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Ned Uganda >> How to Start a Cooperative
Posted to: <Ned> Uganda by Mark Grimes (181), Thu, 20 Sep 2007 08:24:32 PDT
Edited: Thu, 20 Sep 2007 09:03:46 PDT
Feedback score: 0 +|-
Tags: cooperatives coops lifeinafrica <ned> transition uganda
Comments: 102 by 18 members
Viewed: 1085 times by 47 members
OK, given feedback from Christina, Evvy and Linda (per their request) here is detailed information related to coops, how they are formed, how they best work, how they don't work, and general guidelines and practical information. Whereas before there may have been a case of "not enough information" I hope this now is not a case of "too much information." It seems like a good place to start.
Cooperatives worldwide generally operate using the same principles as adopted in 1995 by the International Cooperative Alliance. The principles are part of a cooperative statement of identity which also includes the definition of a cooperative and a list of cooperative values.
Definition: A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.
Values: Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others.
Principles
- Voluntary and Open Membership — Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
- Democratic Member Control — Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives, members have equal voting rights (one member, one vote) and cooperatives at other levels are organized in a democratic manner.
- Member Economic Participation — Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. They usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.
- Autonomy and Independence — Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.
- Education, Training and Information — Cooperatives provide education and training for their members, elected representatives, managers and employees so they can contribute effectively to the development of their cooperatives. They inform the general public — particularly young people and opinion leaders — about the nature and benefits of cooperation.
- Cooperation among Cooperatives — Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
- Concern for Community — While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members.
Worker-owned Cooperatives
Worker cooperatives are businesses that are owned and democratically governed by their employees. They operate in numerous industries, including childcare, commercial and residential cleaning, food service, healthcare, technology, consumer retail and services, manufacturing, wholesaling and many others. Some 300 worker co-ops throughout the U.S. provide their employees with both jobs and ownership—allowing them to directly benefit from the financial success of the business.
Democratic Governance
Like other cooperatives, the board of directors for a worker co-op is elected by, and from within, its membership-in this case, the workers. The board is always majority controlled by the workers, though some worker co-ops have outside directors and advisors serving on their boards.
Management structures of worker co-ops vary greatly, depending on the desires of the members. Some worker co-ops use a traditional, management hierarchy, while others use more flat management systems that allow employees to be more directly involved in management decisions. Others use a team-based system that employs elements of both traditional and open management systems.
Profits and Wages
Each year, worker co-ops return profits not needed for reinvestment in the business, to their worker-owners in the form of patronage dividends. Dividends are typically distributed based on management position, hours worked, salary and/or seniority.
Similarly, pay structures vary greatly. Some worker co-ops use a traditional, seniority- and skill-based pay scale. At the other end of the spectrum are worker co-ops that pay all workers the same wage.
Joining a Worker Co-op
Typically, workers may join their co-op after a probationary period lasting from a few months to more than a year. At that time, workers are allowed to buy an equity share in the business—the cost of which is usually deducted from their paychecks in small amounts each month. In some cases, existing worker-owners may vote on whether to accept the new member as a co-owner. When workers leave the co-op, their equity share is returned to them.
Elements of Success
A successful cooperative has committed members and effective leadership. In addition, starting a cooperative requires a great deal of time, energy, and technical resources. The recognition of a common need which the cooperative can fulfill is key to the success of the cooperative.
To ensure success, members must actively participate in their cooperative. Members have the responsibility to finance the cooperative and use its services. Critical to the success of the cooperative is the members' willingness to provide an initial investment for start-up costs, to permit the retention of earnings so that the cooperative may grow, and to provide prompt payment of bills due the cooperative.
Strong and effective management is also a key to the success of the cooperative. Good board/manager relations are also critical. As noted, the board is responsible for establishing policy and the manager carries it out. The board and management must recognize and respect their different roles and work together for the good of the cooperative.
Benefits
Belonging to a cooperative can be the key to prosperity and even survival for many small businesses. Throughout history, cooperatives have been innovators and pacesetters, and this is just as true of a purchasing/shared services cooperative as any other. Members of these cooperatives have found that they can adapt quickly to changing economic conditions rather than become victims of them. Through these cooperatives, businesses and public entities have found they can reduce costs, respond better to competition, and improve overall performance.
USA Co-op Statistics
- 29 cooperatives have annual revenue in excess of $1 billion, including such well-known names as Land O'Lakes, Inc., and ACE Hardware. The top 100 co-ops have a combined $117 billion in revenues.
- Cooperatives range in size from large enterprises, including U.S. Fortune 500 companies, to single, small local storefronts.
- 270 telephone cooperatives provide service to two million households.
- Some 250 purchasing cooperatives offer group buying and shared services to more than 50,000 independents businesses.
- Nearly 10,000 U.S. credit unions have 84 million members and assets in excess of $600 billion.
- Cooperatives operate in every industry including agriculture, childcare, energy, financial services, food retailing and distribution, health care, insurance, housing, purchasing and shared services, telecommunications, and others.
- About 30 percent of farmers' products in the U.S. are marketed through more than 3,000 farmer-owned cooperatives.
- Approximately 900 rural electric cooperatives own and maintain nearly half of the electric distribution lines in the U. S., cover 75 percent of the land mass and provide electricity to 37 million people.
- More than 1,000 mutual insurance companies, with more than $80 billion in net written premiums, are owned by their policyholders.
- More than 6,400 housing cooperatives provide homes for 1.5 million households.
- U.S. co-ops serve some 120 million members, or 4 in 10 Americans.
— Statistics gathered from various sources as of March 2005.
Lessons for Success
The following tips for cooperative success are adapted from articles printed in the NCBA Cooperative Business Journal and the U.S. Department of Agriculture's magazine for cooperative businesses.
Why Cooperatives Fail
- Poor selection of directors, especially those who fail to support their cooperative
- Members who join but never use their cooperative and bypass it for a small gain elsewhere
- Members who use cooperatives but fail to take responsibility. Each member must be ready to accept responsibility when asked, or as the need arises. Every member should have an equal opportunity to be president of the cooperative.
