Across the globe, more than one million co-operatives have successfully undertaken the journey of start-up and development, and today they provide 100 million jobs and every type of product and service to over 800 million members worldwide. Fortunately, many of the lessons learned from these co-ops have been documented to guide others along the path.

This section is an attempt to gather in one place ‘the wisdom of the ages' as it relates to co-operatives. Combined with the information links throughout this site, we hope that the advice provided here will help your co-op achieve its full potential for the benefit of your members and your community.

1. Keys to a successful co-op start-up

There are four main factors influencing co-op success in the start-up phase:
• The right circumstances
• Skilled and committed leadership
• A solid plan and framework for development
• A balance of co-operation and good business

While some of these success factors apply to all business ventures, many are distinctly unique to co-operatives. They represent all the main signposts on the road to co-op success, and they should not to be dismissed lightly, despite the concise and summary format in which they are presented here. The group of documents that informed this section are listed below.

The right circumstances

Skilled and committed leadership

A solid plan and framework for development

A balance of co-operation and good business

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2. Keys to sustainability for new and existing co-ops

The following advice is adapted from a 2000 report that offered a set of recommendations on how agricultural co-operatives could regain their strength and thrive in the new agriculture of the 21st century. Much of this advice was directed to large established co-operatives that had, to some extent, lost their way and needed to rediscover their co-operative roots. These guidelines remain highly relevant for all co-operatives today, especially those that prefer to stay on the path of co-op success rather than find their way back to it.

Claim the co-op advantage

It is well proven that when a co-op taps into the full power of co-operation, success is virtually inevitable. The ‘co-op advantage' becomes an example of the sum being greater than the parts, a case of all systems working in harmony for a greater purpose and goal. To claim this advantage, a co-op must nurture three main elements:

Member ownership and control: This is the feature that most distinguishes a co-op from other forms of enterprise. Members experience a strong sense of ownership and control when they perceive a direct link between the success of the co-op and the success of their own life or livelihood - their farm, their art studio or their health, depending on the co-op's activity.

Members are also more connected and engaged owners when they have made a capital investment in the co-operative. When members feel a direct link and connection to the co-op they tend to be more involved in monitoring the co-op's performance and management. They become true owners and stewards of the enterprise.

Benefits of membership: Members join a co-op and maintain their membership for the benefits it provides them compared with other available options. The key benefits that co-ops must focus on providing their members include:
• A commitment to serving members' needs and improving their economic wellbeing
• A sense of ownership and control for all members
• An opportunity to share in any profits or other benefits the co-op generates
• The chance to network and share knowledge with other members and their industry
• A shared sense of pride when the co-op is a success

Member loyalty: Loyalty is earned when a co-op delivers excellent service to members, consistently generates new benefits of membership, and practices the co-op values and principles in a democratic and transparent way. Members see the co-op advantage at work, and they feel pride of ownership in an enterprise that offers quality products and superior service. In this case, there is no need or desire to take their business elsewhere.

One of the keys to maintaining the co-op advantage is a continued focus on the internal harmony of the co-op. Focus on the following priorities:

Integrate business activities: Members need to feel a strong link to the co-op and to other members. This is much easier when the co-op has a core set of business activities that unites the members. A key to co-op success is a common purpose and goal. So the more that members share in common, the more unified the co-op is likely to be. The more diverse the co-op's activities, the more diverse the members and their needs, and this is a potential recipe for conflict and disharmony. If it is desirable from a business point of view to carry out a number of activities, the co-op should ensure that they are very closely linked.

Build member cohesion: A co-op must ensure that each member understands how his or her success is closely connected to the success of other members. When members see how their actions and welfare are interdependent, they form the basis of a co-operative identity. This identity is essential to building member ownership and control, and it is part of the ‘co-op advantage' that differentiates the enterprise from its competitors.

Educate members and managers: A co-op must commit to the practice of ongoing education if it hopes to ensure effective member ownership and control. This includes core training programs for members and the board of directors, a general co-op orientation for all members and staff, and ongoing sessions that keep everyone current on changes and innovations in your industry. As your co-op grows and hires managers and staff, it is essential that members, directors and managers remain focused on a common vision and goal. You can do this by establishing a culture of shared learning and education. LINK here for more information on co-op education and training.

