The inside scoop on outside help
Outside co-op development specialists
play crucial role for business launch
By Gerald Ely,
Co-op Development Specialist
USDA Rural Development
(Pennsylvania)
Editor’s note: this article is based on a presentation
the author made at the National
Value-Added Conference in Indianapolis,
June 16–17, 2005.
n paper, the concept of
what a cooperative is and
how a co-op operates is
fairly basic. But successfully
developing and
launching a co-op — while not rocket
science — can be complex and daunting
for those who have never been
through the process. Any number of
obstacles can derail a promising co-op
in its formative stages.
A skilled, outside advisor (or agent)
can play a critical role in the development
process. Advisors need to wear a
number of hats, but there is no universally
accepted qualification skill set.
We in USDA Rural Development who
provide technical assistance to co-ops
try to regularly update the skills of our
development specialists to keep pace
with the evolving economy and technology.
Co-op development agents must
also be reliable conduits to finding
more outside expertise, which may
include an attorney, accountant, economist,
marketing specialist, environmental
specialist, engineer or technical-
process specialist. “People” and
communications skills are also needed
by development advisors.
The purpose of this article is to
provide an overview of the various
roles that an outside co-op development
specialist needs to fill,
and some cautions regarding
conflicts of interest.
Roles of an outside co-op
development specialist
- Educator — For many
producers, their knowledge
of cooperatives is centered
on the co-op failures they
have read about or, perhaps,
experienced. But
there is so much more to
know. Cooperatives come
in all sizes, organizational and governance
packages, and capitalization
structures. They perform widely different
functions and provide a wide
array of products and services. They
suffer or prosper under widely different
leadership capabilities. The role
of the outside agent as educator can
be critical to understanding opportunities
and making good decisions.
They can also play a key role in
identifying prospective leaders from
within the ranks of the producers’
group.
- Technical Advisor — Closely related
to the role of educator is that of
technical advisor. Much work can be
done with a steering committee to
develop knowledge of cooperatives
and provide guidance in cooperative
structure and governance to prepare
a committee to work effectively with
other important “outside agents,”
the attorney and accountant.
Cooperative development, like any
other business development process,
goes through several stages.
Informing and advising members
about development stages and
process can be important in co-op
success. Failure to adequately
address one phase can easily lead to
decisions that simply compound the
problem being addressed.
- Advocate for co-op structure —
For many, the cooperative business
structure is a new concept. It is not
taught in our schools or in most universities.
An outside agent can provide
objective information about the
relative advantages and disadvantages
of cooperatives compared to other
business structures. Likewise, not
every situation is suited for a cooperative
business structure. Use of a
cooperative structure that is inappropriate
will likely be detrimental to
the project and its members and customers.
- Champion/cheerleader for the
project — Cooperative development
specialists and publications often discuss
the importance of a project
champion. This is a person who
serves the co-op on a regular — and
often prolonged — basis to encourage,
lead, promote, push and pull to
bring together (in a timely manner)
the various elements necessary for
success. The role of project champion
is not a role of the outside advisor,
but rather the role of a local leader
(or two) who will ultimately become
part of the cooperative. However,
every successful cooperative development
start involves a fair amount of
internal and external encouragement.
An outside agent can be effective in
developing confidence among project
participants that they have the ability
to effectively carry out a development
project.
An outside agent or advisor can
play an important role in gaining the
support of potential resource agencies,
project partners or other supporters.
In the case of cooperative
development, these agencies or individuals
may not be familiar with the
cooperative business structure.
Objective information and education
about the cooperative form of business,
cooperative governance, finance
and responsibilities of members and
the board of directors can be useful
in gaining their participation.
- Objective observer (devil’s advocate)
— This trait should be combined
with all of those listed above.
The outside agent must be more
than an observer. The ability to
objectivity step back, observe, evaluate,
process and use the vast array of
information one gathers in the co-op
development process is an important
part of successful development.
Cooperative development initiatives
are frequently born of desperation.
When loss of a farm, a business
or even a rural community
seems eminent, every idea is thought
of as a solution. The sense of
urgency cries out for shortcuts and
emotions run high. I have, on many
occasions, been called a “wet blanket.”
But, experience has proven
over and over the need to be objective
when evaluating needs, opportunities,
business structure options,
potential benefits for participants
and the time required to implement
a plan.
Loss of objectivity results in unrealistic
expectations and plans. The
goal of an advisor is to help a group
make sound decisions based on the
best information and analysis possible.
A decision to not form a cooperative
that has little opportunity for
success is still a success. We should
count successes, not cooperatives.
Evaluating qualifications
A big issue for members trying to
develop co-ops is how to evaluate the
capabilities of an outside agent. Brian
Henehan of Cornell University says,
“The level of professionalism and
competence can vary greatly among
those involved in advising a new startup
business, including new cooperatives.”
In many cases, these advisors may
provide free service. They may be on
the staff of USDA Rural Development,
a university or cooperative extension
office, Small Business Development
Center, Cooperative Development
Center, Ag Innovation Center, state
department of agriculture or a local
economic development corporation.
But, “free service,” can become very
expensive if that advisor or agent delivers
the wrong advice, has a bias toward
someone else’s priorities or puts someone
else’s goals higher than the co-op’s.
Weigh agent’s motivation
Be cautious of “self-appointed” outside
agents. What is their motivation
for wanting a cooperative business
started? How will they benefit? Does
their interest come with the potential
for personal benefit or gain?
Many failed businesses can recall
the equipment sales person who
thought it would be great to build a
processing plant on the edge of town.
They had the feasibility study to
demonstrate that it could work, but
was that study tilted by someone who
had a vested interest to see a plant
built?