- Members who never ask questions and who let a few persons make policy
- Members who don't attend annual meetings and directors who fail to attend board meetings
- Lack of consistent membership education about the problems cooperatives face and the challenges they must meet
- Not supporting the cooperative with enough money (risk capital) to get the job done
- Low-cost management - it's the most expensive item for a cooperative. High-priced management is usually the least expensive item.
- Not closely watching the formation of cliques and special interest groups within the cooperative
- Concealing facts about a cooperative. All facts, both good and bad, should be placed on - not under - the table.
- Errors in financial policy, such as over-extension of credit, too little capital, poor accounting records, lack of a financially sound, systematic program for reimbursement of equity
- Errors in educational and social work. This begins by failing to teach cooperative ideals to members unfamiliar with how cooperatives function, neglecting general educational programs, failure to develop member loyalty or countering the development of factions within the association.
- Management errors, such as inadequate inventory, poor location, improper equipment, neglected appearance of physical facilities, employee dishonesty, ineffective management, incompetent directors, nepotism, poorly conducted meetings, admittance of disloyal and dissatisfied members.
Why Cooperatives Thrive
- Providing only the goods and services members use
- Financed by the members. The greater the financing (risk capital) supplied by the members, the more efficient the cooperative.
- Using all major fixed assets at the 75 percent level, or more members who do the majority of their business with the cooperative
- Low administrative and overhead costs
- More individualized and specialized services, particularly in the marketing area
- Maintaining an open line of communication with members. Individual members will then become more influential
- Selecting and developing a quality management team.
- Placing more emphasis on electing business-oriented directors
- Developing and implementing a systematic method of cooperative education for members, employees, directors and paid management
- Aggressively positioning for changes in operations, markets and member needs.
How to Start a Cooperative
- Hold a meeting of leading persons to discuss a need that forming a cooperative might meet.
- Hold an exploratory meeting of interested persons. Vote whether to continue. If affirmative, select a steering committee.
- Conduct a survey to determine cooperative feasibility.
- Hold a second general meeting to discuss the survey results. Vote on whether to proceed.
- Conduct a market or supply and cost analysis.
- Hold a third general meeting to discuss the results of the market or supply and cost analysis. Vote by secret ballot on whether to proceed.
- Conduct a financial analysis and develop a business plan.
- Hold a fourth general meeting to hear results of the financial analysis.
- Vote on whether to proceed. If affirmative vote on whether the steering committee should remain intact or whether changes should be made.
- Draw up necessary legal papers and incorporate.
- Call a meeting of all potential charter members to adopt the bylaws. Elect a board of directors.
- Call the first meeting of the board of directors and elect officers. Assign responsibilities to implement the business plan.
- Conduct a membership drive.
- Acquire capital - develop a loan application package.
- Hire a manager
- Acquire facilities
- Start up operations.
The primary organizational documents for cooperatives are the Articles of Incorporation and the Bylaws. Other legal documents may include the membership application and membership certificate.
The Articles of Incorporation state the kind and scope of the cooperative business. Often broad operating authority is stated even though services may be limited at the beginning. The articles usually contain the following:
- Name of the cooperative
- Principle place of business
- Purposes and powers of the cooperative
- Proposed duration of the cooperative
- Names of the incorporators
- A provision for redemption of member equity although sometimes this is in the bylaws
The Bylaws state the rights and obligations of the cooperative's board of directors and members and guide the day-to-day operations of the cooperative. The bylaws usually specify the following:
- Requirements for membership
- Rights and responsibilities of members
- Grounds and procedures for member expulsion
- Procedures for calling and conducting membership meetings
- Voting procedures
- Procedures to elect or remove directors and officers the number, duties, terms of office, and compensation of directors and officers
- Time and place of the directors meetings
- Dates of the fiscal year
- Information on how the net earnings will be distributed
- Other rules for management of the cooperative
Grace. George. Munnu. Teopista. Peter. Robert. Any and all Ugandan based members, this is the time to jump in and ask questions. Ask specifics. Offer ideas. Dig for clarification. Please realize there's no such thing as a bad question. It may well be too that some questions don't have answers yet...and that's okay too.
Comments page 1
By Mark Grimes (181), Thu, 20 Sep 2007 11:47:08 PDT
Comment feedback score: 0 +|-
You bet. I hope this more detailed information can allow Ugandan members to look at the coop structure and start to have a deeper overall understanding.
I'm also attempting to draw in some real world coop experience from members with coops based in Portland:
http://www.albertagrocery.coop/ - grocery coop
http://freegeek.org/ - technolgy coop
http://www.redandblackcafe.com/ - café coop
http://www.citybikes.coop/ - biking coop
http://trilliumhollow.org/ - housing coop
http://www.equalexchange.com/ - coffee farmer coop
Also have a call out to a national coop organization in DC that might be able to offer some guidance as well.
topBy Evvy Bryning (117), Thu, 20 Sep 2007 14:46:06 PDT
Comment feedback score: 0 +|-
Hi Mark,
Thank you for putting all this up. It is a lot of information on coops in general and I am sure will be helpful in the organization.
My questions though are not about coops in general but about NeD coops.
What requirements must be met to be a NedCoop
What resources will a NedCoop have access to
How is being a NedCoop better than just being a coop
What leadership or guidance will be available to the coop
What type of reporting will be required if any
What is the advantage to Ned in organizing these coops
Our communities have been operating on the premise of doing income generation that benefit anyone who wants to participate. How does your plan of forming small groups to start businesses promote that?
If say Gulu has 200 members, how does the coop include all the members or benefit them? Perhaps I am missing something but if we are only going to sponsor groups of 3-5 to start businesses, I just don't see where the coop fits in. Seems to me we will just have a lot of individual businesses that only benefit the small groups.
It would also seem to me that a lot of the community will be left out in the cold because of numeracy and literacy challenges. What is the benefit to them to be in a such a coop if they will not be able to compete for a business?
