Conditions for the success of a cooperative

1. Success requires commitment

In order to succeed, a cooperative needs a business idea compliant to market needs, in-depth planning and clearly defined objectives, and members committed to all these. The incorporators or any members joining in later should ask themselves: “Am I willing to commit myself for a long period to the objectives of this common enterprise and to the common interest before mine, to other members, to transparency and to the ‘role of entrepreneur’, in order to be responsible for the development of the undertaking with others?” The attitude “I can always resign” is not a good starting point; it will result in the disintegration of the group without any effort of tackling the challenges jointly.

According to the Finnish Act of Unemployment Benefits, every member in the cooperative should ‘act as an entrepreneur’, even though they have an employment contract and no status of an entrepreneur. You must remember that the only motivation for incorporating a cooperative cannot be the continuation of your protection for unemployment as an employee.

What does ‘acting like an entrepreneur’ mean in practice? Firstly, it means the ability to work together with others and flexibility. These characteristics are also needed if you are working under the authority of another employer. Secondly, it means activity and initiatives, creativity and courage to take action. In cooperatives, the members ideally learn from each other and solve problems together. Even the tacit knowledge of every member is implemented. Thirdly, it is about the members’ committing to commonly agreed quality criteria and internal guidelines.

2. Internal guidelines on paper

Internal guidelines define the course of conduct of the cooperative. They create the corporate culture and will help to initiate possible new members into the cooperative. The guidelines should be written down in the member contract, which is discussed in a separate section in this guide. The guidelines visible to all members of the cooperative can evolve and they can be amended, if they proof dysfunctional over time. In this, the guidelines diverge from the official statutory rules of the cooperative, which requires an amendment to be filed in the Trade Register.

Quality matters are an excellent example of common guidelines. Another example is the supply obligation: can a member, and in which cases, sell their products or services outside the cooperative. The supply obligation, i.e., a member’s obligation to use the cooperative services, can also be consolidated in the official rules if it is reasonable for the common benefice of the members that they market all their products through the cooperative. The fees charged by the cooperative for its overall costs are an essential section of the guidelines. As is the compensation a member may receive from the cooperative as a salary or product price, which can be varying for different members or their teams according to the type of customer or project in question. The basis for pricing and the part of the overall costs should be agreed upon beforehand. Sometimes, the tasks agreed in common might accumulate with certain same persons. Therefore, it is a good idea to decide on the rotation of tasks and duties.

Cooperative values are a good base for its functioning: self-help, self-responsibility, democracy, equality, and solidarity apply, plus ethical values, like integrity, transparency, social responsibility, and caring for other people. These values should be the leading star of all activities in every cooperative. The cooperative values can then be supplemented by internal entrepreneurship, customer satisfaction, members’ learning, quality criteria, etc. We must remember, of course, that values written on a board mean nothing if they are not respected.

3. A functional group

The cooperative is not among the easiest of legal forms because its democratic decision making and the acting of different people in a group require good cooperation and management. When incorporating a cooperative enterprise, one should openly discuss the most suitable management practices. Some members might expect a strong person to stand up and pilot the group; some others may want everybody to have a say in every matter. According to the law, the management practices are clear: the board manages the cooperative, the general meeting elects and supervises the board. Especially in small and starting cooperatives, it is crucial that the board keeps the cooperative members fully aware of the essential matters in the cooperative and consults the members when making decisions.

Vis-à-vis their customers, the cooperative members must be able to work to reach their common goal. The members of the cooperative must have targets agreed on commonly, and every member needs their tasks. To represent the cooperative towards the customers, it can appoint one member if customers prefer to deal with one person instead of the whole team.

After the initial bout of action, the group’s life cycle comprises inevitable crises, disappointments, and problems, as expectations, ideas, and feelings of different people start to conflict. The life span of the group depends on its ability to solve problems. Once the difficulties are overcome, the guidelines can be refined, as the members are more cooperative than ever.

The internal dynamics of all groups are in constant change. No group is eternal. A cooperative, however, if it is a healthy undertaking, can function for decades, even if its members have gone through different stages in their mutual relationships, everything from symbiosis to independence and alienation, too. This will require that the individual has a relatively permanent advantage from the cooperative membership.

Life cycle of a group:

• Enthusiasm
• Honeymoon
• Crises, disappointments, detection of unscrupulousness
• Recognition of the realities and humaneness; rifts and abandonment are possible
• Problem solving
• Trimming of the guidelines
• Goal-directed cooperation

Conditions for success of a cooperative:

• a good business idea compliant to market needs
• in-depth planning and budgeting
• commitment of the members to shared goals and action plans and practices
• skillful management and responsible board
• sufficient financing guaranteed
• rigorous implementation and efficient supervision
• well-functioning marketing
• right pricing
• evolutive guidelines
• uncompromising quality policy
• training of the members and elected officials
• quick response to changes
• ability to solve internal problems in the group
• ability to put the interests of the whole before direct personal interests = the cooperative ideal
• ability to see things on long term

4. A cooperative is an enterprise – but not an any kind of business

Cooperatives are like other enterprises in the sense that their functioning must be based on the idea of an economically viable and continued profitability. Even if the cooperative does not aim to maximize profit, it is only healthy to think that it has to make surplus for its own needs and not only for its members’ economic direct benefits. Here, the idea is to ensure the viability of the cooperative itself in the future. If the cooperative were to remain economically weak because of its members taking profit of all financial benefit in the short term, this could quickly lead to difficulties or even bankruptcy of the cooperative itself. The old saying “don not sell the walls” applies here, too. The level of surplus necessary for the own needs of the cooperative must be calculated. Please read further under the section economy of the cooperative.

The cooperative’s success depends on how well its functioning was planned beforehand and how strong the entrepreneurship level is applied to develop it. The commitment of all members to the objectives is the most obvious success for any cooperative.

Compared to other small companies, cooperatives face similar problems. The small initial capital is likely to lead to financing problems. It can be an extra challenge to learn how to cooperate and work in a group. It is useful to discuss the guidelines thoroughly in order to find common ground on what it is all about and why. It is equally vital to agree that the guidelines’ performance is observed, and they are amended if the conditions so require. Cooperation can be unbelievably tricky, especially if the cooperative’s incorporators do not know each other from earlier times. An employee who has been working long on a regular salary might find it challenging to own a role or entrepreneur, and the acceptance of the employer role can take some time.

The conditions for success are at their best if the cooperative works on one sector or various complementary industries. Even multi-purpose cooperatives can succeed as long as the guidelines are clear and each sector has well-functioning senior management.

Advantages of cooperatives:

• provides a marketing channel to members
• power of cooperation, including in customer negotiations
• cost effectiveness compared to one-person enterprises
• provision of common support services to members
• low threshold to start an enterprise, practicing to be an entrepreneur
• limited financial liability
• way of self-employment
• possibility to update one’s professional skills and keep in touch with the professional life
• social safety net; together you are not alone
• developing learning skills and professionalism by doing things together
• easiness for the client; only one bill to pay

Challenges faced by cooperatives:

• varying degree of commitment; active and passive members
• lack of capital
• lack of entrepreneurship or internal entrepreneurship; keeping up the employee role
• shakiness of the business idea
• lack of skills in financial management
• imbalance between demand and supply; marketing is floundering
• fragmented activities in too many sectors
• difficulties in democratic decision making