Her CEO Journey™: The Business Finance Podcast for Mission-Driven Women Entrepreneurs

Weekly show where my featured guests and I explore the financial and business challenges women face on the entrepreneurial journey to success. You'll hear them talk about the money side of their businesses in ways you've always wanted to know about, but wouldn't dare ask. They openly share their disappointments, failures, successes, and everything in-between as they grew sales ranging from 6 to 9 figures. Knowing where your business stands financially helps you make critical decisions with confidence. It's simply the best way to be sure you grow a business that fuels the life you want to live.

https://www.christinasjahli.com/

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episode 141: Steward Ownership: Unlocking the Power of Employee Ownership - The Journey of Amanda Bybee [transcript]


Owning a business isn’t as easy as starting one and calling yourself the owner—you need to structure it to suit the company’s needs. There are lots of models that you can use, each with unique benefits, drawbacks, and advantages. Some companies prefer a cooperative model—it places great significance on camaraderie and information transparency. If your company values employee empowerment, you might want to use the cooperative model.

In today’s episode, Amanda Bybee conducts an in-depth discussion of employee ownership and the cooperative model. From her firsthand experience and extensive knowledge, she shares the benefits and values of adopting employee ownership. Amanda also explores the issues, challenges, and strategies in a cooperative model and how it empowers people.

If you're curious and want to find out if an employee ownership and cooperative model is right for you, then tune in to the full episode!

Episode Highlights

  • [05:00] Amanda’s Journey
  • [07:18] What Made Amanda Join Namaste Solar?
  • [09:58] The Power of Open Information Sharing
  • [12:31] Shifting to an Employee-Owned Cooperative
  • [14:21] Employee Owned vs Worker Cooperative
  • [17:55] Finding the Right Investors
  • [19:56] The Struggle in the Transition
  • [24:03] How Amanda Felt About the Transition
  • [26:18] Amanda’s Advice on Transitioning to a Cooperative
  • [29:42] The Right Time to Switch to Cooperative
  • [31:22] Starting Amicus O&M
  • [35:03] What Amicus O&M Does
  • [37:14] How Does Amicus O&M Make Money?
  • [39:31] Internal Business Processes for Cooperative
  • [42:59] Shared Services Cooperative vs. Worker Cooperative
  • [47:09] The True Value of Cooperative
  • [51:52] Employee Ownership as a Form of Empowerment
  • [55:20] You Don’t Have to Be Alone

Resources

  • Visit Christina Sjahli’s website! Learn more about innovating and scaling your business through the Her CEO Journey podcast series.
  • Chat with Christina and set up a time here!
  • Download the Forecasting Guide so that you can create a better and improved financial forecast for your business!
  • Download this Action Guide to help you understand the value of intellectual property as a vehicle for financial growth.
  • Her CEO Journey Episode 140: The Journey of Linda Philips
  • The Great Game of Business by Bo Burlingham and Jack Stack
  • Equal Exchange
  • Connect with Amanda: LinkedIn

Enjoy this Podcast?

Write us a review and share it! If you enjoyed tuning into the show, then do not hesitate to leave us a review. You can also share this episode with your network so they will know the importance of sound financial planning.

For more episode updates, feel free to visit my website. You may also tune in on Apple Podcasts, Google Podcasts, Spotify, or Stitcher.