These are just some of my questions and concerns. I am not disagreeing with the coop at all, I just need some clarification on how this will all work in Africa. Hope you understand.
By Mark Grimes (181), Thu, 20 Sep 2007 16:57:21 PDT
Comment feedback score: 1 (*) +|-
>>What requirements must be met to be a NedCoop<<
A trusted sponsor/individual willing to give approval of a group that desires to become a coop. The approval of the Ned board of advisors. That the group adheres to the 7 basic principals of cooperatives. The desire to work hard, work smart, be open to change, trying new things, and explore new ideas.
>>What resources will a NedCoop have access to<<
Financial support via investment funds, sponsor funds, donations, loans and other various financial instruments. Online tools as needed including private groups, ned.com email addresses, and other advanced web site features. Access to groups of professionals that offer cogent advice and help guide different various business models.
>>How is being a NedCoop better than just being a coop<<
I know franchising is a different concept for most parts of Africa. As over time people come to recognize Ned as the global brand, each location will get extra revenue as a rising tide lifts all boats. As ned/Portland/licensee sets up an eco-tour to ned/Uganda/Kampala there is one direct benefit. As ned/Portland/licensee highlights the 1-2 imported items from each of its overseas coop partners, increases sales will benefit each coop. As one coop develops a new working model and introduces it to a system of coop, they will also benefit with a greater financial reward from introducing the model to the overall group (and helping guide others when needed).
>>What leadership or guidance will be available to the coop<<
Online, email, phone and FTF. I strongly prefer the terms partnership and guidance to leadership. Each person has the capacity to be a leader within their own coop, within their own business unit of 3-5 people. The guidance will grow as an experienced network of real world physical locations grows as well. For instance, once the liquid soap team is up running and profitable in Gulu and Kampala they can franchise/teach a coop in Lesotho to do the same thing...and earn a little more income in doing so. Guidance in models. Guidance in financing. Guidance in governance. Guidance in research. Guidance in branding. Guidance in finding solutions.
>>What type of reporting will be required if any<<
Open and clear communications when there are problems, sharing ideas, or anything that is almost everything that requires a quick feedback loop. 100% transparent business operations, financially and operationally.
Regular daily/weekly updating of progress at ned.com via written posts and photographs by all participating team members (assuming decent connectivity).
Entrepreneurial drive and team collaboration with the understanding each coop member needs to work hard and creatively to make this work best for everyone. The ability to scale up success, and try to understand when and why something did not work out, learning from mistakes/failure is a very valuable thing.
Weekly real world meetings with short written reports of actions and accomplishments from the previous week, and actions, accomplishments and goals in the week ahead to be reported on at the next meeting. Heavy emphasis on sales, marketing and current revenue earning products and services.
A brief written business plan model template for other Ned locations to use to help launch their various models and connecting with other locations online to offer guidance when experience permits.
Written timelines, milestones, & concrete measurable objectives, and team members who agree on specific tasks towards their achievement.
>>What is the advantage to Ned in organizing these coops<<
Connecting four coops per each one licensee location is hardcoded into the base of the model. Each Ned/licensee in essence acts as importer to the 4-8 items that are created at its sister-city coop. In essence the distribution chain is about as flat as it can be where someone in Portland can get online after having seen a bracelet in the store and meet the person that made it in Uganda. Flat, flat, flat.
>>Our communities have been operating on the premise of doing income generation that benefit anyone who wants to participate. How does your plan of forming small groups to start businesses promote that? If say Gulu has 200 members, how does the coop include all the members or benefit them? Perhaps I am missing something but if we are only going to sponsor groups of 3-5 to start businesses, I just don't see where the coop fits in. Seems to me we will just have a lot of individual businesses that only benefit the small groups.<<
Well, that's the reason Christina has thousands of dollars of unsold merchandise in her garage for one thing. Coops can and should be open to everyone, but in order to scale each business unit, be it 3 people, 10 or 200 must be profitable. If everyone that wants to participates (on the revenue side), what happens if 2,000 people show up? The marketing, sales, and revenue generating arm was never really developed and that is just crucial to any business model. The revenue from each business unit feeds back into the overall coop and no one is then to dependent on all 100 people making one thing for one org. Eggs in one basket, and all. Biz units of 3 or 5 can surely grow...as demand (sales) grows. If demand slows for one local product (candles), team members could then flip to another product (soap) where then demand would be growing.
I know there was concern with the 3-5 business unit idea. That's just a good business unit size to give a 3 months trial for a new product or service. If liquid soap takes 10 people, that's fine too. Again, flexibility is an important trait for all biz unit members. The only thing that is constant is change...and nothing is written in stone. That is the ambiguous place a successful business lives. Open to new ideas. Trying things with a quick feedback loop and changing the course as things move forward.
>>It would also seem to me that a lot of the community will be left out in the cold because of numeracy and literacy challenges. What is the benefit to them to be in a such a coop if they will not be able to compete for a business?<<
Well, perhaps there is some level of literacy and numeracy training that can be done online within the ned.com framework. I'm not a teacher, but I suspect we could find people that might be very interested in making those kind of connections. Perhaps we can find 4th year teaching students in college and have them make this a piece of their coursework.
Also, there is a social team component of this as well. If you look at the right side of the coop flowchart. The social teams also earn revenue for taking leadership in tackling local problems they themselves want to focus on. So those that may want to focus on a local environmental issue, or education or health...can also work in small paid teams...financed by sales from the biz side of the coop.
>>These are just some of my questions and concerns. I am not disagreeing with the coop at all, I just need some clarification on how this will all work in Africa. Hope you understand.<<
Evvy. Seriously...these questions are all great! Having built a handful of businesses one thing I can tell you for sure. I don't know everything for sure...not by a long-shot. But early indications are much of this model is making some pretty interesting people sit up and take notice. I know I can go big picture and talk about 250,000 locations in 25 years, or go granular and talk about a dozen measurable objectives over the next 15 months. We can drill down as much as possible, build out ideas, and discuss further. We can also fund a small handful of 3-5 person business units with 400,000 shillings in working capital once the 2-3 page business plan is together and a team to work it...ASAP.
