportive environment.

• There is tremendous diversity among co-ops. For example, the AMUL co-op in
India is the huge nation’s largest producer and marketer of milk products, with
millions of producer members. The survey also includes material from small food
buying co-ops in the USA and the Brukman factory in Argentina. Attitudes and
approaches are very different between them, and one cannot expect the same
success factors to apply in every case.

• All the basic factors for success in any business also apply to co-ops, as would
be expected. There has to be a real demand for the product, planning has to be
thorough and realistic, and the enterprise has to make money.

• Co-ops have additional success factors imposed upon them. These factors
relate to keeping the actions of the co-op aligned with the ever-changing interests of
the member/owners.

• Some success factors, like careful planning and communications, are referred to
over and over again. But there are some interesting and unique observations found
in selected sources. For example, one article found at the University of Wisconsin
Center for Cooperatives http://www.uwcc.wisc.edu/info/uwcc_pubs/zeuli_01_03.pdf
described the tactic of a co-op buying or starting a wholly owned subsidiary
organized as a privately owned enterprise. This eliminates the problem where a
sideshow needed for short-term business reasons but not central to the co-ops’
mission can create a problem with the collective membership.

Copies of all the original documents found on the Internet and used in this study are
included in the CD accompanying this report.

Results

From the details of the articles, reports and newsletters, a general pattern emerges.
Co-ops, much more than corporations, closely reflect the lives and thoughts of the
member/owners. The common interests of the members are the interests of the co-
op, and if the two move apart, the co-op dies.

Consensus among people is a fragile thing, and because so much personal emotion
gets wound up in a co-op, co-ops fail if they cannot quickly follow the collective
interest as circumstances change, or if they stray from their original purpose and
members become disaffected. An excellent article that talks about this can be found
at http://www.uwcc.wisc.edu/info/uwcc_pubs/zeuli_01_03.pdf, written by members of
the University of Wisconsin Center for Cooperatives. This article discusses the
uneven efforts to build consumer cooperatives in rural areas of the USA where
agricultural producer cooperatives are popular and well established.

People like co-ops —they “believe in” them. Co-ops provide a sense of satisfaction,
belonging and accomplishment to both workers and consumers that is rarely
experienced when working for or buying from a traditional business. Plus co-ops
have a good story to tell. When price, quality of goods and distance from home are
about the same, the majority of people would choose to support a co-op with its
positive principles and return of economic benefit to the community, versus giving
money to a business that enriches outsiders who return little to the community.

This creates both an advantage and a danger for consumer co-ops. Members who
need to buy a tube of toothpaste will happily pay somewhat more for it at the
cooperative than at a Wal-Mart down the street. However, there is a limit to this: if
the co-op becomes too expensive, or if the co-op cannot provide most of the
products the members need, they will eventually quit “believing in” the co-op, shrug
their shoulders, and give their money to Wal-Mart.

Likewise producer co-ops have an advantage over private companies, but it is


fragile. Raising small amounts of capital is easier for co-ops, because all workers
are personally involved, and become both investors and enthusiastic salespeople.
But the minute there is bad blood due to a decision that members don’t like, they
tend to lose faith in the organization and consider leaving. Producer co-ops are
relatively easy to start, but also easier to fall apart.

Almost every success factor involves aligning co-op actions with members' needs.
This is why communication and training are so important, because they help to
develop the capacity of the management and members to listen well and respond
appropriately to the genuine concerns of the workers and the community. The spirit
of all the answers to our original question relate to this close alignment of the
cooperative with the interests of the member owners.

Supportive Environments

The most often cited overall reason for success across all types of co-op was a
“supportive environment.” It was the first success factor for consumer co-ops,
including credit unions and the third most popular success factor for producer co-
ops. So let us try to determine what is meant in more detail.

This success factor is a catch-all for deriving assistance from other entities, primarily
the government at various levels, but also local communities, trade unions and
financial institutions. It is not as important for producer co-ops as it is for consumer
co-ops, because in the world of producer co-ops this issue of external support is
eclipsed by the far more important factor of advance planning.

