1. Have a Good Business Idea

There is a lot of money to be made through group action - group purchasing, selling, or other group activity in which there is an economic benefit for the participants. It is important to have thought through the business opportunity, and determine whether the financial benefits are sufficient. In other words, have a GOOD business idea, not just an idea for saving a few dollars. Shoot high.

2. Have an Advocate

Coops do not just happen. They require a lot of salesmanship, an advocate, someone who can pull together the potential members of the coop and develop the business opportunity.

3. Form a Development Group

The initial direction for the coop usually comes from a development group, usually at least three and often around nine people, who are interested in the coop and have the time and commitment to go forward. Have an initial meeting with the development group. Review the business plan with them. Discuss ways for building the membership and developing the business. This development group will probably become the initial Board of Directors for the coop so choose well the people who are selected to be in this group. You will probably want some visionaries and good business people as well as people with good reputations and contacts in the business community which will form the membership of the coop.

4. Engage an Experienced Attorney

Early in the formative stages of the coop, an experienced cooperative attorney should be hired. The attorney will be helpful in structuring the new coop, and should also provide assistance in marketing the new coop to prospective members, providing contacts with others who can be of assistance such as bankers, accountants, etc., and in generally helping to develop the business concept. An experienced attorney is important.

5. Meeting with Financial or Business Advisors

In the formative states, coop developers often meet with business planning consultants and financial advisors who provide guidance on the financial structure of the coop and how best to develop the business opportunity. Meetings with financial advisors, who may work for banks or financial institutions, can lead to productive financing relationships later.

6. Incorporation and Start-up

When the basic form of the coop has been agreed upon, it can be incorporated, and the first Board of Directors installed. Soon after incorporation, the Board will hold its initial meeting at which it will normally:

• adopt the initial Bylaws
• select the first officers
• approve the membership agreement
• approve stock or membership offering materials
• set the date of the first annual meeting
• authorize the secretary to establish the necessary books and records
• establish a bank account and set signatory authority
• designate a corporate office
• authorize the repayment of organizational expenses
• authorize the issuance of stock or memberships
• establish committees, typically membership, finance, and personnel

At this meeting, the Board will not normally adopt a business plan, but may do so at one of the early Board meetings. At the initial Board meeting, the budget will need to be discussed, specifically how much money the coop will need for its first year or two of operation, and how it will get it. Usually, these monies come largely from stock or membership fees and dues so the amount a prospective member must pay for its stock or membership will need to be set with the financial needs of the coop for the first or second year in mind.

7. Membership Recruitment Meetings

While there are many ways to attract the initial members, often the coop will hold recruitment meetings which prospective members will be invited to attend. There may be several of these meetings at locations which prospective members can easily attend. At these meetings, coop organizers will explain the concept. Board members usually attend these meetings and they usually say why they were excited about joining the new coop. At these meetings, the coop's stock and membership offering materials will be distributed. Prospective members may be asked to make a decision to join.

8. Hire Outstanding Management

One of the most important decisions in the formation of the new coop will be the selection of the President of the new coop. This person should have outstanding business skills, knowledge of the industry to be served, and have vision and a "builder mentality." The President must be a good communicator and have thick skin. The emphasis here should be on a great business person, not someone who can give a good party. Be prepared to pay this person well. The success of the entire venture may depend on the ability of this person.

9. Build Business Relationships

Soon after formation, it will be important to begin to build business relationships with others outside the coop. In a purchasing coop, for example, it is important to establish relationships with manufacturers or vendors of products to be purchased by coop members and to try to make these relationships beneficial for both the coop and the vendors.

10. Establish Good Member Education and Communication Systems

Coops are participatory organizations in which the members participate in the activities of the coop. Good communication systems are important to developing a strong participating membership. The members must be kept informed of coop activities and they must be educated in market developments and other business practices which will make the member successful. Members must learn the importance of commitment to the coop - the need to use the coop as much as possible.

11. Making Money

Finally, there are many stresses in starting a new organization. Nothing helps a start-up coop over these problems like providing the membership with a good economic return on their participation in the coop. Find economic winners that can be developed quickly and bring them on line early.

Prepared by:
Gary McDavid
Dorsey & Whitney LLP
Washington, D.C.
202/442-3540
mcdavid.gary@dorseylaw.com

04/2009