Now as much as questions from everyone is important (Evvy, Christina, and Linda) it would be great if there were much more active participation here from Grace, Munnu, Teopista, George, Peter and others.
By Mark Grimes (181), Thu, 20 Sep 2007 16:58:03 PDT
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By Ndelo Peter (85), Fri, 21 Sep 2007 04:08:51 PDT
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By denis okello (4), Fri, 21 Sep 2007 06:31:43 PDT
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By Evvy Bryning (117), Fri, 21 Sep 2007 06:49:16 PDT
Comment feedback score: 1 (*) +|-
I have a couple of more questions. Please bear with me as I get my brain around all this.
As a NeD Coop will they be able to participate in other programs that are not NeD related to generate income, get financing, etc.? In other words, are there any restrictions?
Over in the soap thread we decided we were ready to go ahead and the question came up "what about the Ned Coop". It was not said but I got the feeling we were doing something wrong. What exactly were we doing there that did not fit in with the NeD Coop idea?
Who will decide what projects get funded? Will it just be the NeD Board or will the NeD members here on line have a say in that decision?
The 10% that goes back into the fund for future projects, who manages that. Does it go back to NeD or is it held in reserve in Uganda to be dispersed by NeD?
If 10% goes back for projects and the rest goes to the businesses, how do we structure the coop so there is money for rent, electricity, salaries etc? Is this part totally up to the Coop are are there guidelines or ideas for this that I have just missed?
By Mark Grimes (181), Fri, 21 Sep 2007 08:21:28 PDT
Edited: Fri, 21 Sep 2007 08:21:59 PDT
Comment feedback score: 0 +|-
Peter, Denis and everyone following along. I would also recommend downloading these two one page flow charts. The two picture/diagrams offer a deal of insight into the structure as well.
>>As a NeD Coop will they be able to participate in other programs that are not NeD related to generate income, get financing, etc.? In other words, are there any restrictions?<<
No restrictions I can think of that the moment. Sure someone can get financing thru Kiva and do their own thing. I hope that when people, ideas, infrastructure, resources, are all pooled together everyone gets to make more money being a part of the coop. One thing that would not be cool is if a business unit funded within the coop "broke off" and left the coop and took the business model outside to be run independently.
>>Over in the soap thread we decided we were ready to go ahead and the question came up "what about the Ned Coop". It was not said but I got the feeling we were doing something wrong. What exactly were we doing there that did not fit in with the NeD Coop idea?<<
I don’t know. To me it is totally a Ned/Uganda idea. So it's starting with 10 people instead of 3-5...not big deal. I assume come 12/1 that would be one of the business units within the coop.
>>Who will decide what projects get funded? Will it just be the NeD Board or will the NeD members here on line have a say in that decision?<<
Ned board and members all have a say in the acceptance of a new Ned Coop at the highest level. But when it comes to the product and service mix within a coop, the local coop members must decide what they think they have the capacity to do, the resources to do, and the sales and marketing efforts to make it profitable in 30-90 days. I'm sure all ned.com members would love to offer ideas and help when and where they can.
>>The 10% that goes back into the fund for future projects, who manages that. Does it go back to NeD or is it held in reserve in Uganda to be dispersed by NeD?<<
Open financial transparency at the local Ned/Uganda locations manages the funds. Nothing ever comes back to Ned/HQ from a Ned/Uganda/Coop.
>>If 10% goes back for projects and the rest goes to the businesses, how do we structure the coop so there is money for rent, electricity, salaries etc? Is this part totally up to the Coop are are there guidelines or ideas for this that I have just missed?<<
That needs be fixed into the gross product/service price. Some products and services will of course generate more revenue than others. Some may generate less gross revenue, but be near 100% margin so add more to the bottom line. Rent, power, salaries (with increased profit sharing, see the flow charts) are all part of the regular cost of doing business. Once members start to see other business units flourish and add more revenue to the overall the 10% will grow...as more units grow...going more and more ability to fund more and more businesses, making everything more stable.
edit: fixed links
By Evvy Bryning (117), Fri, 21 Sep 2007 08:41:25 PDT
Comment feedback score: 0 +|-
Thanks Mark, I am starting to get the gist of this, I think.
This one is still a bit confusing to me.
>>If 10% goes back for projects and the rest goes to the businesses, how do we structure the coop so there is money for rent, electricity, salaries etc? Is this part totally up to the Coop are are there guidelines or ideas for this that I have just missed?<<
That needs be fixed into the gross product/service price. Some products and services will of course generate more revenue than others. Some may generate less gross revenue, but be near 100% margin so add more to the bottom line. Rent, power, salaries (with increased profit sharing, see the flow charts) are all part of the regular cost of doing business. Once members start to see other business units flourish and add more revenue to the overall the 10% will grow...as more units grow...going more and more ability to fund more and more businesses, making everything more stable.
Are you saying that part of the 10% can be used for operating expenses or am I misunderstanding. Or is the 10% only for future project funding? Just need a little more elaboration on the use of the 10%.
Or are you saying that the organzational funds will come from the other 90% as a share of the profits when you say they should be built into the price of the product.
By Mark Grimes (181), Fri, 21 Sep 2007 14:54:32 PDT
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10% of gross sales goes into a funding pool for new enteprises, not operational for current projects...that needs to be factored in and paid out of the remaining 90%
Think of is as R&D...or instead of loan repayments. Like a pooled investment fund the Ugandan members get to figure out what to invest in for the next 3-5 person business unit(s).
By Evvy Bryning (117), Fri, 21 Sep 2007 17:17:19 PDT
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By denis okello (4), Sat, 22 Sep 2007 00:27:00 PDT
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By Linda Nowakowski (189), Sat, 22 Sep 2007 03:28:20 PDT
Comment feedback score: 1 (*) +|-
I think Mark was referring to the 10 people who have signed on to the soap project. That is just a project of the coop, not the coop itself.
