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Abstract
This publication reviews the key elements needed for successful formation and
development of new cooperative businesses. The motivation for and process of forming
cooperatives are discussed. Six phases of cooperative formation are presented including: 1)
identifying the opportunity, 2) building consensus on the potential for a cooperative, 3)
developing trust among potential members, 4) securing member commitment, 5) involving other
stakeholders, and 6) starting up the cooperative enterprise. The roles and selection of qualified
advisors are presented for each phase.
Potential obstacles to successful cooperative start-up are presented for each of the six
phases of cooperative formation. Pitfalls in cooperative development can include: a lack of
agreement on the economic problem to be addressed, a cooperative business approach that is not
appropriate for addressing the identified problem, other organizational options are more viable
than forming a cooperative, a limited understanding the of the responsibilities of directors and
members, a lack of qualified leaders, poor feasibility analysis, unrealistic member expectations,
the inability to discipline members who are not meeting responsibilities, a shortage of member
business volume, inadequate business planning, insufficient member equity investment,
ineffective pricing policies, a poorly designed governance structure, an underpaid or unqualified
manager, ineffective board of directors, poor quality of products or services, and overall industry
weaknesses.
Common causes of new cooperative failures are reviewed. Common causes of start-up
business failures can apply to cooperatives as well, such as: economic factors, financial issues,
lack of management experience, strategy causes, neglect, disaster and fraud. Some potential
cases of failure more specific to cooperatives can include: starting from a defensive strategic
position, a limited choice of goods and services to offer, accounts collection or payment issues
with members, an inability to raise capital from members, or the ineffective of succession of
leaders or managers.
Key ingredients for successful start-up are discussed. Two basic conditions must be
present for successful formation. First, there must be a joint recognition of a common economic
problem by the potential members and initial leaders. The second condition is that the proposed
cooperative enterprise must be more effective at performing the hoped for services better than
the prospective members can individually. The required leadership must spend the time
exploring the potential for the new organization and providing the necessary vision. Leaders are
the driving force in cooperative development. They achieve compromise among key
stakeholders, overcome the potential barriers, and see the process through to completion.
Consequently, it is essential that any cooperative effort have effective leadership.
Lessons from recent start-ups of so-called “New Generation Cooperation” are highlighted
for each of the six phases of new cooperative development. Lists of cooperative development
resources, websites, and publications are presented.