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 2021-11-11  1h0m
 
 
00:05  Linda Phillips
The thing about
00:05
cooperatives, it's not just a
00:07
business model or a financial
00:07
model. It's also a philosophy.
00:11
It's one member, one vote. It's
00:11
democratic control, democratic
00:15
ownership small d, democratic.
00:15
It's not just dollars and cents,
00:21
but dollars and cents are a big
00:21
part. We often get groups of
00:24
people come to us who have the
00:24
values of a co-op, but none of
00:31
the business sense, so you have
00:31
to combine the two.
00:35  Christina Sjahli
Sharing
00:35
ownership can be a daunting
00:37
concept at first, especially if
00:37
you are a founder who is scared
00:42
of letting go of control. But
00:42
those founder who took a chance
00:46
in ownership diversification
00:46
actually cannot be happier with
00:51
their decision. We thought it's
00:51
time to expand our knowledge
00:55
together about sharing
00:55
ownership. That's why we curate
00:59
this Alternative Ownership
00:59
Podcast Series just for you,
01:02
mission driven female founders.
01:02
In last week's episode, Episode
01:07
139 was the third episode in the
01:07
series. Corey Kohn, the
01:12
co-founder of Dojo4, a B corp
01:12
certified business located in
01:16
Boulder, Colorado, shared Dojo4
01:16
experience in transitioning from
01:21
traditional business ownership
01:21
to a cooperative model, which is
01:25
all about sharing ownership.
01:27
Since a transition to a
01:27
cooperative model requires legal
01:31
expertise as well, we thought
01:31
why not bring a lawyer who
01:34
thinks deeply about how to
01:34
harness ownership to advance
01:37  social and environmental change
Linda Phillips, a Senior Of
01:41
Counsel at Jason Weiner, p.c., a
01:41
B corp certified legal and
01:46
business consulting firm located
01:46
in Boulder, Colorado. In this
01:51
episode, Linda shares, among
01:51
others the different types of
01:54
cooperative when a founder
01:54
should consider transitioning to
01:58
a cooperative model, and how to
01:58
choose the right legal form and
02:02
ownership structure for your
02:02
cooperative.
02:06
You're listening to Her CEO
02:06
Jounry, the business finance
02:09
podcast for mission-driven women
02:09
entrepreneurs. I'm your host,
02:13
Christina Sjahli. If you are new
02:13
here, a big warm welcome. If we
02:18
are not connected on LinkedIn,
02:18
please reach out and say hi,
02:21
because that's where I hang out
02:21
and share my business finance
02:25
tips. If you have been listening
02:25
to this podcast for a while, and
02:29
you are a regular listener, I
02:29
want you to know I appreciate
02:33
you. My podcast won't be around
02:33
without your support. This is a
02:38
free weekly show where my guests
02:38
and I want to inspires you to
02:42
balance between mission and
02:42
profit, to create an empire in
02:46
this world, and to achieve
02:46
financial equality through your
02:50
business for good.
02:52
The more knowledge you have
02:52
about your business, the more
02:55
confident you are to speak with
02:55
investor who are going to
02:58
support your transition to the
02:58
cooperative model. When you
03:02
transition to the cooperative
03:02
model, it is still a business,
03:06
which means profitability is
03:06
still important, even for impact
03:10
investors. They want to see
03:10
where your business is going in
03:14
the future. So how can you
03:14
uplevel your forecasting process
03:19
to show future profitability? If
03:19
you are unsure how to get
03:24
started with the forecasting
03:24
process, we have created a guide
03:28
for you. Use the link in the
03:28
show notes to download the guide
03:32
and jumpstart your financial
03:32
forecasting journey. When you
03:35
are ready to focus on building
03:35
your business, and you want us
03:40
to manage the financial back
03:40
office process in your business.
03:44
Connect with us at
03:44
christinasjahli.com/lets-chat.
03:49
Linda Phillips, welcome to Her
03:49
CEO Journey. It is a pleasure to
03:54
have you here.
03:55  Linda Phillips
I'm delighted to
03:55
be here.
03:57  Christina Sjahli
Before we dive
03:57
into the legalities of creating
04:01
cooperative and cooperative law,
04:01