Coops are democratic and all members vote. Probably not on every single day-to-day decision and not on the details of how each enterprise will operate but on the overall running of the coop.
There is nothing that says that a member of the coop can't also have their own business. If you, Denis, were a member of the coop and maybe you worked with the internet4change program, that is not to say that you couldn't put together a business plan, apply for a Kiva loan and start your own business outside of the coop. If the coop is the body that will be guaranteeing your loan, it probably wouldn't be very honorable to set up a business competing with an enterprise in the coop...like making liquid soap.
The coop will make decisions on which businesses are associated within the umbrella of the coop. If you had an idea for a coop business you could develop it and pitch it to the community. You would need to develop a business plan and how much it will cost to set up and how much to operate. An estimate of projected income and an idea of how much money you would need to get the business to being sustainable. Then the committee would vote on it. All during that process you would have the help of the coop developing the plan. Maybe it is a service business that wouldn't even require start up money!
Does that help?
By John Berger (32), Sat, 22 Sep 2007 05:02:24 PDT
Edited: Sat, 22 Sep 2007 05:03:29 PDT
Comment feedback score: 0 +|-
This is great stuff. I have been looking at a lot of coops in Asia and many years ago, did some banking work for a large one in the US.
A few points:
Cooperatives worldwide generally operate using the same principles as adopted in 1995 by the International Cooperative Alliance
Ive never heard of that and doubt most international coops have heard of it either.
Voluntary and Open Membership — Cooperatives are voluntary organizations, open to all persons able to use their services
HMM - almost every coop I have ever looked at is closed or selective in membership.
without gender, social, racial, political or religious discrimination
In Asia there are thousands of women only coops, so I dont think this is true.
My point is that the document Mark started with is a very US based view and that there are lots of local variables and law to consider.
One of the best models I have seen in India treats membership like equity. Members at the end of the year have the option of buying more equity. This does not exist in the US models, but is very valuable in India because it provides an exit strategy for venture capital. Coops cant really be sold, or at least not easily, which makes it hard for early stage captial to invest in them. But under this model, venture capital has a slow, but conistant exit strategy as the coop members buy back shares.
I had never even heard of that and I doubt most international coops have either. Law on how to organize a coop varies by country.
By Chris Cook (7), Sat, 22 Sep 2007 07:12:47 PDT
Comment feedback score: 0 +|-
John
This is interesting, and entirely congruent with the "Capital Partnership" funding option I advocate (and which I think Jeff Mowatt has imported from Omidyar) which would use (in the US) an LLC, and elsewhere - eg in the UK, and shortly, India - the "new" variant of Limited Liability Partnership ("LLP") I term an "Open" Corporate because of its completely open nature.
Using this mechanism the entity requiring funding regardless of:
- ownership (Public or Private);
- Aims and Objectives (commercial, social or charitable);
- legal form eg sole trader, partnership,local government, company, whether or not "for profit"; or
- governing principles (eg Cooperative);
may simply opt to share either production (eg energy from a community owned wind turbine) or revenues from the sale of production.
The "units" or "Equity Shares" in such "Capital Partnerships" constitute a simple new asset class, not dissimilar to some new instruments eg Canada's pervasive "Income Trusts"; "Real Estate Investment Trusts" springing up all over the place; "Exchange Traded Funds" invested in commodities and the like, and the new breed of Islamic "sukuks".
What these instruments have in common is that they are "asset-based" ie upon "ownership" of assets and the packaging of their revenues etc into units. As opposed to "deficit-based" finance when credit is created by banks and SECURED against assets owned by someone.
What I am getting to is that I believe that an optimal enterprise model for Cooperatives possibly consists of a "Cooperative" of Investors on the one hand, and a "Cooperative" of users of investment on the other, who share between them the revenues and/or production of a "Co-owned" asset.
In this model, an investor may buy in at early stage by investing (say) $10,000 either in money, or in money's worth (eg land), in return for (say) 10% of the gross revenues. If revenues mutliply 10 times, then his investment multiplies 10 times. If revenues go to zero, the value of his investment goes to zero.
The beauty of the model is that it gets rid of the problem of investing in Companies (whether or not "For Profit") - ie the "Principal/Agency" problem, whereby the management's interests conflict with those of the owners.
Simple but radical, and rapidly emerging in the UK.
Best Regards
Chris Cook
John Berger said:
One of the best models I have seen in India treats membership like equity. Members at the end of the year have the option of buying more equity. This does not exist in the US models, but is very valuable in India because it provides an exit strategy for venture capital. Coops cant really be sold, or at least not easily, which makes it hard for early stage captial to invest in them. But under this model, venture capital has a slow, but conistant exit strategy as the coop members buy back shares.
By Jeff Mowatt (29), Sat, 22 Sep 2007 11:50:23 PDT
Comment feedback score: 0 +|-
Chris wrote:
This is interesting, and entirely congruent with the "Capital Partnership" funding option I advocate (and which I think Jeff Mowatt has imported from Omidyar)
Not yet I haven't Chris, but will do now if it gets sponsorship.
http://www.ned.com/group/open_ca pital/
Outside of this, I wondered about the laws of Uganda and whether they followed the British in the existence of the Industrial and Provident Society acts under which "true" cooperatives are incorporated in the UK.
A few months ago I read that a new form had been added in the UK which created a Community Interest Company version of a cooperative which I think will mean that that the extent to which any cooperative contributes to community benefit other than mutual benefit to membership, might be monitored by a regulatory body.
I'm wondering whether a "true" cooperative will have the flexibility to exist as an international entity, i.e. whether the mutuality aspect might preclude having both overseas investor members and local beneficiary members (assuming that's what is intended) in that this might introduce a two tier membership class which afaics would be against the principles of the cooperative (I think).
From what you've told me about Open Capital partnerships it would be feasible for investor partners to rent capital to members in Uganda in a tax efficient way, even waiving their dividend/reward if desired but then, would the cooperative be prevented from sharing it's profit with non-members by its own rules?
I guess that's one of the reasons for suggesting two "cooperatives"?