Monitor the co-op's balance and strength: A co-op must always take the time to evaluate the balance of its business and associational strength, since this balance will prove essential when the co-op faces challenging times. As a co-op grows, it must always strengthen its democratic structures. If a co-operative develops the business side of the organization without building the democratic side as well, it creates a situation where one structure will eventually collapse. True cohesion in a co-operative relies on an equal balance of business and associational strength.

Build Capacity for Innovation and Development

Like any organization, a co-op's long-term success is linked to its capacity to evolve and adapt over time, and this requires continued access to new ideas and knowledge. Here are some ideas to start:

Pay attention to and invest in research: Depending on the type of knowledge most relevant to your co-op's future, be sure to stay tuned to new developments in science or new trends in the marketplace. In today's competitive market, access to knowledge is a source of power, and your co-op may need to invest in research in order to stay in the game. Build partnerships where possible to offset the high cost of research, and consider ways to work with other co-op sectors. For example, an alliance between producer co-ops and consumer co-ops can help determine customer preferences.

Adopt best practices in co-op adaptation: Your co-op will want to stay tuned to new models for co-op governance, management and organization - tools that other co-ops develop as they evolve and learn to function and compete more effectively. Connect with and learn from other local co-operatives and the larger co-operative sector - provincial, national and on a global scale. Attend co-op conferences and networking events, sign up for co-op newsletters, and keep a lookout for new research reports and case studies. You can often learn as much from co-op failures as from success.

Create a culture of innovation: Like continued education and learning, a culture of innovation becomes a mindset of your co-op if properly nurtured. Individuals tend to be the key innovators, and innovation is essential to adaptation. So co-ops must ensure that people in their organization are able to suggest and try new ideas, with an eye to experimentation and constant improvement. Be sure to include the ability to fail and learn from failure, since this is the nature of experimentation. Look also to other businesses and others co-ops in your sector, and across co-op sectors for new ideas. These are the seeds of adaptation and growth.

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3. Advice to new co-ops from co-op developers

Across Canada there is a group of co-op development agents who truly believe in and understand the co-operative business model. Some have been founders and managers of co-ops, and many have dedicated their careers to helping guide co-ops through start-up and development. Along the way they have all learned hard lessons about what works and what doesn't for co-ops. They have seen both the strengths and weaknesses of the co-op model, the paths that lead forward, and the hazards to avoid.

Nine of these co-op advisors have generously contributed their top three pieces of advice for new co-ops, which have been compiled below by theme. Their submissions were edited for basic clarity, but each piece of advice represents the unique style of the individual. See the list of contributors at the end of this page.

•General advice for all co-ops
o Build a common vision and understanding
o Learn from other co-ops
o Pay attention to governance and member relations
o Adopt sound business practices
• Advice for agricultural / producer co-ops
• Advice for community development co-ops

General advice for all co-ops

Build a common vision and understanding

Invest sufficient time in understanding the co-operative business model - its purpose, values and principles. Be sure that all founding members, and later members, share a common understanding of what they are entering into.

Ensure that everyone in the founding group has the same vision and understanding of what the co-op will do for its members, and what will be expected from the members. Often people will be attracted to the initial co-op idea based on their own idea of the relationship they will have with the co-op once it is established. Unless there is agreement - in detail - on what the co-op will do, progress will be difficult or impossible to achieve. Case in point: a group of agricultural producers envisioned owning and operating a farm to provide organic produce for the local market. Most of them saw a lot of members working on the farm, raising animals, growing crops, and operating small garden plots. In truth, the farm could only accommodate 5-6 members in this fashion, given the realities of farm management and market needs. The remaining members were limited to buying produce from the co-op. Within 3 years, there was a high degree of discontent among these members and they began to leave since they didn't feel any connection with the farm and didn't see the benefit of membership. As a result, the co-op was forced to make significant changes in its operation, at great cost to its progress. Had the expectations been clarified and communicated to the members during the development stage, this could have been avoided.

