Cooperatives 101 Part 2: Starting a Cooperative Step by Step

Article 81: Cooperatives 101 Part 2: Starting a Cooperative Step by Step

Opening: From Idea to Reality

You understand what cooperatives are. You see them working around you. Now you want to start one.

This is where most people get stuck. The idea feels big. The steps seem unclear. You wonder if you need lawyers, accountants, lots of money. You worry about failure.

These concerns are normal. Starting any business is hard. Starting a cooperative adds complexity because you are building democracy into the structure. But the path is well-marked. Thousands of people have walked it before you.

This article gives you a concrete roadmap. Seven steps from initial idea to opening your doors. We will cover each step in detail, with real examples and practical advice.

The cooperative you start might be small. That is fine. Small cooperatives teach the principles. They build confidence. They serve real needs. Many large cooperatives started with a handful of people and a simple idea.

Let us begin.

Step 1: Identify the Need and Gather Interest

Every successful cooperative starts with a real need. Not a solution looking for a problem. A genuine gap that affects a group of people.

Finding the Need

Ask yourself and others:

What services are missing in our community?
What businesses treat workers or customers poorly?
What needs are not being met because they are not profitable enough for conventional businesses?
What work do we wish existed?

Common cooperative opportunities:

Grocery stores in food deserts
Home care services with fair wages
Cleaning services with worker ownership
Childcare cooperatives for parents
Housing cooperatives for affordable living
Freelancer platforms that do not extract fees
Tool libraries and shared equipment
Transportation services in underserved areas
Renewable energy cooperatives

Gauging Interest

Once you identify a need, find others who share it. You cannot start a cooperative alone. Most cooperative laws require at least three members. Practically, you want more.

Host an informational meeting. Keep it simple:

Explain what a cooperative is
Describe the business idea
Ask people if they would join
Listen to concerns and suggestions

Do not expect everyone to understand cooperatives immediately. Many people have never heard of them. Be patient. Answer questions. Share examples of successful cooperatives.

Building a Core Group

From the interested people, identify a core group willing to do the organizing work. This group will:

Research feasibility
Develop the business plan
Handle legal formation
Recruit additional members
Secure financing

Five to ten committed people is ideal for a core group. Too few and the workload overwhelms. Too many and decision-making becomes difficult.

Real Example: The Evergreen Cooperatives in Cleveland started with a core group of foundation staff, community organizers, and potential worker-members. They identified laundry, solar installation, and urban agriculture as sectors with opportunity. The first cooperative, Evergreen Cooperative Laundry, opened in 2009 with 40 worker-owners.

Step 2: Conduct Feasibility Research

Before investing time and money, determine if the cooperative is viable. This step saves heartache later.

Market Research

Answer these questions:

Who are your potential customers or members?
How many are there?
What do they currently pay for similar products or services?
What competitors exist?
What makes your cooperative different?

Methods:

Survey potential members
Interview people in the target market
Study competitors
Analyze industry data
Test demand with pre-orders or sign-up sheets

Financial Feasibility

Estimate costs and revenues:

Startup costs:

Equipment and supplies
Lease or purchase of space
Licenses and permits
Legal and accounting fees
Initial inventory
Marketing

Operating costs:

Wages and benefits
Rent and utilities
Insurance
Supplies and materials
Loan payments
Taxes

Revenue projections:

How many members or customers?
What prices can you charge?
What is realistic for year one, year two, year three?

Create conservative projections. Assume revenues will be lower and costs higher than expected. If the numbers work with conservative assumptions, you have a solid foundation.

Technical Feasibility

Do you have the skills and knowledge to run this business? If not, can you acquire them or hire people who have them?

For a restaurant cooperative, you need cooking skills, food service knowledge, and health code compliance. For a manufacturing cooperative, you need production expertise. For a service cooperative, you need industry-specific knowledge.

Identify skill gaps early. Plan how to fill them through training, hiring, or partnerships.

Legal Feasibility

Research cooperative laws in your state. Most states have cooperative corporation statutes. Some are more supportive than others.

Check zoning requirements for your location. Some areas restrict certain types of businesses. Verify you can operate where you plan to.

Identify required licenses and permits. These vary by industry and location. Food service, childcare, healthcare, and transportation have specific requirements.