It may be that none of these structures exist within local law, and in the longer term perhaps part of the challenge will be to lobby for their creation. Otherwise the Ned organisation, which as I understand it is a franchise, might well need to adopt some cooperative principles within the articles of a conventional business, in the short term.
Whatever the model, there would need to be a cost efficient funds transfer facility available to potential investors. I can illustrate how this deters me from for example, investing in C4-World when I discover a wire transferfrom HSBC would cost me £40 or $80 for the contribution of around $150 they suggest.
By Chris Cook (7), Sat, 22 Sep 2007 13:24:08 PDT
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Hi Jeff
Well, I always think of the good old "Steam Age" Industrial & Provident Society (the very name is nostalgic) that it is essentially a "genetically modified" form of Company which - through its own dedicated UK Act of Parliament - attempted to provide a way of keeping the lid on the conflicts inherent in the "full strength" Limited Company we are so familiar with.
It was taken up by the Cooperative movement for whom it was intended and it's still quite prevalent today eg the Football Supporters' Trust movement. But it's neither fish nor fowl, and frankly doesn't work too well except for the management which tend to "capture" the larger ones.
The "Community Interest Company" was an idea evolved in a wine bar a few years ago by a couple of lawyers I know as a vehicle for "Social Enterprise", but which actually (good for them) got a following wind from government and was enacted into law.
The idea of the CIC was again as a genetically modified company, with limits as to the returns available to investors and, in particular, an "asset lock" to stop assets held "for the community" being sold off.
CIC's are monitored by a dedicated Regulator, not dissimilar to the Charities Commission, but without the staff.
The DTI never could come up with a way of enabling CIC's to raise working capital by borrowing against the "locked" assets and thereby putting them at risk...
Whereas the "Capital Partnership" enables exactly that.
The "Cooperative Principles" - which John Berger is not alone in never having heard of - can be applied to several legal forms, providing the constitutions are properly written.
Essentially it's about the way the business operates rather than its structure, although certain legal forms (eg a limited company) are pretty much de facto not capable of being "Cooperatives" (since control goes with shareholdings as opposed to being "one-member one vote").
This
http://www.opencapital.net/paper s/cooperativecorporates.pdf
paper was submitted years ago to the UK Journal of Cooperative Studies, but was essentially blackballed by a lawyer "referee".
Most of the UK lawyers in the social enterprise field think I'm the anti-Christ, since - being paid by the hour - they have an interest in complexity and conflicts, and the simple, consensual protocols I advocate are anathema to them.
Coming to <Ned>, I would advocate (in fact I think I have!) that they operate on a networked "partnership" basis with local operating partners, all within a global "framework" LLP or LLC. I made the same suggestion to MyC4 when their extremely capable Stephane Le Bouder came over to Scotland to see me to discuss the global regulatory issues.
He "gets" it, I know, but MyC4 are content to operate within tried and tested structures for the time being...which is cool, but of course gives rise to nonsense outcomes like the money transmission costs you mention.
Anyway, I'm busy working on getting pilots started in the Scottish/Nordic area, and it also looks likely that there will be a chunk of Norwegian money going in to Rwanda using the same cross-border structure. But it's early days on that initiative although we have 2.5m NoK promised.
Best Regards
Chris
Jeff Mowatt said:
Chris wrote:
This is interesting, and entirely congruent with the "Capital Partnership" funding option I advocate (and which I think Jeff Mowatt has imported from Omidyar)Not yet I haven't Chris, but will do now if it gets sponsorship.
http://www.ned.com/group/open_ca pital/
Outside of this, I wondered about the laws of Uganda and whether they followed the British in the existence of the Industrial and Provident Society acts under which "true" cooperatives are incorporated in the UK.
A few months ago I read that a new form had been added in the UK which created a Community Interest Company version of a cooperative which I think will mean that that the extent to which any cooperative contributes to community benefit other than mutual benefit to membership, might be monitored by a regulatory body.
I'm wondering whether a "true" cooperative will have the flexibility to exist as an international entity, i.e. whether the mutuality aspect might preclude having both overseas investor members and local beneficiary members (assuming that's what is intended) in that this might introduce a two tier membership class which afaics would be against the principles of the cooperative (I think).
From what you've told me about Open Capital partnerships it would be feasible for investor partners to rent capital to members in Uganda in a tax efficient way, even waiving their dividend/reward if desired but then, would the cooperative be prevented from sharing it's profit with non-members by its own rules?
I guess that's one of the reasons for suggesting two "cooperatives"?
It may be that none of these structures exist within local law, and in the longer term perhaps part of the challenge will be to lobby for their creation. Otherwise the Ned organisation, which as I understand it is a franchise, might well need to adopt some cooperative principles within the articles of a conventional business, in the short term.
Whatever the model, there would need to be a cost efficient funds transfer facility available to potential investors. I can illustrate how this deters me from for example, investing in C4-World when I discover a wire transferfrom HSBC would cost me £40 or $80 for the contribution of around $150 they suggest.
By Christina Jordan (158), Sat, 22 Sep 2007 15:33:05 PDT
Comment feedback score: 1 (*) +|-
Sorry it's taken me a while to get over here and try to digest this all. I am not able to open Mark's pdf files for some reason.
Mark, I thank you for posting this information and your thoughts. I do really wish, however, that since it's so dramatically different than what the LiA community has been to date we would have had this information back in July when we started urgently asking for it. There are many things here that are of pretty big concern in terms of practical doability within the existing communities. Basically it sounds like it would be better for you to start ned Uganda with just a couple of qualified people - not with an existing community of almost 400 members.
First - if I understand this correctly, the only members who can get access to ned funding for their 3-5 person businesses are those that are not only literate, but english literate and computer literate. If that's the case, then 90% of the Life in Africa community will not benefit from becoming ned Uganda.