Issues of taxation, regulation, and national economic strategy are repeatedly


mentioned in the source articles. It is clear that government policies and practices
really help and hurt co-op development. The ability of local financial institutions to
make loans to co-ops is important and is affected by government rules and
regulations as well.

After government support, co-ops need support from the population in general.
Where the co-op approach is similar to local traditions – for instance management by
consensus at a local level, tribal traditions of sharing, or the USA farm tradition of
working together in neighborhood teams and sharing equipment – co-ops are more
likely to be accepted and successful. Even if the community is not interested in
joining the co-op, they must be tolerant and accepting for it to survive. Once again
this reflects the close embodiment in the co-op of the ideas of the member-owners;
this relationship will fall apart if everyone around the local member-owners works
against the co-op concepts.

In regard to credit unions, the availability of payroll deductions and credit union
presence at or near the workplace are repeatedly mentioned. So for credit unions,
support from traditional employers is important. State deposit insurance is also vital.
“Belief in co-op concepts” is a similar success factor, which I have separated from “a
supportive environment.” This is for two reasons: 1) “Belief in co-op concepts” is
personal, and refers to people having an actual hands-on familiarity with, and liking
for co-ops; 2) “Belief in co-op concepts” is less important to producers than “a
supportive environment,” which is critical.

Sound Advance Planning

This is the second most important overall success factor, and the primary success
factor for producer co-ops.

Planning covers many aspects, but the key point about it is that it takes place before
the enterprise begins operation, and then plans are continually updated and revised
to parallel changes in time, place and person. For any business, planning is the art
of seeing into the future, and it is the most difficult and the most powerful of all
business activities.

The specific kinds of planning that are critical for co-op development are a little
different from traditional IOF planning.

Market planning – projections of growth, size, sustainability and competition in the


market must be addressed as in any traditional business plan. Plus the plan should
prove that the specific market need can be effectively addressed by a cooperative
effort. For consumer co-ops, a clear statement of exactly how the co-op will make
buying cheaper and easier for the customer-owners over the long term is needed.

Feasibility study and cost analysis – a co-op has special tax, legal and financial
considerations that must be woven into this sort of analysis. Where networks of
other co-ops can participate as partners, costs are likely to be more favorable than
where possibly unfriendly IOFs must be depended upon. Unrealistic cost
assumptions are cited repeatedly as a big factor in co-op failures.

Organizational planning – because each member-owner population is different, plans


for the co-op must include a strategy to foster continuing cooperative behavior, and a
strategy to keep the co-op in step with the thinking of the member-owners. This
includes a plan to keep the hired management closely aligned with co-op board as
well.

Withdrawal strategy – co-ops are not like IOFs with a blind intent to exist forever.
The plan for the co-op should recognize the likelihood that the co-op will cease
operations under some circumstances. How to recognize these exit circumstances,
and how to close down in a positive way should be part of the plan.

Risk Analysis - like any traditional IOF, risks should be given special attention and
ranked as to impact and likelihood. Co-ops are exposed to some regulatory and
financial risks that traditional businesses do not have to worry about. Plus in every
business situation, a co-op will have some advantages and some disadvantages
when in competition with traditional IOFs.

Capital – the way in which capital will be raised is critical for a co-op. For producer
co-ops where the member-owner investment is substantial, a series of presentations
of increasing detail and seriousness should be designed for potential investors.

Monitoring operations – In the planning stage, an effort needs to be made to define


Key Process Indicators that can be used to tell how the co-op is doing. These KPIs
may be revised later after operations stabilize, but since the first months of any new
operation build the foundation for future success, it is a big advantage to have some
sort of benchmark when first starting out.

Mission Statement - A clear and simple definition of the goals of the co-op is highly
important. Unlike a traditional IOF, the co-op’s goals must match some of the
personal goals of the member-owners. Potential members will decide to join if there
is a simple and understandable expression of what the co-op is about.

Belief in Co-op Concepts

For the success (and survival) of all consumer co-ops a familiarity with, and belief in
the co-op approach among the local community is really important. If the local
population does not have a good feeling about co-ops, based on past experience,
membership drives will fail.

