It is not an easy task to organize a cooperative: Phase 1

Just as any journey starts with but a single step, formation of a cooperative entails a proper beginning to ensure the likelihood of success.

In an earlier article, I noted that cooperatives are formed to provide benefits to the members and the necessity for sharing the responsibilities of that ownership. How to form a cooperative is just as daunting, if not more so, as maintaining one. This foundation work, however, is vital.

Getting started generally involves the recognition of a compelling need to solve a problem not met by the private sector. This could involve a lack of bargaining power in the market to both purchase and sell. Additionally, when quality of the product available or the access to services are lacking, a cooperative business could be the solution. What is needed are leaders with enthusiasm and practicality within the “community” sharing similar values and interests, that recognize an opportunity and are willing to step forward to begin the process by forming an organizing group.

The organizing group develops an explicit statement of just how a cooperative would provide the needed solution for potential member-users. A good list of potential members-users should be developed and contacts made. Moreover, resource personnel familiar with cooperative development should be engaged to provide information and guidance.

This will lead to the first exploratory meeting. The purpose of this meeting is to gauge if there are sufficient potential members and if a cooperative is the best alternative available. The scope of the project and its accompanying capital needs will provide a starting point for determining if the task of starting a cooperative should continue. If those in attendance at the exploratory meeting vote to continue, a steering committee should be selected and a token planning investment, to cover expenses of the first phase, should be collected.

The steering committee will provide leadership to establish a timeline and conduct a member-use analysis. This would entail discovering prospective needs, anticipated sales or services levels and possible locations capable of handling the potential volume and services. The member use analysis survey data can be collected in person or by mail if confidentiality is a concern. The steering committee then conducts a second exploratory potential member meeting to present the results of the survey. Those present should debate the findings and vote whether to proceed with the venture or not. If favorable, the steering committee will move forward with a feasibility analysis.

An experienced practitioner in using the member-use analysis should conduct this feasibility study as just one of the tools. It should also reflect on the technical expertise needed along with suggestions for the management structure. It should analyze how the business model would fit in the economic reality of the area. Financial details should be noted; potential sales and margins, cash flow, needed capital and the likelihood of success. Realistic assumptions are imperative and should be listed with justifying descriptions.

With this information in hand, a third member exploratory meeting is held. Reports are distributed and discussed. Expectations are examined. The committee should share its opinion on the viability of the project. With one member, one vote results should be used to determine continuation. If yes, a formal business plan should be prepared to yield just how the project would be implemented, which will be discussed in the second article in this series

Michigan State University Extension educators working with the MSU Product Center’s Michigan Cooperative Development Center can provide assistance with helping guide groups of potential cooperatives through this process.

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