Understand Co-Ops Using This Metaphor

Co-Ops 2.0

Cooperatives are a 500-year old business structure and in agriculture play a critical role for producers, but given the reputation of co-ops and steady trend of demutualisation one could be forgiven for thinking they are a dying form of business.

By the end of this article hopefully (if we’ve done the job) you will think again and be pretty impressed by what this organisational structure can do – and who they can do it for…but before we get to that we probably need to take you through the various co-op types…

You see it can get pretty complicated, pretty quickly, because of the versatility of co-ops as a structure.  When a group comes together it can do so for a variety of reasons and outcomes.

To help navigate the basic types of co-ops we propose a metaphor to help you better identify your co-ops.  This metaphor is not very sophisticated but good for a high-level introduction. If you want to know more please check out the resources at the Business Council of Co-Ops and Mutuals (BCCM) website.

Co-Operatives as Ice-Cream

The Neapolitan Flavours

Vanilla Ice cream

Commodity-based co-ops are also known as marketing co-ops.  These are the most common co-ops and what most will think of as Co-Op 1.0.  

These co-ops are gathered around the production, sales and value-adding of a commodity.  Members are typically early in the supply chain of a commodity including i.e farmers, producers, transporters and processors.  

The case for economies of scale is very persuasive with commodity co-ops. Additionally, these types of co-ops help to mitigate risk, match with larger supply chains for consistent prices and support producers in social and educational endeavours.  

These co-ops across the world account for most of the one billion people who are members of at least one cooperative.  

Examples:

  • Mustard Growers Co-Op 
  • Namoi Cotton Co-Op 

We call these amazingly successful businesses vanilla co-ops because they are enormously widespread across the globe.  Vanilla ice cream is also incredibly widespread and popular.

Chocolate Ice cream

Community-based co-ops are formed around a specific location.  Geographically-centred, they build infrastructure or enterprises for social and economic profit.  

Establishing new local businesses as co-ops is a local investment opportunity and employment opportunity. For many social entrepreneurs, a community-based co-op will be a better structure than the popular B Corp certification on a standard corporation.  However, in Australia, we tend to create companies by default.

Examples:

  • Community-owned solar, schools, post-offices or pubs…etc

Just like chocolate ice cream, these co-ops have raving fans who want to get their friends involved.

Strawberry Ice cream

Strawberry co-ops or platform cooperatives as they’re also known are unlike chocolate co-ops in that they are not geographically centred i.e. members can be from different places.  They are usually digitally-enabled with e-commerce, social media and use the use of APIs to integrate with other services.

At their core, they are about connecting a group of people with a common interest.  As businesses, this flavour of co-op wants members not ‘shareholders’ and ‘customers’.

This does not mean that they are less sophisticated.  Far from it.  Platform co-operatives operate across many industries already from insurance, lending, real estate and financial services through to book stores, drone operators and enterprise co-ops.

Examples:

  • Digital Farmers Markets
  • 2-sided marketplaces and
  • Social Ventures that aren’t local in nature

Strawberry co-ops using digital tools can often compete with corporations and when they do they have the additional benefit of providing deeper levels of engagement than most digital businesses can muster.

To carry on the metaphor you could say strawberry ice cream leaves a stain (impact).

Who Uses Co-Ops and Why?

CrowdFunders

Co-Operatives were used to “crowd-fund” long before crowdfunding was even a term. Producers would get together and invest the capital they needed in storage or processing facilities that alone none of them could afford, but together everyone would use.

Investment co-operatives are now alive and well in many communities internationally and locally.  In Australia, we don’t have equity crowdfunding legislation for private companies and this delay has tipped off people to using the cooperative structures and Cooperative Capital Units instead (see the Get Mutual handbook on community investment).  Watch this space… it’s going to heat up.

Co-operatives, in case you didn’t know, are more democratic than corporations.  In a corporation, the person with the greatest number of shares has the greatest number of votes.  In a co-op (regardless of the cooperative capital units or commercial arrangements in operation) every member has a vote – one member, one vote.

This doesn’t mean co-ops aren’t commercial – it just means they do not seek maximum capital return for shareholders.  There’s plenty to go around including for founders, entrepreneurs, investors and lenders, but there’s a requirement for co-ops to act in members’ interest first and foremost.  This is a good thing.  It aligns interests and enforces behaviours like actually being customer-centric, employee-focused and good governance.

The natural evolution from a successful rewards-based crowdfunding campaign – like you have seen on Kickstarter or Pozible – is with the co-op and not a corporate structure.  Oculus Rift and their subsequent purchase by Facebook is an example of why crowds will prefer co-ops.

People who have provided $50 to the campaign are often as engaged as those that have provided $500 to a campaign.  They all appreciate the power of numbers and feel engaged in the enterprise and not just the product.

To continue our ice cream metaphor, you could see rewards crowdfunding as one of the ingredients you need to have in place to make any sort of co-op.

Agriculture

Cooperatives were used initially for bargaining and securing power at the negotiating table.  This gave farmers price-security and played a part in the early days of every commodity you care to think about.  Today co-ops are still very effective in this role.