There are also project champions
who may see themselves fitting nicely
in the position of general manager of a
new co-op, which can clearly constitute
a conflict of interest. This is similar
to the issue we see arising in some
co-op sales or conversions when management
has a vested, financial interest
in convincing the board and members
to sell or convert their co-op.
The potential for such conflicts of
interest should be revealed by any
outside advisor involved in a project.
Some behavior, especially among
attorneys, bankers and others, is
addressed by legal or regulatory
guidelines. However, behavior of any
co-op development advisor must
adhere to the highest ethical standards.
Timing issues
- When is an advisor’s assistance
needed? Timing of assistance to
developing cooperatives is important.
The appropriate advice at the
appropriate time is the goal.
Understanding the development
process, recognizing the skills that
exist and the needs for assistance and
arranging a team of advisors should
be planned at the beginning of the
development process.
- When does an advisor exit the
scene? The answer, of course,
depends on the assistance being provided.
Sometimes the assistance is
very short term. Issue-specific help
can often be completed in a relatively
short period of time. General
development assistance may continue
throughout the project, even into
operation.
- When does the co-op development
effort end? USDA Rural
Development policy is that it makes
little sense to help form a co-op, and
then abandon it. Business development
issues that arise after a co-op
launch are, to some extent, predictable.
If the expertise exists to
assist the co-op further with these
issues, it should be offered. For
example: management turnover
often occurs in the first 12-18
months of business operation; the
board will face the need for a financial
audit within a year of start-up;
board turnover will likely make a
board training program advisable
soon after the first annual meeting.
All of these challenges can be surmounted
with the help of an advisor
who has experienced them in other
business start-ups.
Summary
Effective technical assistance in the
development of a new cooperative
requires:
- Understanding the cooperative
form of business;
- Understanding development
processes and procedures;
- Understanding business operations;
- Knowledge of the industry in which
the cooperative will operate;
- Understanding one’s capabilities
and limitations.
An outside agent must have the
knowledge, skills, experience and confidence
to provide valuable guidance.
Arrogance to think that he or she
knows everything needed to complete
the co-op business formation will be
the downfall of an agent.
USDA offers co-op development help
USDA Rural Development offers a wide range of technical assistance
to developing cooperatives. This help can range from an initial feasibility
study to the creation and implementation of a business plan and
bylaws. The goal is to provide a realistic view of what it will take to make
a new cooperative succeed.
Assistance is offered through USDA Rural Development’s national
office in Washington, D.C., (202) 720-3350, and most USDA Rural Development
state offices. To be connected to your state office, call (202) 720-
4323, then enter “1” and follow the voice prompts. Or visit
www.rurdev.usda.gov and click on the “office locator” button.
USDA also has a number of publications that should be read by
those forming a new cooperative. Most are in the Cooperative Information
Report series, which are on-line at:
http://www.rurdev.usda.gov/rbs/pub/cooprpts.htm. For hard copies, email:
dan.campbell@usda.gov, or call (202) 720-8381.
Cooperation Works
Cooperative development practitioners associated
with the Cooperative Development Centers, funded
by USDA Rural Development, organized as a network
called Cooperation Works in 1995. They
developed a set of professional standards called The
Madison Principles, so named because they were
drafted in Madison, Wis. These principles should be
studied by members of developing co-ops, and serve
as a reminder for co-op development specialists.
The Madison Principles
Professional Standards for Cooperative Development
Practitioners
- Individuals providing technical assistance subscribe
to the highest level of ethics and shall declare any
conflict of interest, real or perceived, so that they
can be a credible source of objective feedback and
an articulate advocate of the project as needed.
- Cooperatives are tools for development and should
promote both social empowerment and economic
goals.
- Applied appropriately, cooperatives have value to all
population groups and for all businesses and services
in the public and private sectors.
- Each cooperative responds to its unique economic,
social and cultural context; as a consequence, each
cooperative is different.
- There are essential steps that must be taken in a
critical path to succeed.
- An enthusiastic group of local, trustworthy leaders is
a prerequisite for providing technical assistance.
The effective cooperative development practitioner
nurtures that leadership by helping them shape a
vision that will unite members and provide ongoing
training.
- Cooperatives only work when they are market driven;
the development practitioner seeks to ensure
that accurate market projections precede other
development steps.
- Member control through a democratic process is
essential for success.
- Success also depends on the commitment of the
member’s time and financial resources.
- There must be tangible economic benefits for
members.
- The cooperative’s products and services must generate
sufficient revenue so that the effort can be
financially self-sustaining. Provisions must be
made to share any surplus revenue.
- Market opportunities exist throughout the world.
Cooperatives and market development should transcend
national boundaries.
- Successful, established cooperatives should assist
emerging cooperatives to develop. New and
emerging cooperatives should be encouraged to
communicate with and learn from successful cooperatives.
Co-op development training
slated for Madison in November
Cooperation Works is sponsoring the second of two,
five-day training workshops for co-op development specialists,
Nov. 14-18 in Madison, Wis. The first session of
The Art & Science of Starting a Cooperative Business was
held last May. The program is the most comprehensive
training program on the development of cooperative businesses
available in the United States, bringing together
proven experts and co-op leaders from across the country
to deliver the best of what has been learned in cooperative
business development to new practitioners in the
field. Best practices case studies using various types of
cooperatives will be incorporated into the classes.
Participants who missed the first part can still enroll
in the November session, but should call the Cooperation
Works office first. The training program was launched
in 1999, and was re-tooled and updated last year in collaboration
with the University of Wisconsin Center for
Cooperatives. For more information, visit:
www.cooperationworks.coop, or call (307) 655-9162,
or e-mail cw@vcn.com.
Cooperation Works was found in 1997 by eight co-op
development centers, and has since grown to 21 centers
serving 43 states. It promotes business development in
all co-op sectors by sharing best practices and lessons
learned.