let's start with your journey.
04:05
Why you specifically choose to
04:05
become an attorney specializing
04:09
in cooperative and social
04:09
enterprise?
04:12  Linda Phillips
Well, it's it's
04:12
kind of a fun story. Becoming a
04:15
lawyer was actually my fourth
04:15
career. I didn't become a lawyer
04:19
until I was 50. And prior to
04:19
becoming a lawyer, I worked as a
04:23
paralegal with a sole
04:23
proprietor. His name was Jim
04:26
Dean. And he specialized in
04:26
co-ops, and he got me very
04:29
interested in Co-Op Law. And I
04:29
went to law school and graduated
04:34
in 2003. And you can do the math
04:34
to figure out how old I am.
04:38
Joined Jim's firm when I got out
04:38
of law school because he had
04:42
already trained me how to be a
04:42
lawyer. So I went ahead and
04:45
became a partner right away out
04:45
of law school. I've been
04:48
practicing Co-Op Law since the
04:48
early 90s. And it's just one of
04:52
my favorite business models.
04:54  Christina Sjahli
But why is
04:54
this business model so
04:57
intriguing to you?
04:59  Linda Phillips
Because as it
04:59
combines a philosophy with a
05:03
business structure that allows
05:03
people to meet certain needs.
05:08
Co-ops are formed to help groups
05:08
of people help themselves. And
05:13
I've always enjoyed that concept
05:13
behind the co-op model, because
05:19
it's not just every shareholder
05:19
for himself. It's a group of
05:23
people helping each other and
05:23
helping themselves by forming an
05:27
organization that meets their
05:27
needs.
05:30  Christina Sjahli
So, how is
05:30
this different than a social
05:34
enterprise?
05:35  Linda Phillips
A co-op can be a
05:35
social enterprise organization;
05:39
a social enterprise organization
05:39
can be a cooperative. They are
05:43
not mutually exclusive. But a
05:43
social enterprise is not
05:47
necessarily a legal structure, a
05:47
business entity. It is more the
05:52
definition of the goals and
05:52
values of the people forming the
05:57
organization. They want to
05:57
provide a social benefit to
06:02
their community. And a co-op
06:02
allows you to do that.
06:06  Christina Sjahli
If you can
06:06
explain cooperative for people
06:09
who doesn't know a cooperative,
06:09
can you give an example?
06:13  Linda Phillips
A co-op, as I
06:13
said, is a group of people
06:16
coming together to help
06:16
themselves. One of the earliest
06:18
co-ops here in the United States
06:18
are the farmer co-ops. The
06:22
agricultural co-ops, where you
06:22
have a group of farmers, they're
06:26
out growing their crops, and to
06:26
get a better market share, a
06:30
better price on their crops,
06:30
they formed a co-op, so that
06:33
they could take all their crops
06:33
to market at the same time. Or
06:37
they could buy all of their seed
06:37
and fertilizer at a discount
06:41
because there were many more of
06:41
them. So they, they were able to
06:44
provide services to themselves
06:44
that were easier than doing it
06:49
by themselves.
06:50
Another example is an artist
06:50
co-op, where a group of artists
06:55
get together and rent studio
06:55
space, or they rent gallery
06:59
space, and they share the cost
06:59
and expenses of that space and
07:03
have the ability to market their
07:03
services through the co-op or
07:07
market their art through the
07:07
co-op.
07:09  Christina Sjahli
Based on what
07:09
you just explained about the
07:12
farmers and the artists, it
07:12
seems like there are different
07:16
types of cooperative.
07:19  Linda Phillips
There definitely
07:19
are different types. One that's
07:22
becoming more well-known in the
07:22
last five years or so is the
07:25
worker co-op. And that is a
07:25
co-op where a group of employees
07:30
perhaps purchase their business
07:30
from their old employer who may
07:34
be retiring, for example. And so
07:34
the employees become the owners
07:39
of the co-op and continue on as
07:39
workers in the co-op. So they're
07:45
dual purpose workers and owners.
07:48
Then you have what are called
07:48
purchasing co-ops: Dairy Queen,
07:52
franchisees all around the
07:52
country formed a purchasing
07:56
co-op so that they could buy
07:56
their base products and services
08:00
from their vendors with better
