CGIN

Keys to success

As with any business, your co-op’s success depends on a number of factors. Paying careful attention to these factors will help your co-op survive the tough first years and grow to be a vibrant organization that can meet members’ needs. Keep the following “keys to success” in mind to identify weaknesses and to set priorities for improvements:

A good membership base, including a commitment by members to use the co-op
Members are the foundation upon which a co-op is built. Without a sufficient membership base, the co-op will flounder. Without a commitment by members to use the co-op, it will not survive. If members aren’t willing to commit to the co-op, why should it exist?

• To assess your co-op’s membership base: What percentage of members’ weekly food purchases are made at the co-op? What percentage of new shoppers join the co-op? What percentage of sales comes from members?

A clear purpose and focus
Many businesses struggle because owners aren’t clear about what they want to accomplish. This lack of focus and clarity can be even greater for co-ops, since they are owned by many people. Be clear from the beginning about what your co-op is trying to accomplish. When new opportunities arise, consider them carefully. Pursue them only with member approval and if they do not detract from the co-op’s core activities. When a co-op’s purpose is clear and understood by everyone involved, it will be much easier to evaluate new opportunities.

• To assess whether your co-op has a clear purpose: Can all members and potential members clearly and succinctly explain what the co-op does and what it is trying to do?

An adequate financial base—from members and external sources
New businesses need money to get started—to finance planning and development efforts, to start operations, to pay employees and other business costs until the store begins collecting money from customers. As owners of a co-op, members need to contribute to the base capital of the business. Member equity should be great enough to enable the co-op to obtain additional financing from banks or other lending institutions.

• To assess your co-op’s financial base:

**Calculate the co-op’s member-share and member-equity ratios (see “A Primer on Consumer Co-op Membership”). Project the co-op’s balance sheet for the next three to five years and calculate projected ratios. Do they near the benchmarks provided? Does the co-op’s capital base provide an adequate cushion in case of unexpected interruptions or problems (e.g., if the co-op were unable to operate for a week or two)? **Calculate your debt-to-equity ratio: Divide total debt (liabilities) by total equity (member investment, donations, grants, and profit). A good ratio for a startup co-op is between zero and two— in other words, up to two dollars of debt for every dollar of equity.

Sound operating practices from the beginning
While a co-op may sound like a good idea, conducting a feasibility study early on will help you determine whether it really is a good idea. A feasibility study will assess market capacity and establish general financial and operational parameters for your co-op. Don’t base a feasibility study on overly optimistic assumptions. Once the co-op is operating, good management is required to control costs, monitor finances, and ensure ongoing solvency. As with any business, the income of the co-op (money coming in) must be more than the expenses (money going out).

• To assess your operating plans: Have an experienced business person review your plans and test your assumptions. If possible, compare your feasibility study or plans with those of a similar business—look for areas you may have overlooked. Do your financial projections seem realistic, and do they prove the co-op’s viability? Are your sales assumptions tested and based on market data? Does your manager have the skills needed to implement your plans?

Good communications and leadership
Communication is critical to all co-ops. Good communication keeps members, lenders, outside advisors, directors, managers, staff members, competitors, and community members informed about the co-op’s goals and accomplishments. Managers and directors must be good leaders. They need to be well qualified and should pursue ongoing training to ensure the co-op’s success.

• To assess the quality of communications and leadership:
  Review informational materials provided to members. Make sure they report thoroughly on the co-op’s progress, products, and operations. Solicit member comments and feedback—through checkout-line surveys, websites, telephone polls, and focus groups. Continually monitor the coop’s public image.
• Develop and follow a training plan for management and the board of directors. Do they understand their jobs? Do they work to improve areas of weakness? Are they open to new ideas and suggestions for improvement? Is the co-op able to follow through on ideas and plans with a minimum of organizational trauma?

Avoid isolation
Each co-op is unique, but it can avoid mistakes by learning from other co-ops. Keep in touch with other co-ops; learn from their errors and accomplishments. Ask another co-op manager to conduct a simple audit of your store or to offer advice to staff—especially in problem areas. Join CGIN to access sample job descriptions, newsletter articles, membership materials, business plans, etc. Join the CGIN listserve to communicate with other food co-ops. Join other regional co-op or industry associations. Attend the annual Consumer Cooperative Management Association (CCMA) conference. Read Cooperative Grocer and other industry publications. Bring in outside expertise—business planners, co-op development specialists, consultants, operational experts, attorneys, etc. These advisors can help with training, legal and financial matters, industry issues, and strategic planning.

• To assess this area: Are you in touch with other food co-ops? Do you share operational information and data with them? Have you identified outside sources of information—colleagues, books, resource people, conferences, etc.—that can help you learn and make improvements to your co-op?

For more information

Factors in Co-op Success
A list of reasons why co-ops succeed and fail.

Guidelines for Co-op Success
Guidelines for new co-ops—things to do and pitfalls to avoid.