In this week’s Principle 6 newsletter, why co-ops?

Image show many hands coming together, each holding a different piece of a puzzle.
“People choose co-ops because they optimize value,” Mercer writes. How does your co-op optimize value?

In this week’s Principle 6 Newsletter, Mike Mercer considers why people choose co-ops. “Co-ops are rarely the most well-known or largest firms in their competitive space,” he writes. So what’s the draw?

“People choose co-ops because they optimize value. Employees appreciate doing good for the people that they serve and users like doing business with an organization whose values are aligned with theirs,” Mercer writes.

Read the full newsletter below, and consider how cooperation among cooperatives could optimize your co-op’s value. NCBA CLUSA is on a mission to document Principle 6 collaborations across the country so we can identify trends, document best practices and share this knowledge with you—our fellow cooperators!

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Principle 6 Newsletter – Why Co-op? …Value Optimization

July 6, 2022

In economics, profit maximization is the short run or long run process by which a firm may determine the price, input and output levels that lead to the highest profit. Neoclassical economics, currently the mainstream approach to microeconomics, usually models the firm as maximizing profit. – Wikipedia, 6-26-22

The alternative view (to profit maximization) sees all stakeholders as having equal value. People are seen as most important. The purpose of business, from this viewpoint, is to create value for the stakeholders so all people involved can THRIVE. The interests of all the stakeholders are seen as complementary. All parties can win. Greed is seen as counterproductive. The end does not justify the means. How you get “there” is important. The focus is on long-term value and sustainable profit. – “Optimize Value vs. Maximize Profit,” Andrew John Harrison, 5-9-16

As well as having clear financial and operational objectives and employing nearly 70,000 people, we’re a recognised leader for our social goals and community-led programmes. We exist to meet members’ needs and stand up for the things they believe in. – “Our Co-op,” Co-op UK website, 6-26-22

With few exceptions, co-ops are rarely the most well-known or largest firms in their competitive space. In fact, most are quite small and, on paper, highly inefficient. Not many operate at the bleeding edge of technological innovation. Few are led by graduates from top-tier colleges and most employees tumble into co-op work without much knowledge about why co-ops are different than most other work environments. Co-ops struggle to achieve category brand awareness and are disadvantaged when it comes to raising capital. Even so, co-ops touch the lives of perhaps half the entire population of the U.S. For many tens of millions, co-ops are meaningful contributors to the quality of life. Ever wonder why? Consider…

 Why form a co-op?

Starting a co-op is a lot of work compared to other forms of business. Without the chance to get serious wealthy, co-op organizers have to be dedicated souls. Ask the founders of the Fredericksburg Food Co-op. It took 4-5 years to assemble the capital necessary to launch the now successful co-op. Ask the founders of The Drivers Cooperative. They were only able to raise a fraction of the money needed to enter the competitive ride share market in New York. And the principles had to work for next to nothing while it was getting formed. There was no pot of gold at the end of the rainbow, just a light at the end of the tunnel.

Why use a co-op?

I don’t actually own my 1,200 square feet of living space? I just own a share in the whole building? I have to pay $250 to be an owner at the food co-op? I can’t join the credit union because I don’t “qualify” for membership? I don’t have any choice about where to get my electricity, but what is this patronage refund thing? Using a co-op is not often the same user experience as ordering on Doordash or sending five outfits back to Nordstrom. Co-ops don’t usually have better hours or more stores. If your company has become large, the prices at the purchasing co-op may not be the best. But there are many engaged co-op users, and the numbers keep growing.

Why recommend a co-op?

I have a savings account at the company credit union but my mortgage and checking account are at Wells Fargo. I stop by the food co-op for fresh vegetables, but I do my big shopping at Kroger. My company is owned by all of the employees but I’m out of there if I get a better offer. I like the folks at the purchasing co-op, but we shop our business. Despite the frequency of conditional testimonials, many people are passionate about their co-op. High net promoter scores are common. For some reason, co-ops get recommended a lot.

Why work at a co-op?

I never really knew what a co-op was until I landed in this job. I took every course in finance at the business school, but never heard about co-ops. I’m not sure my co-op pays as good as some of the regular companies around here, but I’m appreciated so I’ll stick it out. We need more people around here—this co-op is always running with too few employees. These members are demanding, they think they own the place! But talk to 100 co-op employees, 90 will tell you how much they like plying their trade and doing good things for people at the same time. Employee satisfaction surveys almost always show good results at co-ops. 

Basically, why co-op?

Well, most co-ops get started by solving problems that exist in the shadows of return-seeking capitalism or vote-seeking government programs. Often, these are the problems of people or small businesses that are left out or left behind by the prevailing economic systems. And co-ops are an answer to economic and political concentrations of wealth and power. Their ownership and governance structures are designed to include many, ideally any. Folks who are wired up around these sorts of social objectives will be attracted to co-ops, as decision-makers or service users. We have written before that a key part of the co-op draw is the opportunity to leverage influence for those without much.

But there is something else. Instead of maximizing profit or pandering to political constituents, co-ops are structured to optimize value—for users, employees, volunteers and communities. Value comes in many forms. Price, convenience and product features are certainly important, but these traditional measures are often just table stakes for being in the game. These days, many people are looking for more. They don’t want to feel like a factor of production in somebody else’s machine. An organization that cares about their well-being is a good place to start. This is especially true with the younger generations. Getting a good price is important. Getting good advice is significantly more valuable and impactful to well-being. Giving good advice is not efficient but it leads to the kind of value connection that results in “tell-my-neighbor” advocacy. Even in a time where websites and chat bots define acceptable customer service, co-ops find ways to connect people—a fundamental human need.

Value doesn’t always need to mean right here and right now. And value can extend beyond “what about me?” The co-op structure (specifically the absence of disinterested third-party shareholders) enables the optimization of value over time and the extension of value to community and common cause. We’re talking about “value” as seen through the eyes of a service user or an employee. Members of Vancity Credit Union know that their co-op invests in ways that help the community and climate. Likewise, members and employees of  Weaver Street Market recognize and appreciate its investment in local communities. These are not investments with immediate (or even measurable) payoffs. Notwithstanding, they represent meaningful elements of value.

People choose co-ops because they optimize value. Employees appreciate doing good for the people that they serve and users like doing business with an organization whose values are aligned with theirs. Volunteers are willing to serve for little or no direct compensation. Not everyone, but lots of people appreciate an environment of value optimization. In his recent book “Civilizing the State,” John Restakis illustrates the dimensions of appreciation:

Today, co-operatives represent the foremost example of economic democracy and the most significant working alternative to the capitalist model. There are over 3 million co-operatives, and globally they employ over 280 million people; the livelihoods of over 10 percent of the world’s population depend either directly or indirectly on co-operatives.

How does your co-op optimize value? Seems like the answer to that question should inform key performance indicators.

Stay tuned,

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