To detect changes and sense the feelings of the membership, Co-op workers must
understand how their enterprise operates day to day. Managers must have a good
feel for what will make the co-op succeed or fail, and must be able to recognize
problems quickly and nip them in the bud. In areas where co-ops are common, and
have been successful in the past, it is much easier to recruit well-qualified workers
and experienced managers from the local population.

Real Economic Benefits for Members


In many producer co-ops and in worker takeovers, the member-owners were already
running small businesses. In that situation, they can easily see if cooperation actually
lowers their costs, opens access to new markets and makes their individual
operations easier and more profitable.

On the other hand, it is not always so easy to tell if a consumer co-op is actually
saving you money. I know from personal experience with my large family that
consumer food co-ops only provide a real advantage if they can provide most of the
goods that you need to buy on a regular basis. Otherwise you are forced to go to
traditional stores for the rest, and the time and trouble of doing this plus the cost of
owning shares, effort of working at the co-op, and hassle of keeping informed and
voting on co-op policy quickly erode any real savings from belonging to the co-op.

The difficulty of a consumer cooperative providing an easily apparent overall


economic benefit leads to the phenomenon of successful consumer co-ops springing
up in situations where a market or consumer segment is under-served by traditional
businesses. Attempts to start up new consumer cooperatives in markets which are
already saturated with competing traditional IOFs will be unsuccessful.

Credit Unions succeed at this factor, since they have always provided much easier
access to loans at cheap rates of interest than traditional banking institutions. This is
partially because of the surety of payroll deductions and the credit-union tie to the
workplace.

As was said in the article about Maleny, Australia: “Successful co-ops are always
born out of need.”

………………………………

Bibliography

American Historical Association - The American Historical Review, “Review of Cooperative


Commonwealth: Co-ops in Rural Minnesota”, June 2001, Scholarly web site discusses a
publication about rural producer co-ops in the USA.

Amul Cooperative, “Chairman's Speech: 31st Annual General Body Meeting”, June 2005,
http://www.amul.com/kurien-annual05.html, This huge Indian agricultural producer
cooperative web site has a lot of reference articles.
Committee for the Promotion and Advancement of Cooperatives, “Successful Cooperative
Development Models in East and Central Europe”, October 1999,
http://www.copacgva.org/berlin.pdf. COPAC is a Swiss organization which held this
conference in Germany with presentations from Albania, Lithuania, Romania, Poland,
Moldova, Uzbekistan, Germany, Ukraine and Denmark. More than ten original papers are
included here describing all sorts of co-ops with much valuable information.

Dangl, Benjamin - Z Magazine Online, “Worker-Controlled Brukman”, August 30, 2005,


http://www.zmag.org/content/showarticle.cfm?ItemID=8611, This article on the progressive
Zmag site is an interview with Celia Martinez from the famous Brukman worker's
cooperative in Argentina

Gravenour, Kristian - The Montreal Mirror, “Accounting in Utopia”, August 2005,


http://www.montrealmirror.com/2005/081105/news1.html, A short article about Douglas Jack,
a co-op organizer who stresses the need to reward co-op labor with some sort of equity.

Holland, Rob - University of Tennessee Center for Profitable Agriculture, “Thoughts for
Farmers Considering Membership/Investment in a Processing Cooperative”, 2004,
http://cpa.utk.edu/pdffiles/cpa96.pdf, USA site supporting agricultural cooperatives.

International Cooperative Association -Seminario del PRICA/ACI Americas,


“Denominadores comunes de las coop argentinas, paraguayas y uruguayas en su evaluación
de la estrategia delas coop ante las TLC”, September2005,
http://www.ica.coop/calendar/ga2005/silverof2.pdf, publication from an ICA conference held
in Ausuncion Paraguay on issues facing South American co-ops.

International Labour Office – “Standing on their own: Cooperative Reform in Tanzania”,


June 2006, http://www.ilo.org/public/english/bureau/inf/features/06/coop_tanzania.htm, ILO
article discussing experiences with the co-op movement in Tanzania.

