What is a startup cooperative business?

Looking to find out what a cooperative business is? Read on for the advantages and disadvantages to running a co-op and for some successful cooperative business examples

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We’ve all heard of The Co-op, the popular high-street supermarket, famed for its support of Fairtrade goods and quality stock. But what does “cooperative” actually mean? And why should a startup care about a co-op structure?

In addition to providing a product or service, the fundamental purpose of a cooperative is to serve its members and the community in which it is situated. Instead of outside investors benefiting financially from a business’ profits, members of a co-op see surplus revenue returned to them in proportion to how much they use the co-op. Every member of a co-op will also have a say in how the business is run via a democratic vote.

For the business decisions that have to be made on the day-to-day, a board of directors is elected. The board monitors the business, sets goals and fulfills managerial duties, held wholly accountable to the members for all decisions, actions and outcomes.

A cooperative model is an alternative business structure that suits particular kinds and sizes of business, but isn’t suited to everyone. Cooperatives usually come into existence as a means of providing employment and a return on investment to the members, often on a local level. Retail and hospitality businesses lend themselves particularly well to a cooperative model, for example, a local cafe, bookshop or grocery store.

However, a startup with high initial overheads that’s expecting rapid growth and quick expansion, or requires high input from external investors to get the ball rolling wouldn’t be best suited to a cooperative structure.

The cooperative sector provides a whopping 235,000 jobs at living wage or higher and is ever growing, and ever more important. More than an underground movement, the cooperative community, both globally and nationally, is not one to be ignored.

Here we explore what cooperative businesses do, how they do it and why co-ops are making a splash in the UK’s business scene.

What does cooperative mean?

Way back in 1895, the International Cooperative Alliance (ICA) was founded. Acting as the “voice of cooperatives worldwide”, the ICA seeks to promote the cooperative model and increase the global number of co-ops from an already impressive three million cooperative businesses worldwide.

According to the ICA:
“Cooperatives are people-centered enterprises jointly owned and democratically controlled by and for their members.”

Unpicked, this means that cooperative is a different type of business: one that puts the people first. They are not owned by shareholders, as the cooperative owns the assets of the business itself, and has values centred around fairness and equality, with the long-term aim of generating jobs and prosperity. This is why co-ops are often referred to as cooperative enterprises or organisations, rather than ‘businesses’.

The concept of fairness runs through a cooperative’s decision-making process and each member gets a vote in how the enterprise is run. These votes carry equal weight, regardless of the capital put into the enterprise by each member.

And, as co-ops aren’t owned by shareholders, the good work of the co-op stays within the community in which it was established, meaning that profit and produce can be reinvested into the enterprise, or, returned to its members.

Cooperative ownership can be categorised into four broad types:

  • Type 1: Worker-owned co-ops – owned by the workers and profits are reinvested into the business and the community.
  • Type 2: Consumer-owned co-ops – owned and run by the consumers (like The Co-op) and profits are reinvested back into the business, the member shares and the community.
  • Type 3: Enterprise-owned coops – owned and run by other businesses (popular within the agricultural sector).
  • Type 4: Mixed ownership cooperatives – operate via a mix of all of the above types of ownership.

Who are cooperative businesses?

There are over 7,000 co-ops in the UK, operating in a range of sectors from agriculture to social enterprises, sports initiatives to retail and education. Any enterprise can be a co-op, it’s not what they do, it’s how they do it that makes a collective a cooperative.

Who are the cooperative startups out there today?

Statups.co.uk has scoured the UK for some cutting-edge cooperative startups. Here’s what we found:

Stirchley High Street in Birmingham was once thriving with high street culture. But since the recession, this hub of trade has dwindled into near non-existence.

However, one cooperative startup in particular appears to be creating a buzz about town, attracting a new wave of shoppers to potter down the soon-to-be revived high street.

Loaf: community bakery and cookery school​, started life in a back garden in 2009, where Tom Baker would single-handedly bake nearly sixty loaves a week in his hand-built garden oven.

Friends, family and neighbours were his first customers and the business grew quickly, moving into a permanent shop in 2011.

The move was made possible by 20 friends each investing £1000 in exchange for a weekly loaf of bread and a share in the co-operative business.

The entire organisation is based upon a co-operative structure. No ownership means that no one takes profit. All employees are paid a standard salary, whilst all profits are put straight back into the business or local community.

A team of eight operate harmoniously, baking, selling and teaching traditional culinary delights such as pasta making, foraging and, of course, how to bake fresh bread from scratch.

It’s the little bit extra that makes this enterprise stand out. By not just selling bread, but teaching and sharing the art of baking and making good, home cooked food, Loaf are giving people another reason to get out of the house and onto the high-street.

Loaf provides an experience as well as a product, making a profit for the hard working people that are part of the enterprise, and the community in which it is situated.

We chatted with Rob, a baker at Loaf, who filled us in on what it’s like to work as part of a start-up co-operative organisation.

Would you say that a co-operative business structure works from a start-up perspective?

“Yes and no really. When we had a smaller team I think it worked well, as everyone gets a say on what happens to the bakery, giving us a voice that we wouldn’t have in a non co-operative organisation.