08:00
discounts because of the bulk
08:04
purchasing. There are credit
08:04
unions are a form of co-op. If
08:08
anybody belongs to a credit
08:08
union in the banking industry,
08:11
that's a form of co-op where it
08:11
is owned by the people that it
08:15
provides services to.
08:16
There are producer co-ops were a
08:16
group of people, say a group of
08:21
tech workers, form a co-op to
08:21
build code or provide those
08:27
types of tech services to their
08:27
clients. But they may not be
08:32
employees; they may be
08:32
independent contractors. So we
08:35
call them producer-owners rather
08:35
than worker-owners. There are
08:40
marketing co-ops where the sole
08:40
purpose of the co-op is to
08:43
provide marketing services for
08:43
the members. So the members
08:47
could be in almost any industry
08:47
that you can think of that
08:50
wants, doesn't want to do its
08:50
own marketing, where
08:54
individuals, say realtors, for
08:54
example, a group of realtors
08:58
could form a co-op and and use
08:58
the co-op just to provide
09:02
marketing services for their
09:02
members. There's many different
09:05
kinds of co-ops.
09:06  Christina Sjahli
Why should a
09:06
founder of a startup consider
09:12
becoming or taking this
09:12
cooperative model?
09:17  Linda Phillips
We work with a
09:17
lot of founders, and a lot of
09:19
people that want to transition
09:19
from say, a founder has formed a
09:23
limited liability company or a
09:23
small corporation or personal
09:28
corporation, even a public
09:28
benefit corporation. And they
09:32
want to expand their ownership
09:32
outside themselves. And that
09:39
expansion of ownership might
09:39
include their employees, or it
09:44
may not. It might include their
09:44
customers. It may not. It might
09:49
include their vendors. It may
09:49
not. But they don't they don't
09:53
want to do it all by themselves
09:53
forever and ever. So they might
09:57
transition to a co-op sometime
09:57
in the future when they want to
10:01
expand.
10:03
And what we do is, on a
10:03
technical level, we sell their
10:06
company to the co-op. The co-op
10:06
is formed. And the founder
10:10
receives preferred stock in the
10:10
co-op. So they have a seat on
10:15
the board. They have a right to
10:15
vote. They have a right to
10:18
participate in the co-op. But
10:18
they also have this preferred
10:21
stock that gives them value for
10:21
what they've put together. Say
10:26
they spent three, five, ten
10:26
years putting their company
10:30
together, so they get
10:30
compensated for that work.
10:33  Christina Sjahli
What I'm
10:33
curious about when do they need
10:36
to start thinking about becoming
10:36
a cooperative? Is this after
10:41
they start a business? And then
10:41
it has been ongoing for a few
10:45
years? Or if there is a founder
10:45
that is just like a solopreneur
10:51
right now and just starting
10:51
their startup, they have nobody.
10:54
Can they start thinking about
10:54
becoming a cooperative? Can they
10:58
even do it?
11:00  Linda Phillips
It's very
11:00
difficult for a solo person to
11:03
start a co-op. Normally, you
11:03
have a group of at least three
11:07
people. It depends on which
11:07
state you're going to
11:10
incorporate in or where you're
11:10
going to incorporate. But each
11:13
state has different laws. But
11:13
the main issue is putting
11:18
together a group of people with
11:18
like-minded goals, like-minded
11:22
values, like-minded social
11:22
interests, so that that group
11:28
acts as first, as your steering
11:28
committee. And then they're
11:33
probably going to be your
11:33
initial board of directors, as
11:36
well as co-owners with you. So
11:36
it's changing your mindset from
11:42
do I want to do this all by
11:42
myself? Or do I want to find
11:47
other people, like-minded
11:47
people, and share the burdens as
11:50
well as the joys of
11:50
co-ownership?
11:53  Christina Sjahli
Okay, so that
11:53
means when you are a
11:56
solopreneur, you can start
11:56
thinking about how you want to
12:00
do it, maybe in the future, but
12:00
you cannot do it at this moment?
12:05  Linda Phillips
Generally, if
12:05
you've already formed a company,
12:08
unless you have two other people
12:08