We have always operated on the principle that a few with the skills to do so could report to the online community on the behalf of the many without - as it is there are not enough computers. If everyone participating in the team or receiving funding has to personally report online daily or even weekly then we will need to realize there will be no opportunity for income from the webcafe. All of the expensive online time will be necessary for ned reporting. Moreover, on local pricing structures, if the internet has to be factored into the cost of production, then all of the products made will be way above local market prices. It is expensive! You will only be able to pay for the internet costs through either selling the time (which won't be available because of all the reporting required), getting donations, or by factoring it into export prices. The local market for goods simply won't bear it.
Also, who decides which businesses get funded and which don't - according to what standard? Are those 3-5 person business units then owned by those 3-5 people, or owned by ned (who is now going to be taking roughly 30%+ off the top to finance new businesses, staff for non-income generating posts and overhead including the internet?) Is it those 3-5 people who make decisions over that coop owned business unit, or is it the Coop members at large who make decisions over that business unit? Or only coop members who have received ned funding to operate businesses? What if some of those people don't pull their weight - then what?
Back at the end of July I was specifically asked by the community whether you (Mark) would want to kick all of them out and reduce their numbers. It was, in fact, the main sticking point about whether or not they should move in this direction. I told them that you were as eager to see them develop according to their own community priorities as I was. I believe I also talked with you about that. Your comments above kind of indicate that I was wrong to reassure the community they could stay together. I sincerely apologize to everyone for misunderstanding that. I honestly never imagined that by becoming nedUganda, all of the community building and unity Life in Africa has achieved would be tossed out the window and the most needy in the community population would be left aside. I am heartbroken to contemplate that.
The Life in Africa community has fought hard as a community to find ways of cooperating with each other on equal terms and to stick together in face of all sorts of challenges. The soap project only lists 10 members because that's the minimum evvy asked for, but as Munnu has stated several times ALL of them will participate in that project. It;'s really important to the community that opportunity be equally available. To me, this plan of 3-5 internet literate people running 3-4 business units that only they have a controlling part in introduces a huge division based on educational levels that is not at all reflective of the community as it now stands. Ours is a severely war affected population in one of the poorest parts of Africa. Does who the community is in social terms not matter to the ned brand? We can surely find many university students or grads ready to take the money and enrich themselves in ned's name. But that's not at all who these communities are going into this. What I'd personally hoped the LiA communities would be able to achieve together was much, much different. Where is the social value in this plan?
One thing I'm not at all clear on is why all of the example coops seem kind of like employee owned enterprises with many more people involved, and yet here we are to limit participation and diversify to such an extreme within one space. I'm also concerned that now it seems to have been decided that ned Uganda MUST be a coop (a few weeks ago that wasn't clear). As John pointed out, and as Grace pointed out in another thread several weeks ago, there are very specific rules for forming coops in Uganda. What if this plan doesn't fit with local cooperatives law? Or what if there are other things the community would like to do that cooperatives law doesn't allow?
Finally - and then I will try to think on and sleep on this some more - 170 LiA community members need to vote to accept this changeover to ned Uganda... What I am left wondering is a very practical question: what is it that should make 150+ members who won't be benefiting from the new ned Uganda structure vote for a change that will include only 15-20 people in the foreseeable future?
By Linda Nowakowski (189), Sat, 22 Sep 2007 15:58:13 PDT
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This might help with looking at the information in Mark's pdf files (I converted them in to jpgs and posted them)
By Evvy Bryning (117), Sat, 22 Sep 2007 16:18:21 PDT
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By Linda Nowakowski (189), Sat, 22 Sep 2007 16:52:15 PDT
Comment feedback score: 2 (* *) +|-
Christina, I won't pretend to speak for Mark, But I don't see this the same way that you are.
I see the work of the ned coop being able to continue with the structure you have used to have a few voices communicate for the many. If it can't work like that, it will never fly in Thailand because English literacy is much higher in Uganda than here.
My hope is that a couple of the "businesses" that will be set up here are one in "English literacy" and another in basic education as the average education here is about 6 years of school. The more English and computer liter the group is , the more they will gain from it and the more level the organizational structure will become internationally.
Realizing that none of this has been tried yet, I would think that the many businesses under each coop would not be reporting on a daily basis though probably the coop as a whole would. Maybe each of the individual businesses make a formal monthly report to the coop and all of those get compiled by one of the directors and posted. This kind of structure will necessitate people treating these enterprises as real businesses. They will require numeracy skills for sure.
Maybe during the numeracy / literacy learning time, there can be a cash box with a color and symbol coded transaction ledger.
I think it helped me to think about the operation of this at the point at which the coop is essentially free standing. Each enterprise contributes 2 separate pieces into the coop pot:
- a 10% of gross profits (I think that was the number) that goes into a fund that builds to help other enterprises form. Initially this role could be played by the sponsor ned. Or maybe the sponsor ned looks at how to get the money if not providing it themselves. Maybe Kiva, maybe C4, maybe, maybe, maybe... The source of the money could vary from an interest bearing loan to a grant. Always I think it is wise if the new business person starts by looking at the most costly option and looking at a decrease in the interest or a grant as a very big gift!
- each enterprise needs to support the day to day operations of the coop...all of the stuff on the right hand side of Mark's organizational chart. Some of the people who run those programs are going to get "paid" too. Their salaries come from the left hand side. Initially, maybe the sponsor ned is financially supporting that right side of the the coop.
This is not at all from Mark but my opinion: I believe that there needs to be one (at least) person in top level management who knows business and can explain and guide. It is going to need to be a person who can help people with no business education, how to do things and how to make things work with people who have limited literacy skills. I think things would have gone much faster and easier if there had been that kind of person in place with the soap project. I asked the soap project to sit down and play with some numbers...operational numbers...because I don't think the project works at the scale that it is at PARTICULARLY IF IT HAS TO SUPPORT 10 PEOPLE. I think there were serious costs left out of the analysis.
I think that some of this has pointed out some of the document development that has to be done with ned and some of the training materials that will be needed.
I think that each situation is going to be way different. Your situation is enviable from my viewpoint as you have a community that is essentially functioning like it should already. They are just going to be taking over your role and they are going to have to make it sustainable since they are not going to have access to your pockets to fill in the gaps. My situation is enviable from your viewpoint maybe since I have a bunch of business majors.