Step 3: Develop a Business Plan

A cooperative business plan serves two purposes. It guides your work and it convinces lenders and investors to support you.

Essential Elements

Executive Summary:

Business concept
Market opportunity
Cooperative structure
Financial highlights
Funding needs

Company Description:

What need does the cooperative serve?
Who are the members?
What products or services will you provide?
What makes you different?

Market Analysis:

Target market description
Market size and trends
Competitive analysis
Your competitive advantage

Organization and Management:

Cooperative structure and governance
Board of directors
Management team
Staffing plan

Products or Services:

What you will sell
Pricing strategy
Future products or services

Marketing and Sales:

How you will attract members and customers
Marketing budget
Sales projections

Funding Request:

How much capital you need
How you will use it
Proposed terms

Financial Projections:

Income statements (3-5 years)
Cash flow projections
Balance sheets
Break-even analysis

Cooperative-Specific Elements

Add these sections to address cooperative specifics:

Membership:

Who can become a member?
What are membership requirements?
What is the membership fee or buy-in?
What rights and responsibilities do members have?

Governance:

How will decisions be made?
What is the board structure?
How are board members elected?
What is the voting process?

Profit Distribution:

How will profits be allocated?
What percentage will be reinvested?
How will patronage dividends work?
What are the tax implications?

Resources for Business Planning

Many organizations provide free or low-cost cooperative business planning assistance:

Cooperative development centers
Small Business Development Centers
SCORE mentors
Local universities with business programs

Use templates designed for cooperatives. The National Cooperative Business Association and Cooperative Development Institute offer resources.

Step 4: Build Membership and Secure Financing

With a solid business plan, you can recruit members and raise capital.

Recruiting Members

Membership requirements should be clear and fair. Common requirements:

Membership fee or buy-in (can be paid over time)
Agreement to abide by bylaws
For worker co-ops: employment with the business
For consumer co-ops: minimum purchase commitment
For housing co-ops: occupancy agreement

Be intentional about recruitment. Seek members who:

Share the cooperative's values
Have needed skills or resources
Can meet membership requirements
Will participate in governance

Diverse membership strengthens cooperatives. Seek people of different backgrounds, ages, and experiences.

Capital Requirements

Cooperatives need capital for:

Startup costs
Working capital (operating expenses until revenue flows)
Member buy-in (often collected over time)
Emergency reserves

Financing Sources

Member Equity:

Membership fees and buy-ins
Retained patronage (members agree to leave some profits in the business)
Preferred shares (non-voting shares that pay dividends)

Debt Financing:

Credit unions (cooperative lenders)
Community development financial institutions (CDFIs)
Cooperative-specific lenders like CoBank
Traditional banks (some have cooperative programs)
SBA loans

Grants and Subsidies:

Foundation grants
Government economic development programs
Cooperative-specific grant programs

Creative Financing:

Community bonds (community members lend to the cooperative)
Crowdfunding
Pre-sales to future members
In-kind contributions (equipment, space, services)

Real Example: The Cheese Board Collective

The Cheese Board in Berkeley, California, started in 1967 with a small group of workers. They financed growth through retained earnings and member contributions. Each new worker buys a share over time through payroll deduction. The collective has never taken outside investment. They own their building and have expanded to include a bakery and pizza shop.

Step 5: Legal Formation

Now you make the cooperative official.

Choose a Legal Structure

Options include:

Cooperative Corporation:

Specific cooperative statute in your state
Clear legal framework for democratic governance
Patronage dividend tax treatment

Limited Liability Company (LLC):

Flexible operating agreement
Can specify democratic governance
Pass-through taxation

Other Structures:

Some cooperatives incorporate as nonprofits (less common)
Some use hybrid structures

Consult with a lawyer experienced in cooperatives. Many states have cooperative development centers that provide low-cost legal assistance.

Draft Bylaws

Bylaws are the cooperative's rulebook. They specify:

Membership requirements and rights
Voting procedures
Board structure and elections
Meeting requirements
Profit distribution
Amendment procedures

Use model bylaws as a starting point. Adapt them to your needs. The US Federation of Worker Cooperatives and NCBA offer templates.

File Formation Documents

File articles of incorporation with your state. Pay filing fees. Obtain an Employer Identification Number (EIN) from the IRS.

