Organizing

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Organizing a Cooperative
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Organizing a Cooperative

• This presentation
• Why Start a Cooperative?
• Rule of Thumb Timeline
• Events (from How to Start a Cooperative report)
• General Rules for Success
• Potential Pitfalls
• Summary
• More Information

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Why Start a Cooperative?

• A compelling need and a few community leaders can
  spark the idea of forming a cooperative.
• Usually, these leaders have an economic need or
  desire a service they believe a cooperative can
  provide.
• They also know others who have similar interests.

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Organizing a Cooperative

• Time Line of a Start Up

3 Months
2 Years
General rule of thumb
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Organizing a CooperativeEvent 1

• Invite leading potential member-users to meet and
  discuss issues.
• Identify the economic need a cooperative might
  fulfill.

The events described in this presentation are
from How to Start a Cooperative, Cooperative
Information Report 7. In practice the
sequence of events often vary depending on the
type of cooperative development project.
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Organizing a CooperativeEvent 2

• Conduct an exploratory meeting with potential
  member-users. If the group votes to continue,
  select a steering committee.

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Organizing a Cooperative Event 3

• Survey prospective members to determine the
  potential use of a cooperative.

Example information to be gleaned- Volume of
need or use. - Member-user experience and
capabilities. - Variety of products or services
offered or needed. - Period of need or
services. - Current unit valuesales price or
cost per unit. - Member-userlocation of use or
need. - Familiarity with and use of other
cooperatives and willingness to join, finance,
and use one. (Use of an outside advisor is useful
in this step)
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Outside Advisors

• Use of outside advisors can greatly
• aid a group throughout the process
• - Business or cooperative specialists or
• practitioners, consultants (help facilitate
  the
• process, conduct feasibility studies, etc.)
• Technical advisors/industry analysts (help
• with technical aspectsfacilities, equipment,
• etc., help with market analysis, etc.)
• Financial counsel (help with capital needs
• assessment and accumulation)
• Legal counsel (assist with completing legal
• documents, filing with State)

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Organizing a CooperativeEvent 4

• Discuss survey results at a second general
  meeting of all potential members and vote on
  whether to proceed.

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Organizing a CooperativeEvent 5

• Conduct an initial needs or use cost analysis.
• Identify suitable markets, sources of supply,
  and service providers and their requirements.

Some ways to gain information - Use previous
research and industry common knowledge. - Survey
market, supply or service provider sources. - Ask
State and/or Federal offices, universities,
Cooperative centers, commodity organizations,
or private consulting firms to conduct the
research and use their findings.
(The information from this analysis will be
useful in a later feasibility study should the
cooperative idea proceed.)
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Organizing a CooperativeEvent 6

• Discuss results of the cost analysis at a third
  general meeting. Vote whether to proceed.

• Steering committee has seen what advisor has done
• And calls the general meeting.
• Group hears results and votes whether to
  proceed.
• Premembership agreements may be used if
• group is proceeding.
• Initial investments may be collected at this
• point.

Market Analysis
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Organizing a CooperativeEvent 7

• Conduct a feasibility analysis and develop a
  business plan.

• A feasibility study is an important analytical
  tool to show how a business will operate
• under a set of assumptions and within the
  proposed cooperatives industry.
• Information from the member survey and the
  initial cost analysis are used and expanded upon.
• Components of a study might include project
  description and
• justification, industry background, marketing
  situation, outlook, and plans, operational and
• technical characteristics, financial statements,
  projections, and sensitivity analysis, and
• summary and recommendations. These will be
  contingent on the type of project.
• Key actions
• Decide who will conduct the study
• Develop sound and realistic project assumptions
• Determine components for a comprehensive study
• Assess the study
• Accept or reject the study

Feasibility Study
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Organizing a CooperativeEvent 8

• Present results of the feasibility analysis at
  the fourth general meeting.
• If the members elect to continue the process,
  the steering committee is instructed to arrange
  for incorporation and development of bylaws and
  other necessary legal papers.
• The feasibility analysis will then provide the
  foundation for the development of the business
  plan.