Don't throw the baby out with the bath water....relax...we have to most importantly learn how to communicate in this medium to make all of this work. :-) It's easier for you and me and Mark to talk as we have all met face to face. Much more difficult for people who don't have that built in trust level. You know that I am not going to skin you and eat you...I am not sure that the people on the soap project know that (please share a good word with them on my behalf!)
By Mark Grimes (181), Sat, 22 Sep 2007 17:18:37 PDT
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>>Voluntary and Open Membership — Cooperatives are voluntary organizations, open to all persons able to use their services. HMM - almost every coop I have ever looked at is closed or selective in membership.<<
Well, Ace Hardware is a coop. Anyone can be a member (meaning to shop there), but of course each Ace Hardware business unit has a limit to the number of people that can work there (well, work there and get paid anyway)...I imagine.
>>Basically it sounds like it would be better for you to start ned Uganda with just a couple of qualified people - not with an existing community of almost 400 members.<<
Depends of what 400 members expect I guess. Members are one thing, paid positions within the entity is another. In trying to craft a model where members each approx 50,000 shillings ($31 monthly, and scale up (see chart) to start)...correct, there is not enough funding currently to launch this with a $12,400 payroll (which is not counting other startup costs)
>>First - if I understand this correctly, the only members who can get access to ned funding for their 3-5 person businesses are those that are not only literate, but english literate and computer literate. If that's the case, then 90% of the Life in Africa community will not benefit from becoming ned Uganda.<<
No, I don’t think you understand it correctly. Members would have the same kind of interaction here as they do with Kiva. Only instead of one person one loan, it is member units and loan/investment/angel/donation/sponsor combination of funding instruments.
>>We have always operated on the principle that a few with the skills to do so could report to the online community on the behalf of the many without - as it is there are not enough computers.<<
That could easily work. If you look at the chart, that could be a job responsibility on the "management team" role.
>>Are those 3-5 person business units then owned by those 3-5 people, or owned by ned (who is now going to be taking roughly 30%+ off the top to finance new businesses, staff for non-income generating posts and overhead including the internet?) Is it those 3-5 people who make decisions over that coop owned business unit, or is it the Coop members at large who make decisions over that business unit? Or only coop members who have received ned funding to operate businesses? What if some of those people don't pull their weight - then what?<<
The business unit is owned within the coop. If people don’t pull their own weight, that's for the coop to decide what to do with (see Why Cooperatives Fail above). All biz units are coop owned.
>>Your comments above kind of indicate that I was wrong to reassure the community they could stay together.<<
They can stay together, but I don't see funding/earnings for 400 people monthly wages...and not enough demand for any one product or service to make that happen in short order. 400 people can be members. Heck 4,000 people can be members. But that depends on what members expect from membership. If they each expect immediate wages/business profit of $31/$62/$93 monthly for take home pay...that's going to be hard to manufacture from a dead standstill.
>>One thing I'm not at all clear on is why all of the example coops seem kind of like employee owned enterprises with many more people involved, and yet here we are to limit participation and diversify to such an extreme within one space.<<
The limit here (drum roll) is due to limited startup funding. If each business unit runs $250 to $500 to launch...that's the hard to deal with fiscal realities.
>>What if this plan doesn't fit with local cooperatives law? Or what if there are other things the community would like to do that cooperatives law doesn't allow?<<
Flexibility. Openness to change. Responsiveness. Comfort with ambiguity. All critical traits of starting new business ventures and making them work. If a plan does not fit a local law...it gets changed until it still works for the business...within the realm of the law. Or it’s a community based organization...with many traits of a coop.
"Mark, will you still help us even if Christina leaves?" I was asked by the group of (primarily) women in Gulu. Yes absolutely, but by "help" I mean partner...not lead...was my answer.
We/Ned can provide funding to a certain level, both for startup cost materials, 90 day salaries, experience and guidance of myself, others within ned.com and professionals in many various industries. I'm on it full time, and there will be many more members within the ned.com community helping than ever truly engaged at o/net (judging from some media companies that are looking at Ned and opening dialogues). We can get volunteers, sponsorship dollars, creative funding scenarios, in-kind supplies and so, so much more. We/Ned is providing the technology platform, fast to load and able to use on even cell phones tailor-made to work well in places like Uganda.
But there are simply no funds for over $12,000 in monthly salaries from a dead standstill, and I'm sorry if by keeping the group of people together you (or they) got that impression. Now I do think with multiple business units and revenue streams Ned/Uganda can get to the $12K in monthly revenue a whole lot quicker than just 1-2 products or services.
>>just to add one thought. I asked for 10 members for the soap project only as a minimum required. This was to make sure that it wasn't just a very few who would be participating. My thought was that a minimum of ten had to agree that this was a good project for the Community to try. It would then be wide open, as a community project, for all to participate in who wanted to.<<
5, 10 or 25...if each member has a real chance at earning a minimum of $31 (preferably 62/93) based on each project...that's grand, very cool. But multiple smaller business units creating multiple revenue streams will build a much stronger overall locally, sustainable business. One of the main reasons all of my businesses have been profitable within 30-90 days is I've never started one with more than one staff member. My only payroll has been myself and at most one staff member.
Yes and agree with very much of what Linda said in her recent post. The oversight "reporting team" is the "C-Level" people on the left side of the chart. Though the c-level thing is really for labeling purposes so people understand it in the US. I could keep writing, but need to let this settle in for now and think we are still on relatively the same page.
By John Berger (32), Sun, 23 Sep 2007 06:37:53 PDT
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I have a feeling that if Mark, Christina, and Linda were in the same room this would get all worked out easily.
What if we reverse this question for a moment. Instead of asking Mark how he envisions Ned could help, I would be interesting on hearing from Christina and Linda how they would like to work with Ned. Starting from the charts has perhaps made this more confusing.
By Mark Grimes (181), Sun, 23 Sep 2007 09:13:58 PDT
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