that want to join with you and
12:11
immediately switch, convert to a
12:11
co-op, it's generally better to
12:16
get a track record underneath
12:16
your belt to make sure that your
12:19
ideas work, that the business
12:19
model that you've thought was
12:24
the best thing since sliced
12:24
bread is actually is a good
12:28
idea, and is financially viable,
12:28
and your business plan is good.
12:32
And then you think about whether
12:32
you want to start bringing in
12:36
other people.
12:38
We have many people come to us
12:38
with great ideas on starting a
12:42
new business, but they have no
12:42
business experience and have no
12:47
clear idea of where they are
12:47
going because they have not put
12:51
together a business plan. They
12:51
have not put together a
12:54
financial plan or a marketing
12:54
plan. And they tell me: "Oh,
12:58
it's all in my head." And I'm
12:58
going, "That's lovely; that's
13:01
really great. But if you go to a
13:01
bank, the bank's gonna want to
13:05
see a business plan. If you go
13:05
to an investor, an investor's
13:09
going to want to see a business
13:09
plan." And a business plan
13:11
allows you to put on paper, in
13:11
concrete form, what your ideas
13:17
are, and where they're going.
13:19  Christina Sjahli
What you are
13:19
saying then, if we think about
13:23
it, the term in a startup world,
13:23
you should already prove your
13:28
product-market fit.
13:29  Linda Phillips
You should.
13:30  Christina Sjahli
Yes. And then
13:30
you should already know your
13:33
business model, how you want to
13:33
grow this business. Is that what
13:36
you're saying?
13:37  Linda Phillips
Yes.
13:38  Christina Sjahli
Based on what
13:38
you mentioned earlier that there
13:41
are several different types of
13:41
cooperative, if you are a
13:46
founder, is it always going to
13:46
be a worker cooperative, that
13:52
they are building?
13:53  Linda Phillips
Not necessarily,
13:53
no. Can you give me some
13:56
examples of different types of
13:56
businesses?
13:59  Christina Sjahli
Let's say that
13:59
is a SaaS business, a software
14:04
as a service. It's more that
14:04
they're creating a software that
14:09
they're going to sell to the
14:09
user. Yes. And then they gonna,
14:14
so their business model is a
14:14
subscription.
14:17  Linda Phillips
Oh, that's
14:17
interesting. I would call that a
14:19
producer co-op, because those
14:19
individual software developers
14:26
could have their own companies.
14:26
That's the other thing about
14:29
co-ops is that software
14:29
developer could have their own
14:33
limited liability company, and
14:33
that LLC could be a member of
14:36
the co-op. They could have their
14:36
own S corporation and be a
14:40
member of the co-op. Co-op
14:40
members do not have to be
14:43
individuals; they can be other
14:43
business entities.
14:46
So if you've got a group of
14:46
producers, some are individuals
14:50
and some have their own firms,
14:50
and they are providing services
14:55
to other other groups, or
14:55
they're doing their own work
14:59
outside the co-op, I would call
14:59
them producers rather than
15:03
workers. Because usually in a
15:03
worker co-op, a worker-owner is
15:07
an employee. They get W-2 wages.
15:07
They are paid as W-2 employees.
15:13
They get, you know, benefits and
15:13
paid vacation and all the rest
15:16
of that. In a producer co-op,
15:16
you're sort of like an
15:20
independent contractor, and
15:20
you're working for yourself. Now
15:23
the co-op may provide some other
15:23
services, but you're paid for
15:27
the amount of work you produce
15:27
rather than the amount of hours
15:32
that you work.
15:33  Christina Sjahli
So what about
15:33
for example, if it's a
15:37
product-based business. Say that
15:37
is a
15:40  Linda Phillips
A widget
15:40
manufacturer.
15:42  Christina Sjahli
Yeah,
15:42
something like that. So a lot of
15:44
my clients or people that I work
15:44
with, normally they are
15:48
producing a product. A body
15:48
care, for example, that is
15:52
really sustainable, and then
15:52
really use no plastic in the
15:56
packaging, that type of
15:56
business.
15:59  Linda Phillips
We have a client
15:59
like that, who's a botanical
16:02
oils and ointments and things
16:02
