How Do Co-Ops Work? (Frequently Asked Questions)

How Do Co-Ops Work? (Frequently Asked Questions)
RMEOC
July 9, 2021

Employee ownership is an effective strategy for business owners wanting to pass along a business they’ve been building for a long time to the people who have the most at stake.

But even if you’re already familiar with the types of employee ownership you might be curious about whether a worker cooperative would work for you.

To help you fill in the gaps, we sat down with Ashley Ortiz — former worker-owner at Arizmendi Bakery, co-founder of the L.A. Co-Op Lab, and current Technical Assistance Specialist at RMEOC — to answer some frequently asked questions about worker cooperatives.

Note: We help businesses at every stage of their journey with employee ownership — whether you simply want to learn more or are ready to convert. Schedule a free consultation to talk to one of our specialists (like Ashley!) today.

Who owns a worker co-op?

In a worker co-op, the people who work there own the business equally. That means everyone has an equal say in how the business is run (“one member, one vote”), and everyone shares equitably in the profit.

Equitable profit sharing doesn’t mean that everyone gets an equal amount of money. Instead, co-op members receive a “patronage share” that’s typically based on hours worked or some other collective agreement.

Why are co-ops important?

Employee ownership, and worker cooperatives in particular, are an incredible tool to support healthy community development. In this era of inequality, it’s both motivating and empowering for business owners to share both wealth and democratic control.

Teaching people how to have a voice and be confident in their perspective within the workplace can have a positive effect in the rest of their life and community. We live in a democracy, yet many people spend 40-60 hours a week in a job where they don’t really have a say.

I think there’s good potential to cultivate the heart of a democratic society within a business. When people become empowered in their workplace it not only benefits the business; workers will also bring that voice and new knowledge back out into their community, and it can have a positive impact more broadly. People will go back out into their communities with that voice and that understanding that they matter in a different way.

What are the benefits of a worker cooperative?

When everyone working in a co-op feels like they have a stake, so many markers can change.

People come to work more invested, they often stay in the company longer, they’re connected more deeply to the work they do day-to-day, and with patronage, they may be able to stay in that job longer and grow with it because they are more financially secure.

The dynamic environment of a cooperative also allows people to do more than just one role. They can shift around and learn new things.

If they want to learn about finance in addition to the work they’re doing or engage with marketing, they can do that. Any aspect of the business that workers take on collectively can be a means of adding another exciting piece to the continual growth of being there.

People generally work harder, faster, and they’re often healthier because they’re in a healthier state of mind. When people have control over their day-to-day environment, they can make healthier choices that fit a more sustainable lifestyle. Work becomes part of that.

All of these things tend to make businesses do better.

One last thing is that, within five months of being an owner [at Arizmendi Bakery], I was able to leave for a week and take a vacation. When you’ve run a business on your own before, the thought of that may be impossible.

To know that every other person cared as much as I did about the business is really something unique. In a co-op, you have the benefit of having ownership, and you also have the benefit of being able to do the other things in life that can allow for a good balance because you share the burden and those benefits with other people.

Do worker cooperatives have shareholders? What about a board?

There are lots of different structures for co-ops. Oftentimes, the workers are the sole shareholders.

In Colorado and other places, however, there are different types of co-ops where investors are allowed to be members, and you can define different classes of ownership that have different rights to the voting or profits.

In that way, co-ops are really dynamic. They can be as simple as “one member, one vote,” or they can be adapted to a lot of different industries and ways of bringing in capital from outside.

The essence of a worker cooperative is that the people who work there have the majority say in how the company is run. The beautiful part about a co-op is that it has lots of different ways to manifest a pretty broad spectrum of visions.

All co-ops do have a board of directors, but whether everyone is on it is up to the members of that co-op. All 10 worker-owners can be on the board, or they could elect a subsection of those members to rotate over a certain term limit.

How many employees does a co-op have? Are they better for certain sizes of business more than others?

Worker cooperatives are really flexible and can work for most businesses of 3+ people.

Larger businesses need more structure to be able to maneuver quickly and effectively as a company, but right now the largest cooperative in the U.S. has around 2,000 people and operates successfully and competitively.

If you look outside the United States., there are whole networks of multinational cooperative businesses. One in Mondragón, Spain, has upwards of 70,000 worker-owners. They come together and make various one-worker, one-vote decisions within their companies and also as a whole network through a General Assembly.

There’s also multiple kinds of online platform cooperatives like Stocksy that are leveraging virtual decision-making tools to make people all over the world co-op owners.

When might cooperatives NOT be the right fit for a business?

Employee ownership isn’t for everyone, and co-ops aren’t going to work if the employees aren’t interested in having ownership.

Cooperatives in particular are great for a lot of people and organizations, but not a good fit for some. They require a different way of thinking about work and wanting to engage in a different way. The key is that it has to come from the motivation of the employees that work there.

How do I know if I’m ready to set up a worker cooperative?

It’s important to remember that you don’t need to be “ready” before you begin exploring a cooperative structure.

Many of us grow up without any real concept that a cooperative is even possible. Few employees would be ready to become owners simply because the concept was presented to them.

Becoming an owner does take education, but so many people out there are incredibly creative, they already have an ownership mindset, and they simply haven’t been given that opportunity.

Even if some people don’t have it to begin with, an entrepreneurial mindset can be learned in the place people are already working.

With just the seed of the idea, you see people who might not have ever thought of themselves as an owner completely change into that role and learn how to govern a business.

Employee ownership is like adding one layer to your business. The business itself has to stay the same and be successful at whatever it does — but now everyone also has to commit to additional learning about things like governance versus management, how to read enough of a basic financial statement to make good decisions, etcetera.

Not everyone has to specialize in every part of the co-op. But everyone does have to be willing to understand it enough so they can make informed decisions their co-workers can trust.

What was the most meaningful part of being in a co-op for you?

Watching the other co-owners interact with customers was an amazing shift from owning my own business before.

I would watch every person that I worked with engage with customers as an owner — with so much care. It was fun to watch customers’ faces when they would realize every person at the counter was an owner.

You don’t normally see the owner of a traditional business ringing customers up for a cinnamon roll, so it starts to break down these concepts that we have and helps customers realize that lots of people are capable of ownership.

There are so many positives for not only that person individually who becomes an owner, but also for the whole community.

***

Join our email list to get more articles like this delivered straight to your inbox.

We help businesses at every stage of their journey with employee ownership — whether you simply want to learn more or are ready to convert. Schedule a free consultation to talk to one of our specialists (like Ashley!) today.