Set out your vision and mission, and make them long term. Decide what you want to be in 10 or 20 years - include details like the size of your co-op, the level of member satisfaction, your community contribution, etc. Focus on integrating the purpose, values and principles of co-operatives into the reality of your business. If you don't know where you are going, any road will do.

Be clear about your vision and attract members who agree with it.

Learn from other co-ops

Build upon the experience of others. This can be done by hiring an experienced co-op developer, by reading co-op success stories, attending conferences, or talking to existing co-ops. There are many issues that look simple enough at a glance, but it is only with experience that the pitfalls and complications can be identified. Every co-op must find its own path and solution, but that process should be informed by what others have done.

Pay attention to co-op governance and member relations

Invest in your co-op's governance structure. Take the time to train your members and engage them in the governance process at the board and committee levels. Give them the skills they need to participate, and maintain a high standard of democratic process. Don't just ‘go through the motions' around motions, voting, debate and accountability. It is the democratic nature of your co-op that distinguishes you from your corporate competitors, and you ignore governance at your peril.

Have a clear definition of everyone's role and the key tasks for which they are responsible. For big decisions, like policy and financial planning, engage all of the members in the process. For day-to-day decisions, keep the board out of it and let the staff run the business.

Establish a proper governance model for the co-operative at the outset. Fledging co-ops will rely heavily on the active involvement of directors initially, but the directors should be mindful that upon successful start-up, their role will be more of governance than active involvement in the day-to-day operations of the co-op, especially in a larger co-op venture. To prepare for the transition to a governance role, directors should regard their project advisors - consultants, lawyers, accountants and other professionals - as senior management. While the directors should be well informed about the work performed by these advisors, and direct them in the tasks necessary to move the project forward, they should not seek to take over the work themselves. Directors need to find the right balance between the one extreme of being immersed in every detail of the project and the other extreme of disregard for any of the details.

Keep track of decisions as you go, including who makes them and how they are made. In this way a clear policy on decision-making processes may be developed over time.

Plan and discuss best and worst case scenarios when you are creating the co-op's by-laws. For example, how will you handle profits and losses?

Consider building in a one-time bonus or one-time benefit for the founding members - in recognition of the fact that start-up members invest many hours of time and money when it is uncertain if the co-op will succeed. Some acknowledgement of their effort should be made before the membership starts to expand significantly. In the case of The Big Carrot, a Toronto worker co-operative, the original 9 members were given a bonus of $5,000 each when the store was on its way to success (after about 5 years). The founding members had borrowed money for their initial shares, taken payment in food when they started, and voted themselves pay cuts when necessary in the start-up phase. The one-time bonus was an acknowledgement that they had sacrificed and prepared a solid base for the new members, and this prevented feelings of resentment.

Build social cohesion in your co-op. Make sure the people who are involved with the co-operative have a high propensity to co-operate. Build trust over time by working together on specific and discrete tasks. And have some fun together - something social and not work-related.

Adopt sound business practices

Create a realistic business plan that allows for the growth of co-op capital - which in turn will allow the co-op to grow and change.

However revolutionary the objectives of your co-op enterprise may be, be ultraconservative when crafting your business plan. Consider every possible worst case scenario and build your plan so that your co-op can survive even the worst possible set of catastrophic circumstances. Then take the best case scenarios and show how they, too, can turn into worse case scenarios. For example, show the impact on cash flow of sales exceeding your wildest expectations, leaving you with an unanticipated shortfall in working capital. Be brutally honest with yourselves about the risks of your business, highlight all of those risks in your business plan, and identify how you will mitigate every one of those risks. Then be honest enough to admit to the residual risks that you cannot eliminate and you will simply have to accept as part of the overall risk associated with a new venture. 

When writing a business plan, make it a compelling story. The numerical aspects of a business plan are very important, yet it is also important to ensure that the document balances numbers with narrative so that the end result is a good story. The reader of a business plan should come away with a clear picture of the people involved, what they aim to accomplish, the resources at their disposal, and what is needed to ensure success. The financial projections in a plan must withstand rigorous financial scrutiny, but they need to illustrate a clearly understandable story that is simply told and that engages the reader's interest up until the final page. 