like that. And that's a worker
16:06
co-op. The people that are
16:06
providing the product that are
16:10
creating the products to sell to
16:10
the public, those would be
16:14
employees and owners. Now, in a
16:14
worker co-op, a solar company,
16:19
for example, we have a large
16:19
client that's a solar company,
16:23
that I would say 60, 70% of
16:23
their employees are also owners
16:29
of the co-op. But they don't all
16:29
have to be you don't have to
16:33
have 100% ownership.
16:35
So if you've got 20 people
16:35
working for your company, and
16:39
you want to convert to a co-op,
16:39
maybe only five or ten want to
16:44
actually be owners. There are
16:44
some that may be reluctant to
16:47
take on the responsibilities of
16:47
ownership. They may have
16:51
partners or spouses that don't
16:51
want them to take the risk of
16:55
being an owner. So you only get
16:55
some of the employees. But if
16:59
you have three, five, ten
16:59
people, that would form a worker
17:03
co-op.
17:04  Christina Sjahli
So now I
17:04
understand it as well, based on
17:06
what you just explained. Even
17:06
during that transition, not
17:10
every worker or every employee
17:10
have to agree to become a member
17:16
of a cooperative.
17:18  Linda Phillips
That's one of
17:18
the principles of cooperation is
17:20
voluntary and open membership.
17:23  Christina Sjahli
Oh, and then
17:23
the people that decided they
17:27
don't want to take the rest to
17:27
become an owner, they just
17:30
continue to be a normal
17:30
employees. That's it?
17:34  Linda Phillips
And then the
17:34
difference between the owners
17:36
and the employees, they'll
17:36
continue getting their salaries
17:39
and benefits the worker-owners
17:39
would, but at the end of the
17:42
year, they get to split the
17:42
profits. Whereas the employees,
17:47
they may get a bonus but they
17:47
don't get to share in the
17:49
profits, and they don't get to
17:49
vote. They don't get to guide
17:53
the direction of the company.
17:55  Christina Sjahli
Got it. So a
17:55
client of mine, she is working
17:59
with indigenous farmers. Can she
17:59
form two different types of
18:05
co-ops? Meaning that the workers
18:05
right, like the employees that
18:09
is within the corporate office,
18:09
but can she also create like a
18:14
separate co op for her supply
18:14
chain? Right? Because those
18:19
indigenous people are producing
18:19
the raw materials to create the
18:24
products.
18:25  Linda Phillips
And then they
18:25
employees take the product and
18:28
do something else with it?
18:29  Christina Sjahli
Exactly. So
18:29
the employee take it and and
18:31
process it, put all the
18:31
packaging, but if she has the
18:35
intention to basically profit
18:35
share, or you know, create a
18:40
cooperative, does she need to
18:40
create like two cooperative, or
18:45
is it just going to be all one?
18:45
Like
18:48  Linda Phillips
You can have it
18:48
in one co-op, but you have
18:50
different classes of membership.
18:50
Class number one might be the
18:56
people that are producing the
18:56
product. And then the second
18:59
would be the people that package
18:59
it and get it ready for sale,
19:04
sell it to the public. So you
19:04
might have two different classes
19:08
of membership in a co-op. And
19:08
we'll talk about the financial
19:12
aspect in a minute.
19:14
But one of the most important
19:14
concepts in a co-op is called
19:18
patron, patronizing or patronage
19:18
where a member patronizes a
19:24
co-op by using the co-op. So in
19:24
your example just now, you'd
19:30
have two different kinds of use
19:30
of the co-op. You'd have one
19:33
group that would be selling
19:33
products to the co-op. And the
19:38
second group takes those
19:38
products and changes them and
19:42
puts them in a marketable form
19:42
to sell to the public. So they
19:46
each use the co-op differently.
19:46
One is a sales mechanism. One is
19:52
a job mechanism. And you track
19:52
how each member uses the co-op.
19:57  Christina Sjahli
So if we can
19:57
take like stop-by-step, right,
20:01
if someone comes to you and
20:01
said, "I'm interested to form a
20:05
cooperative model." What are the
20:05
steps that you would take them
20:10