AgTech has been a particular focus of Ethical Fields and we are catalysing a “Data Co-Op” that allows producers i.e farmers to own and value-add the information associated with their production.  We see this as a critical time in the ag-data industry and we don’t want to see farmers miss out on the value whilst “Big-Ag” sees farmers as customers.  If you have an interest in this field of endeavour then get in touch.

Ethical Fields are approved to the expert panel of the Farming Together Program.  So, if you are a farmer-led initiative that qualifies, you can get our support across Forming, Organising, Funding and Operating – free – courtesy of this program.

The Farming Together program is essentially a support group for fans of vanilla ice cream that are looking at other flavours to add new value to their businesses.

Innovators and End-Users

Another interesting use-case for co-ops is where innovation connects with end-users.  At Ethical Fields we have found that for research bodies and universities we can do better in translating great research into social, economic and environmental impacts.

Typically universities try to create useful technology, but they generally don’t have a remit for commercialising this technology.  In most cases, they turn to corporations to commercialise research grade technologies.

The term ‘commercialisation’ actually boils down to making sales to end-users.  The corporation is inclined to pay as little as possible for the technology whilst maximising profits by charging as much as possible to end-users.

Things like the continued collaboration between end-users and the researchers who gave birth to the innovation are typically given lip-service by commercialisation companies.  Many times this disconnect between researchers and end-users is un-officially encouraged by the company as further R&D costs money and the connection between end-users and researchers puts pressure on product iteration rates.

By contrast ‘cooperative commercialisation’ can provide membership to both innovators and end-users.  This tighter connection can be used to provide a more functional relationship.

Some of the things we are working on within Australian universities and the agriculture sector at Ethical Fields is gaining pre-commitment on first-run technology via a co-op.  This ‘crowdfunding’ brings down the costs for everyone.  Cooperatives of the “Chocolate” flavour can then improve utility at a local level and finally data from the sensors can feed into data co-ops that add value to the farmers agronomy and value to researchers working on the next version of the technology to further meet farmer needs.

Bringing it back to our ice cream metaphor a cooperative commercialisation pathway may include ‘scoops’ of each flavour of ice cream working together to make a classic dessert.

Workers

In many ways, worker co-ops (the first was established 300+ years ago) were the pre-cursor to unionisation.  Regardless of your feelings about unions in today’s economy; they did promote rights, which in turn saw more investment in education, and in turn created safer workplaces – so fewer people die doing their jobs.

Unions also reduce many forms (but not all) of discrimination, exploitation and were the reason employers provide workers compensation insurance and pensions – most of us value these things, but not necessarily unions.

Worker co-ops could be coming of age again in the form of cooperatives focused around a digital platform supporting engagement and transactions with customers (i.e. these platform co-ops are strawberry ice-creams for us). Platform co-ops are seen by some as a remedy to the valid concerns arising from the Uber-of-X business model failing to translate economically and socially. For example, Stocksy, is a photography cooperative that pays member-photographers for their photos and videos as well as a dividend. Their story of growth in the mature stock photography market is inspiring. There will be other worker cooperatives

Platform cooperatives are hotting-up as digital tools, open-source trends and globalisation break down traditional employee-employer relations and relegate the union movement who grew to meet the needs of workers in the employee-employer relationship that is now breaking down.

With suggestions that Twitter becomes a co-op, you will see platform co-ops and other worker based co-ops grow in popularity with both users and workers.

Communities

As we have outlined previously on our blog local businesses have an unfair economic advantage because many products and services become cheaper with closer the points of production and consumption.  This economic advantage puts outsiders at a dis-advantage.

Using economic advantage and mixing it with the many advantages of a co-op like having a purpose, increased stakeholder engagement, improved democracy and transparency, digital tools and reduced marketing costs – the businesses that result from communities getting together is tipped to explode.

We already see co-op owned schools, solar production and storage, post officespubs and even a brewery within Australia.  In the UK this scheme is even more sophisticated and has become an alternative investment platform that appeals to retail investors and is popular.  At the time of writing, there were 841 Community Share listings either completed or currently listed.

Summary

Co-ops are now set for a renaissance of popularity.  For the most part, we can thank digital tools for making co-ops easier to form, organise, fund and operate – hence why we call them Co-Ops 2.0.

Of course, co-ops are in the process of ‘catching up’ with corporations in a few areas. Professional advisors are more comfortable with corporate structures and commentators often blame co-op failure on the structure above other factors. The BCCM and the sector generally do an amazing job addressing these and other issues. But, it stands to reason that cooperatives that have been with us for 500 years will continue to be important in the future.

Indeed, increasing popularity in co-ops owes a gratitude to growing dissatisfaction with the corporation as a one-size fits all business structure.

The good news is that co-ops are not a protest vote.  They are instead a deliberate alignment between interests.  The profit motive and capitalistic tendencies of the corporation are moderated with democratic virtues of one-member-one-vote and the transparency and sense of community that comes as a result.

We hope you’ll watch, join and ultimately become a member of the Co-Ops 2.0 movement.

 

 

 

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