This publication reviews the key elements needed for successful formation and development of new cooperative businesses. The motivation for and process of forming cooperatives are discussed. Six phases of cooperative formation are presented including: 1) identifying the opportunity, 2) building consensus on the potential for a cooperative, 3) developing trust among potential members, 4) securing member commitment, 5) involving other stakeholders, and 6) starting up the cooperative enterprise. The roles and selection of qualified advisors are presented for each phase.
Potential obstacles to successful cooperative start-up are presented for each of the six phases of cooperative formation. Pitfalls in cooperative development can include: a lack of agreement on the economic problem to be addressed, a cooperative business approach that is not appropriate for addressing the identified problem, other organizational options are more viable than forming a cooperative, a limited understanding the of the responsibilities of directors and members, a lack of qualified leaders, poor feasibility analysis, unrealistic member expectations, the inability to discipline members who are not meeting responsibilities, a shortage of member business volume, inadequate business planning, insufficient member equity investment, ineffective pricing policies, a poorly designed governance structure, an underpaid or unqualified manager, ineffective board of directors, poor quality of products or services, and overall industry weaknesses.
Common causes of new cooperative failures are reviewed. Common causes of start-up business failures can apply to cooperatives as well, such as: economic factors, financial issues, lack of management experience, strategy causes, neglect, disaster and fraud. Some potential cases of failure more specific to cooperatives can include: starting from a defensive strategic position, a limited choice of goods and services to offer, accounts collection or payment issues with members, an inability to raise capital from members, or the ineffective of succession of leaders or managers.
Key ingredients for successful start-up are discussed. Two basic conditions must be present for successful formation. First, there must be a joint recognition of a common economic problem by the potential members and initial leaders. The second condition is that the proposed cooperative enterprise must be more effective at performing the hoped for services better than the prospective members can individually. The required leadership must spend the time exploring the potential for the new organization and providing the necessary vision. Leaders are the driving force in cooperative development. They achieve compromise among key stakeholders, overcome the potential barriers, and see the process through to completion.
Consequently, it is essential that any cooperative effort have effective leadership. Lessons from recent start-ups of so-called “New Generation Cooperation” are highlighted for each of the six phases of new cooperative development. Lists of cooperative development resources, websites, and publications are presented.