to get to that cooperative model
20:10
that they want?
20:15  Linda Phillips
Well, one of my
20:15
first questions is always, "What
20:18
are you doing for your members?
20:18
What product or service are you
20:21
doing?" I'm going to use a
20:21
grocery store co-op as a good
20:25
example. Because you can have
20:25
different classes of membership
20:28
in a grocery store co-op. So a
20:28
group of people come and say,
20:32
"We found this great spot to
20:32
open a local neighborhood
20:35
grocery store, and we want it to
20:35
be a co-op. And we want to form
20:40
contracts with some of the local
20:40
farmers for fresh produce. And
20:45
we want customers in the
20:45
neighborhood, members, you know,
20:49
in the community to be members
20:49
of the co-op. And then we want
20:52
the employees to be members of
20:52
the co-op." And so I would ask
20:56  them first
"What is your
20:56
business?"
20:58
Their particular business is a
20:58
grocery store. So it could be a
21:03
grocery store where there's just
21:03
one class of members, and that
21:06
would be the community. The
21:06
employees might just be
21:09
employees. And they don't have
21:09
any members who are farmers. It
21:14
could just be the community. But
21:14
I would give them options of you
21:19
might think about having farmers
21:19
as members or other vendors. You
21:24
know, you've got vendors, you've
21:24
got people that are making salsa
21:29
or some other food products. And
21:29
those are other vendors that
21:34
could be members of the co-op,
21:34
or not. And then the question
21:38  goes to
"Who do you want to
21:38
have majority control in the
21:44
co-op? Who's going to run the
21:44
business? Who's going to be on
21:48
the board of directors?"
21:49
Now the employees are going to
21:49
be the ones that are running the
21:52
cash register and filling up the
21:52
stock and doing that kind of
21:55
thing. But you're going to have
21:55
a board of directors that makes
21:59
the policy decisions and guides
21:59
the direction of the co-op. Who
22:03
is that going to be? Who's going
22:03
to be in charge of that? Is it
22:06
going to be the employees? Is it
22:06
going to be the consumers, the
22:10
public themselves? Are you going
22:10
to have a board of directors of
22:13
say five people with three
22:13
people who might be from the
22:17
community and two from
22:17
employees? Or is it going to be
22:20
three employees and two from the
22:20
community?
22:22  Christina Sjahli
Those are the
22:22
first two steps. Is there like
22:25
step number three?
22:26  Linda Phillips
Always. I
22:26
usually give them a
22:29
questionnaire. And in that
22:29
questionnaire, I will ask
22:33  questions like
"What are the
22:33
qualifications to become a
22:36
member of the co-op?" Going back
22:36
to the grocery store concept of
22:40
three different classes of
22:40
members, "What does it cost to
22:44
join the co-op?" It could be
22:44
$10, it could be $500. The
22:49
people that are forming the
22:49
co-op originally, they have to
22:52
think about that and decide,
22:52
"Okay, we want the community to
22:56
join the co-op very easily. So
22:56
we're only going to charge $10
23:00
to join the co-op." So that's a
23:00
one qualification: What's it
23:03
cost to join?
23:05
Another qualification is do they
23:05
have to have any kind of
23:08
background or experience? So
23:08
employees, for example, might
23:13
need to have retail experience
23:13
of at least one year or two
23:17
years or something like that as
23:17
a qualification to be an
23:21
employee-member of the co-op. Or
23:21
if the co-op has been in
23:25
existence for a while, maybe
23:25
they had to have worked at the
23:28
co-op just as an employee for
23:28
six months or a year before they
23:32
would even get invited to join.
23:32
Again, with the farmers, maybe
23:37
the qualifications or a track
23:37
record of producing their
23:42
product. I don't know what the
23:42
qualifications for a farmer
23:45
would be. It would be a variety
23:45
of things in the agricultural
23:48
industry. They're pretty broad
23:48
qualifications to be a farmer.
23:53
So that would be the next step
23:53
is filling out those questions.
23:57
And it helps them to figure out
23:57
who do we want to be co-owners
