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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.

Powerpoint: Steps for Starting a Cooperative

 

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.

 

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.

 

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:

  • market analysis
  • management, equipment and facility needs
  • revenue projections
  • sources of financing
 

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 federal, state 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.

 

Establish the cooperative by adopting Articles and Bylaws.

To conduct business in most states, a cooperative must be established as a legal entity. In Wisconsin, the cooperative chooses to either incorporate under statute 185, or to establish itself as an unincorporated cooperative association under statute 193. It must file either Articles of Incorporation or Articles of Organization, which describe the type and scope of its business, with the Wisconsin Department of Financial Institutions.

The steering committee, acting as the interim board of directors, may draw up the Articles, but these should be reviewed by a lawyer familiar with cooperatives. The Articles specify whether the cooperative is a stock or non-stock cooperative, the price of the stock, and several other 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.

 

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.

Usually, members will be expected to supply between 30–50% of the start-up equity capital. The co-op will need to borrow the balance from a financial institution. 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.

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 (stock purchases or membership fees) for membership, and the risks and benefits of membership.

 

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

A membership meeting is held to elect the first board of directors, and the bylaws 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 banks or other financial institutions.

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. Banks 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. Banks 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, financial institutions also pay close attention to personnel and management planning as part of their risk assessment.

 

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.