International Labour Office Programme on Crisis Response and Reconstruction,


“Cooperatives Restoring Livelihoods and Communities”, May 2003,
http://www.ilo.org/public/english/employment/recon/crisis/download/coops.pdf, ILO article
discussing experiences with co-ops set up for emergency situations in times of crisis, mostly
in Africa.

Kennedy, Jermolowicz, Lambert, Reilly and Rotan - US Department of Agriculture, “Keys to


Successful Cooperative Housing in Rural Areas”, April 1995,
http://www.rurdev.usda.gov/rbs/pub/sr44.pdf, USA government publication discussing
successful housing cooperatives.

Lipinski, Bill - First Pioneer Farm Credit Co-op - Financial Partner magazine, “What Is the
Future of Cooperatives?”, Spring 2003,
http://www.firstpioneer.com/about/L3/pres_future_coops.htm, USA publication concerned
with agricultural co-op governance.

Madden, Rod - United Farmers Co-operative Company Limited, “Fundamentals of a


Successful Co-Operative”, September 2003, no longer on-line, article discusses sucdcessful
producer co-ops in Australia.

Manitoba Agriculture, Food and Rural Initiatives - Cooperative Development Services,


“Introduction to Cooperatives”, August 2006,
http://www.gov.mb.ca/agriculture/ri/coop/ria02s03.html, Canadian site discusses all types of
cooperatives and has much useful and detailed information.

National Cooperative Business Association, “Lessons for Success”, undated,


http://www.ncba.coop/abcoop_ab_success.cfm, US site of the NCBA which promotes all
sorts of co-ops.

Patrie, William, Rural Development Director - North Dakota Association of Rural Electric
and Telephone Cooperatives, “Creating 'Co-op Fever': A Rural Developer's Guide to Forming
Cooperatives”, July 1998, http://www.rurdev.usda.gov/rbs/pub/sr54/sr54.htm, USA site
focussing on agricultural producer co-ops.

Prout Community Settlement Cooperative, “Maleny Cooperatives: Examples of Small-scale


Cooperative Enterprises”, January 2002, http://www.proutworld.org/features/maleny.htm,
Australian site discussing the different cooperative - mostly consumer oriented - set up in the
town of Maleny.

Ratchford, Noller and Mahfood - University of Missouri Extension, “Introduction to


Consumer Food Cooperatives”, October 1993, http://extension.missouri.edu/, USA site with
information on consumer co-ops.

West, Travis - Ohio Cooperative Development Center, “How To Start a Cooperative”,


undated, http://ocdc.osu.edu/pdf/startcoop.pdf, US site with general information on starting
all sorts of co-ops.

Zeuli, Freshwater, Markley and Barkley - University of Wisconsin Center for Cooperatives,
“The Potential for Non-Agricultural Cooperatives in Rural Communities”, 2003,
http://www.uwcc.wisc.edu/info/uwcc_pubs/zeuli_01_03.pdf, USA paper discussing formation
and organization of co-ops of non-agricultural types in rural areas - has many interesting
ideas.

R.M. Baseman of New York City is a computer scientist specializing in security and
the introduction of new technologies. He lives with his wife Diana, an educator, near
New York City where they have raised and home schooled 10 children. He has
published articles on a number of topics, and has started and participated in several
consumer cooperatives over the last 35 years. He can be reached at: nynarayan@....
His website, dedicated to freedom, spirituality and education is at
http://members.verizon.net/~vze3f2cj

Success Factors for Co-ops

Description summary reference or url category

effective structure & operations key areas to address http://www.gov.mb.ca/agriculture/ri/coop/ria02s03.html all


are the organizational
structure

financially self-sustaining madison principles - http://www.rurdev.usda.gov/rbs/pub/sr54/sr54.htm all


products and services
must generate
sufficient revenue

grassroots development & madison principles - http://www.rurdev.usda.gov/rbs/pub/sr54/sr54.htm all


leadership enthusiastic group of
local, trustworthy
leaders

Member control