Use your business plan as a management tool. A well-crafted business plan considers all the factors involved in the launch and running of the business - capital requirements, operations and their costs, pricing strategy, anticipated margins, labor costs, etc. - all on a single matrix that tells the group what to expect in the early years of the co-op's operation. Yet, many co-ops launch their business and turn the business plan into a book-end until it is needed to attract a new lender or investor. A good business plan will provide the bench-marks the co-op needs to do proper business evaluation when problems arise - and they will arise. It's not that the business plan projections are always correct. It may turn out that the gross margin anticipated, or the expected labor to sales ratios, are just not achievable in the co-op's market. If that is the case, the business plan still provides a solid platform against which to evaluate likely results of any changes made. If you need to raise salaries, how much will you have to increase sales or margins to do that? And will the market continue to buy from you if you increase prices? These and many other questions can be answered by changing variables in your business plan, and evaluating the results. It is likely that your co-op invested considerable resources in creating its business plan. It is a shame not to use it to its full potential.

Ensure the co-operative is adequately capitalized through members' equity. Members' equity (or investment) is critical not only to ensure that the co-operative has sufficient capital to face any unanticipated challenges that may arise, but also to demonstrate to outside investors, lenders, government funding bodies and other partners the commitment of the co-operative's membership. Directors should play a leadership role in investing their own funds into the co-op from the very outset and be prepared to invest additional equity when required. While it may be tempting at times to seek additional funds from outside sources, there is no substitute for the unconditional equity invested by members who have a long-term stake in the success of the co-op. No start-up co-op has ever failed from being overcapitalized.

Consider very carefully the costs and benefits of bringing non-member investment into your co-op. Many co-ops have an unrealistic vision of how appealing their social objectives or innovative business ideas will be to their community, or to a greater community of potential investors. The truth is that investors are a canny lot, and their demands of the co-op will be much like their demands of any other venture in which they might place their carefully gathered wealth - and so it should be. My advice is to research the market for capital as you would the market for the co-op's product or service. Know how many potential investors are within the scope of your market, how much they are willing to invest, and what will attract them to this particular investment. In the same way that your product market analysis can help you create sales projections, this capital market analysis will help you assess the amount of capital you might receive from other investors, which in turn will help you determine the feasibility and the costs and benefits of going to this market for capital.
Also consider that when a co-op is set up to accept ‘outside' investment capital, there are many implications for the co-op's administration, and possibly its governance structure. The co-op will be subject to the Securities Act and all the filing requirements therein, and it may have to file a prospectus, which can be complicated and expensive. It will also have a whole other constituency - besides its members and customers - who need to be kept happy and whose needs must be met.

Have a realistic annual budget broken down on a monthly basis, including an income statement and a cash flow. Hire a professional bookkeeper with a proven track record (and check three work references) to keep your books up to date and accurate and provide a monthly variance analysis comparing the budget with actual results. Use this tool to set financial goals, conserve your cash, and make good and timely management decisions.

Don't underestimate the importance of good management. There are about a million ways to organize management in your co-op, depending on your sector, your personnel and your philosophy. But however you decide to approach it, make sure that your co-op has strong management skills in place that are appropriate to your enterprise and your sector. Enthusiasm and commitment to co-op principles will never be enough to overcome poor management.

Sell on the basis of quality. Selling on the basis of price is a race to the bottom, and selling on the principle that right-minded people should support co-ops because it is the right thing to do is a bad marketing strategy. Be conscious of price, and always include your co-op identity in marketing, but keep in mind that neither will be enough if the basic value is not there for the consumer or member. Excellence in product quality or customer service is the value to the consumer and/or member that will build a strong co-op.

Always prepare for the worst case scenario. A good business rule is to assume that something will go wrong and decide what actions you will take for various factors such as market projections fall short volume or price , costs are higher than expected, equity financing is less than expected or the bank loan is less than planned.

When writing a funding proposal, don't be afraid to ‘parrot' the exact wording of a program. In school, you will often receive better marks for restating concepts in different language, using ornate style and different vocabulary. Generally speaking, this is a bad idea with funding proposals, even when replacing jargon with plain language. The panels that review proposals usually have a set of criteria that are rigidly linked to the original call for proposals or program guidelines. Be wary about changing the specific words in a program's guidelines so that your proposal sounds more original. It is not uncommon for proposals to be ranked lower because they do not directly mirror specific vocabulary.