Draft Operating Agreements

Create agreements that govern operations:

Membership agreements
Employment agreements (for worker co-ops)
Board policies
Financial policies
Conflict resolution procedures

Step 6: Set Up Operations

With legal formation complete, prepare to open.

Physical Setup

Secure and prepare your location
Purchase equipment and supplies
Set up utilities and services
Install necessary technology (POS systems, computers, phones)

Systems and Processes

Develop systems for:

Bookkeeping and accounting
Payroll (if applicable)
Inventory management
Customer service
Quality control
Health and safety

Hiring and Training

If you are a worker cooperative, all workers are members. But you may need to hire before all workers become members.

Develop training programs that cover:

Job skills
Cooperative principles and governance
Financial literacy
Decision-making processes

Marketing and Outreach

Build awareness before opening:

Create a website and social media presence
Reach out to potential members and customers
Engage local media
Host open houses or preview events
Build an email list

Step 7: Open and Iterate

You are ready to open. But your work is just beginning.

Grand Opening

Make your opening an event. Invite members, supporters, media, and community leaders. Celebrate the achievement. This builds momentum and awareness.

Monitor and Adjust

Track key metrics:

Membership numbers
Revenue and expenses
Customer satisfaction
Member engagement
Cash flow

Hold regular member meetings. Review performance. Make adjustments based on feedback and data.

Build Cooperative Culture

The hardest part of running a cooperative is not the business; it is the democracy. Build habits of:

Transparent communication
Inclusive decision-making
Constructive conflict resolution
Shared responsibility
Continuous learning

Celebrate successes together. Face challenges together. This is how cooperatives endure.

Common Obstacles and Solutions

Obstacle: Not enough interest

Solution: Narrow your focus. Start smaller. A buying club can grow into a store. A small worker co-op can expand. Prove the concept first.

Obstacle: Cannot raise enough capital

Solution: Reduce startup costs. Start from home. Use shared space. Phase in equipment purchases. Seek patient capital from community lenders.

Obstacle: Lack of business skills

Solution: Partner with experienced advisors. Join cooperative networks for peer learning. Invest in training. Hire consultants for specific needs.

Obstacle: Decision-making takes too long

Solution: Delegate operational decisions to managers or teams. Reserve member votes for major decisions. Use consent decision-making (object-based) rather than consensus for efficiency.

Obstacle: Member apathy

Solution: Make participation meaningful and manageable. Rotate responsibilities. Provide training. Celebrate contributions. Keep meetings focused and productive.

Get Started: Your Action Plan

If you want to start a cooperative, begin today with these concrete steps:

Week 1-2:

Identify the need you want to address
Talk to 10 potential members or customers
Research existing solutions and competitors

Week 3-4:

Host an informational meeting
Identify a core group of 5-10 people
Assign research tasks to core group members

Month 2:

Complete feasibility research
Draft initial business plan
Estimate capital needs

Month 3:

Refine business plan with feedback
Begin member recruitment
Contact cooperative development center for assistance

Month 4-6:

Secure financing commitments
Complete legal formation
Set up operations

Month 6-12:

Open for business
Monitor and adjust
Build cooperative culture

Resources

Technical Assistance:

Cooperative Development Institute: cd.coop
Democracy at Work Institute: datus.coop
State cooperative development centers (search "cooperative development center" plus your state)

Financing:

National Cooperative Bank: ncb.coop
CoBank: cobank.com (agricultural cooperatives)
Local credit unions and CDFIs

Legal:

US Federation of Worker Cooperatives legal resources: usfwc.coop
NCBA legal resources: ncba.coop

Education:

Cooperative Development Institute training programs
Worker Coop Academy (online courses)
"The Cooperative Starter" guide from NCBA

Closing: Start Before You Are Ready

You will never feel completely ready. The business plan will not be perfect. The membership will not be complete. The financing will not be secure.

Start anyway.

Cooperatives are built by people who decided to begin. They learned by doing. They adjusted course. They persisted.

Your community needs the cooperative you envision. The people who will benefit are waiting. The time is now.

The next article covers worker cooperatives in depth. We will explore how workers can own their workplaces, make decisions together, and build businesses that serve them instead of extracting from them.

For now, take the first step. Talk to one person about your idea. Then talk to another. The cooperative will emerge from these conversations.

Build the new world. One cooperative at a time.