Starting a cooperative presents a unique opportunity for a group of people to meet a shared economic or social need. As democratically governed businesses, cooperatives can be a great way to structure a business that is guided by member values.
As with any new venture, starting a cooperative requires good ideas, expertise, time, energy, and money. It can take six months to two years, sometimes longer, for a new cooperative to go from an initial concept to launch.
The following are basic guidelines for getting started, but each new cooperative is unique. The manner in which the momentum, people, and money come together will vary. However, each of the steps described below is a logical point at which organizers can evaluate a cooperative’s progress and decide whether or not the effort should move forward.
Here are a few questions to ask yourself before getting started.
- What is the need that is not being met? What problem are you solving?
- Who are the members? What would motivate people to join the cooperative?
- Who are the competitors? Who else is already doing this?
- Who are your first customers?
- Who are strategic partners you can align yourselves with?
Made it through the basics? Good for you! Now it’s time to figure out if a new cooperative business is the right choice for you. You’ll find more details on how to get started in the steps below.
For even more info, please visit our Resources Page.
Stage 1: EXPLORE
Identify the problem and gauge interest
A core group of individuals explores an opportunity or common need for a particular product or service. They identify the benefits that a cooperative approach might offer and reach out to a broader group or community to gauge interest in the idea. This group organizes informational meetings for potential members to further define a common need. It also recruits others who have the skills and expertise required to lead the cooperative development process.
Form a steering committee
If there is enough initial interest in the cooperative idea, it is time to establish a steering committee. The steering committee should be made up of trustworthy individuals who have good business sense, will champion the project, and are 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. The steering committee:
- Gathers more information on the cooperative option and potential member support;
- Refines the business idea and its initial mission, purpose, and goals;
- Manages financial matters in a responsible and trustworthy manner;
- Leads decision-making during the cooperative development process.
Tips for Forming Your First Steering Committee. Food Co-op Initiative Website, 2014.
STAGE 2: ASSESS
Conduct a feasibility study
The steering committee coordinates a feasibility study to assess the viability of the proposed cooperative venture. This study examines whether there is a market for the new cooperative’s products or services, and whether the co-op can generate enough revenue to cover the risks and costs of operating the business. It should be completed by someone who is knowledgeable about the particular business sector and does not have a vested interest in the study’s outcome. This study is a key step in the development of the cooperative. The group may need to pay for the study by conducting the first phase of a membership drive, or by applying for funding from federal, state, or non-profit agencies.
A feasibility study includes:
- Market analysis;
- Management, equipment, and facility needs;
- Revenue projections;
- Sources of financing;
- Potential membership.
Cooperative Feasibility Study Guide. USDA Service Report 58, 2016.
Feasibility Study Outline. Iowa State University Extension, 2010.
Evaluate feasibility study results
The results of the feasibility study help the steering committee decide whether to continue the cooperative development process. This is a critical decision point during the development process.
Stage 3: Incorporate
File articles and adopt bylaws
If the feasibility study indicates the concept is viable and the steering committee decides to move forward, the group may decide to legally incorporate as a cooperative. In Wisconsin, the group can choose to incorporate under Chapter 185 or Chapter 193 of the state statutes by filing Articles of Incorporation with the Wisconsin Department of Financial Institutions. The Articles provide the basic organizational information required by state statutes.
The steering committee often acts as the interim board of directors. It may draft the Articles and the initial set of bylaws, which describe how the cooperative is governed. Articles and bylaws should be reviewed by a lawyer familiar with cooperatives. Bylaws must be adopted or amended by the cooperative’s members at the first membership meeting.
Sample Articles of Incorporation. USDA Cooperative Information Report 7, How to Start a Cooperative, 2015.
Guidelines for Cooperative Bylaws. University of Wisconsin Center for Cooperatives, 2019.
Sample Bylaws. USDA Cooperative Information Report 7, How to Start a Cooperative, 2015.
For more, see our Legal & Taxation Resources page.
Open a bank account
Once the cooperative is established, the interim board of directors should open a bank account for cooperative financial transactions. In many cases, a group will incorporate earlier in the process so that the cooperative can receive funds and pay initial expenses.
Stage 4: Plan
Prepare a business plan
A business plan is an in-depth analysis of and plan for the cooperative business. It is also an important communication tool for answering questions that potential members will have about the proposed cooperative. Banks and other funding sources will want to assess the business plan as part of their financing decisions. The business plan includes:
• Description of the goods or services offered;
• Market analysis;
• Marketing plan;
• Operational plan;
• Description of the management and ownership structures;
• Sources and uses of start-up funds;
• Projected financial data for the first five years of operations.
Business Plan Overview from the cultivate.coop website.
Elect a board of directors
A membership meeting is held within six months of incorporation to elect the first board of directors and to present and approve the bylaws. The board of directors begins coordinating the business plan implementation and works to secure start-up capital.
The Circle of Responsibilities for Co-op Boards. USDA Cooperative Information Report 61, 2014.
Benefiting from the Board: A Case Study. UW Center for Cooperatives, 2008.
For more resources see our Governance Resources page.
Stage 5: Capitalize
Begin membership 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. Some groups launch the membership drive earlier in the development process.
Cooperative Equity and Ownership: An Introduction. UW Center for Cooperatives, 2013.
Secure start-up capital
A cooperative may use both debt and equity to meet its initial capital needs. Cooperatives may also use member loans or preferred stock to raise start-up capital. Lending institutions will evaluate the risks associated with making a loan to the start-up cooperative business by analyzing the financial projections in the business plan and ensuring the co-op has capable staff lined up. Lenders will also 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. Members will typically be expected to supply 30-50% of the start-up equity capital. The cooperative will need to borrow the balance from a financial institution. Banks, credit unions, and loan funds that are specifically oriented to cooperatives and understand their unique structure can be important resources.
Stage 6: Launch
The board hires a general manager, who plays a key role in securing the operations site, developing vendor networks, and hiring additional staff. Some groups hire staff earlier to assist with the development process.
Address licensing, regulatory, and insurance requirements
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 launching.
Commit to ongoing training and education
Ongoing member education and board training are vital to establishing a sustainable foundation for successful cooperative operations. Education topics might include the cooperative model, cooperative finance and governance, industry trends, and working together effectively.