Communicate market information to your members. Farmers invest a substantial amount of their family equity in the development of their farms. The products of these farms are then sent to their producer co-operative, and the farmer has to wait several months before he or she receives payment. New agricultural co-operatives must put in place a structure to ensure that all members receive current and complete information about the market for their products and the co-operative's ability to access and succeed in that market. This is critical information for the farmer to manage cash flow and finance his farm operations on an ongoing basis.

Secure the supply of raw materials for a value-added processing co-op. New generation co-operatives (NGCs) do this by issuing delivery rights shares to their members, which represent a two-way contract between the member and the co-op. For each share purchased, the member has the right and obligation to deliver a specified amount of farm product to the co-op, and the co-op has the obligation to accept it. This contract gives the member a guaranteed market and price for his or her product, while giving the co-op a predictable supply of raw material that fits its processing capacity and creates a more efficient operation. A guaranteed product supply can also be a distinct competitive advantage in the marketplace.

Commit to co-op education related to the principles. This means understanding the definition, values and principles as contained in the Statement of the Co-operative Identity, since these are the foundation of an individual's commitment to their co-operative. They should guide the governance philosophy of those who assume a director's role in a co-operative, and the operational philosophy of those who assume a management or other staff position in a co-operative. Many people tend to overlook these seemingly philosophical components for other operational and practical aspects of co-op education. But a co-operative is better off in the long term to have members, leaders and staff who fully understand and commit to the underlying nature and philosophy of the co-operative model. Time spent on these
items in the early stages of co-op development will pay very worthwhile and significant organizational dividends long into the future.

Kitchen meetings remain a good tool for community/ co-operative development. This approach was used very successfully by the first co-op developers in Canada - Sir Wilfred Grenfell, Father Moses Coady and others - in the early part of the 20th century. It was also a successful tool in forming the Bell Island Community Development Co-operative in Newfoundland in the early 1980s, following the loss of the town's mining industry. When the task is to educate a community and gather support and buy-in for a rural community co-operative initiative, the kitchen is a natural gathering place. As well as employing the usual communication tools such as flyers, newsletters and signs, the Bell Island organizing group solicited individuals in different parts of the community to invite a few of their neighbors to a kitchen meeting. The meeting hosts supplied the space and refreshments, while the organizers provided meeting facilitators and a structure for the session. The agenda allowed for a two-way flow of information and ideas, and the overall result was 300 members attending the co-op formation meeting in 1983 - all sharing a sense of ownership and control over the future of the community.

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4. List of sources and contributors

Reports and other documents

Why do Co-operatives Fail as Co-operatives? David Griffiths, Co-operative Federation of Victoria, Australia, 2004

How to Start a Co-operative - Rules for Success. US Department of Agriculture, 2001

Guidelines for Co-op Success - from the website of the Co-op Development Institute - Northeast Center for Co-operative Business, Massachusetts

Canadian Agricultural Co-operatives: Critical Success Factors in the 21st Century -Summary Report
Murray Fulton, Daniel Coté and Julie Gibbings, 2000

Advice from co-op developers - list of contributors

George Alkalay, co-op developer and owner of Northfield Ventures Ltd., based in Ontario
Russ Christianson, co-op developer based in Ontario
David Daughton, co-op developer based in Prince Edward Island
Marty Frost, co-op developer and trainer based in British Columbia
Blair Hamilton, co-op developer and owner of Dungannon Consulting Services in Manitoba
Ken Kavanaugh, founding member of the Bell Island Community Development Co-op, and currently a co-op advisor and trainer in Newfoundland
Mary Lou Morgan, founding member and former manager of The Big Carrot worker co-operative in Toronto, and currently a co-op development advisor
Alan Tyabji, former manager of a major BC fruit growers' co-operative, and currently a co-op advisor based in British Columbia
Tom Webb, manager of the Master of Management - Co-operatives and Credit Unions program at St. Mary's University, and principal of Global Co-operation Consulting, based in Nova Scotia