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Organizing a CooperativeEvent 9

• Prepare legal papers and incorporate.

Drafting articles of incorporation and bylaws is
a very important process. - Other legal
documents include the membership application,
membership or stock certificate,
Marketing/purchasing agreements, revolving fund
certificate, and meeting notices and waivers of
notice. - Filing the articles of incorporation
activates the cooperative corporation. Once
chartered by the State, the cooperative
should promptly adopt bylaws.
Articles of Incorporation
Bylaws
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Organizing a CooperativeEvent 10

• Call a meeting of charter members and all
  potential members to review and adopt the
  proposed bylaws. Elect a board of directors.

Ballot
If members of the first board of directors have
not been named in the articles, they should be
elected at this meeting.
VOTE
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Organizing a CooperativeEvent 11

• Convene the first meeting of the board and
  elect officers. Assign responsibilities to
  implement the business plan.

• Board action items
• Membership drive
• Membership application or stock subscription.
• Acquiring capital
• Bank selection
• Initiate hiring of management
• Authorize officers/employees to handle funds
• Design and install accounting system
• Provide for bookkeeping and accounting services
• Print articles, bylaws and member documents for
  distribution
• Bond officers and employees in accordance with
  bylaws
• Choose a business location (if not already
  selected) and seek bids for equipment and
  facilities

Business Plan
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Organizing a CooperativeEvents 12 13

• Conduct a membership drive and acquire capital.

While many members may already be committed, the
cooperative may seek other potential members to
ensure there is enough for a successful
business. The feasibility study likely outlined
sources of capital for the new cooperative.
Membership stock shares, member equity
contributions, loans, and outside equity
accumulations, etc., need to be accumulated.
Loan Application
Member Contribution
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Organizing a CooperativeEvents 14, 15, 16

• Hire the manager (a critical task of the board of
  directors)
• Acquire facilities (follow business plan for
  land, facilities, equipment needed. Involve
  manager)
• Begin operations

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Organizing a Cooperative

• General Rules for Success
• Use advisors and committees effectively
• Maintain good board-manager relations
• Conduct businesslike meetings
• Follow sound business practices
• Forge links with other cooperatives and
  cooperative associations

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Organizing a Cooperative

• Potential Pitfalls

• Lack of clearly identified mission
• Inadequate planning
• Failure to use experienced advisors and
  consultants
• Lack of member leadership
• Lack of member commitment

• Lack of competent management
• Failure to identify and minimize risks
• Poor assumptions
• Lack of adequate financing
• Inadequate communications

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Organizing a Cooperative

• Summary
• Developing a cooperative organization is a
  complex process that will involve a number of
  events. The precise sequence of events will be
  dependent on the type and scope of the
  cooperative project.
• Outside advisors often play an important role in
  various aspects of the process, but strong
  leadership from the group of potential members is
  imperative throughout the entire process.
• Realistic assumptions leading to accurate
  information and projections are critical in the
  decision making stages.
• There must be a critical mass of loyal members
  willing to make a personal, business, and
  financial commitment to the cooperative.
• All potential members, advisors, and partnering
  organizations involved in the development of the
  cooperative must have a thorough understanding of
  the unique principles and practices of a
  cooperative organization and support them.

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For More Information

• See
• How to Start a Cooperative (Information Report 7)
  
• Creating Co-op Fever A Rural Developers Guide
  to Forming Cooperatives (Service Report 54)
• Cooperative Feasibility Study Guide (Service
  Report 58)
• Sample Legal Documents for Cooperatives
  (Information Report 40)
• Co-ops 101 (Information Report 55)
• Cooperatives What They Are and the Role of
  Members, Directors, Managers, and Employees
  (Information Report 11)
• And other cooperative publications and materials
  found at http//www.rurdev.usda.gov/rbs/pub/NEWPU
  B.htm
• Cooperative Programs http//www.rurdev.usda.gov/r
  bs/coops/csdir.htm
• See other resources also, for example
  Cooperative Development Centers located across
  the Nation, Cooperative Research Centers at
  Universities, etc.