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