“On the other hand, as we’ve grown, the lack of hierarchy means that it’s become unclear who it falls to to settle disputes as we don’t have ‘job titles’.

“Overall though I’d say that it works well, we’re all happy in our work and being part of a co-operative really makes you feel valued as an employee.”

 

Could you tell me a little more about the community outreach projects initiated by Loaf?

“Yeah, we work with local schools and offer free cookery classes to children who probably don’t get much hands-on time in the kitchen at home.

“Our aim is to bring back forgotten foods and engage the younger generation with a love of home cooking.”

That’s such a beautiful mission. The bakery seems really busy, how do you go about marketing?

“We dabble with social media, but to be honest, most of our custom comes through word-of-mouth. I think the fact that we have a very niche USP helps as there’s nothing offering what we do anywhere else in Birmingham.”

More cooperative insight:

The UK currently has 7,226 independent co-operatives with a combined turnover of more than £36.1bn. Plus, within the cooperative community, a staggering 13.1 million people now own and have a say in how the UK’s co-ops operate (that’s a fifth of the UK’s population).

The UK’s strongest cooperative sector in terms of turnover is retail. The driving force behind retail dominating the cooperative scene comes from The Co-op and John Lewis Partnership, as well as many other successful and independent co-operative retailers, with turnover in the sector growing from £25bn to £25.4bn in the past year alone.

However, cooperative success isn’t limited to retail and partnerships between cooperatives and trade unions have also proven popular as they offer protection workers operating within the ever-expanding gig-economy.

For example, Indycube is a network for freelancers predominantly based in Wales, working with the trade union community to support members through the complexities of tax, insurance, pensions and employment law.

Without an office or a hierarchy, the Open Data Services Co-operative is another example of freelancers clubbing together to tackle corruption and tax evasion by creating open data standards and tools. In the three years it’s been running, membership has quadrupled and annual turnover sits at a respectable £800,000, with the four original founders staying true to the original values and ethos of the enterprise.

Where’s the best place to start a cooperative business?

There’s no denying it, within the UK, England is definitely top of the leaderboard when it comes to number of cooperative businesses, but that doesn’t necessarily mean that England is the best place for co-ops.

In the past year, Northern Ireland has seen its cooperative community grow with more co-ops than ever before and a 4% increase in membership overall. This is being put down to Northern Ireland’s strong credit union sector driving an increase in overall cooperative ownership.

Supermarket giant The Co-op is thought to be behind the spike in Enlish cooperative members, as the retailer’s new strategy sees it drive back to its roots, publicising the value members can draw to attract more than 600,000 new members since 2017.

See the heatmap for details:

There’s no hard answer to the question: where’s best to start a co-op? because it really depends upon the nature of the business.

From rural communities that have used a cooperative startup as a way of establishing a sense of local pride and togetherness (like the Glenwyvis Distillery), to the students who have set up cooperative housing schemes in major UK cities; it’s clear that the prime location of a cooperative startup is dictated less by geography and more by human need.

Cooperative business support

So, what’s out there to help a startup business owner become a co-op?

The Hive, part of Co-operatives UK, offers great support to aspiring or new co-ops with free workshops, mentoring and support throughout the early days of establishing your cooperative.

The Hive also runs a funded programme designed to guide startup co-ops throughout their development and growth into successful and flourishing enterprises.

If you’re wondering whether the co-operative route is right for your startup, then make the most of the Hive’s free workshops – see a list of dates and locations here.

Why become a cooperative startup?

When compared to other companies, figures show that cooperative startups are almost twice as likely to survive their first five years.

Reportedly, only 44.1% of new companies make it through those difficult opening years, co-ops on the other hand have a survival rate of 80.4%.

Co-operatives do things differently. With an authentic focus on community and sustainability that other businesses struggle to match, co-ops have the USP of morality that consumers want to see – a USP that’s unique to co-ops irreplicable unless a strong sense of ethics and values are ingrained within the very core of an organisation.

On the flipside, when running a co-op, the lack of clearly defined roles can make doling out the more unpleasant jobs more difficult, as it can be unclear who is meant to take ownership of the task.

Next steps

A cooperative structure is great for some startups, especially if you anticipate low initial overheads, however if you’re looking to create a business that’s completely under your own direction and has super speedy acceleration, then a cooperative structure isn’t for you.

If you’re interested in starting a co-op, or want to transform your existing business into a flourishing cooperative organisation, then be sure to pay a visit to the Hive – where you’ll find all the information you could possibly need.

Or, perhaps you’re looking to make your business a more ethical, but don’t want to go full-blown co-op on it; there’s more than one way to become a better business, your startup has plenty of options when it comes to making socially-conscious decisions.

Bryn Glover has been Editor of Startups.co.uk since 2017. Running the site's content strategy, Bryn spends a lot of time speaking to entrepreneurs and preparing for Startups' annual editorial campaigns.

Having worked in journalism for just under a decade, Bryn wrote for sites like The Times, Reader's Digest, Independent and Times Higher Education before moving into the small business world.

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