24:02
with in this business. Then you
24:02
come see me or you see another
24:09
co-op attorney who can help you
24:09
create documents. In most
24:14
states, those documents will be
24:14
articles of incorporation and
24:18
bylaws and a membership
24:18
agreement. And you'll have a
24:22
separate membership agreement
24:22
for each class of members. And
24:26
that membership agreement
24:26
basically says, "These are the
24:29
things that I'm going to do as a
24:29
member, and what I expect the
24:33
co-op to do for me, as a
24:33
member." Then you start your
24:36
business.
24:37  Christina Sjahli
What about in
24:37
terms of legal formations? Like
24:41
you know, in a normal business,
24:41
we have the S corp, the C corp,
24:45
the LLC. Is there like a
24:45
specific legal structure that a
24:50
cooperative needs to consider?
24:52  Linda Phillips
There can be;
24:52
there does not have to be. Many
24:55
states don't have very good
24:55
co-op statutes. They will have
25:00
co-op statutes in the United
25:00
States for agricultural co-ops
25:05
or for rural utility co-ops.
25:05
Your Rural Electric Association,
25:10
your Rural Telephone
25:10
Association, those are all
25:13
cooperatives. But they won't
25:13
have statutes for a worker
25:17
co-op, a producer co-op, a
25:17
purchasing co-op. So they come
25:23
to a state like Colorado or a
25:23
state like Washington or there
25:26
are other many other states in
25:26
the country that do have good
25:29
co-op statutes, and they are
25:29
actual a corporate entity, or
25:35
they are an unincorporated
25:35
association.
25:37
There's a co-op statute that's
25:37
called a limited cooperative
25:41
association that sort of
25:41
combines a limited liability
25:46
company with cooperative guide
25:46
rails. Those guide rails being
25:52
generally asking for one member,
25:52
one vote instead of a vote based
25:57
on your percentage of ownership.
25:57
That's a big difference between
26:01
co-ops and LLCs; however, you
26:01
can form a limited liability
26:07
company and make your operating
26:07
agreement sound like, look like
26:13
cooperative bylaws. And this is
26:13
done in many instances, for
26:18
example, where you have
26:18
undocumented workers who want to
26:22
form a co-op, and they don't
26:22
want to be, they don't want to
26:26
fill out the paperwork that says
26:26
they are undocumented. So in the
26:32
United States, at least you can
26:32
form an entity and be an owner
26:37
without having to fill out as
26:37
much paperwork. But you are
26:40
taxed as a partnership just like
26:40
you would in a regular LLC,
26:44
rather than as a corporate, a
26:44
cooperative corporation.
26:48
So yes, there are technically
26:48
legal structures, and they're
26:51
called cooperative corporations
26:51
or cooperative associations. And
26:55
they are not the least bit
26:55
similar to employee-ownership
27:00
trusts. They don't have anything
27:00
to do with ESOPs. Those are not
27:05
legal business structures,
27:05
whereas a co-op is.
27:09  Christina Sjahli
Limited
27:09
cooperative association, is that
27:12
LCA?
27:13  Linda Phillips
An LCA is
27:13
slightly different from a
27:16
cooperative corporation in that
27:16
both entities allow for
27:22
investors. In both a cooperative
27:22
corporation and an LCA, you can
27:26
issue preferred stock to
27:26
investors. And, but in a
27:32
cooperative corporation, those
27:32
investors don't have any voting
27:36
rights. They are strictly
27:36
passive investors. Whereas in an
27:40
LCA, the investors often have
27:40
voting rights, often have a seat
27:45
on the board of directors, the
27:45
condition being that investors
27:51
can never have majority voting
27:51
rights, or majority interest in
27:56
the profits of the company. So
27:56
that the people that are
28:00
actually using the services, the
28:00
patrons, are the ones that
28:04
control the company both
28:04
financially and governance-wise.
28:09  Christina Sjahli
First up, what
28:09
you said is that, what is your
28:12
business? Second step is that,
28:12
who do you want to get the
28:16
majority control? And then the
28:16
third step, you're saying that
28:20
there is a questionnaire that
28:20
you use. And then one of them is
28:23
asking, what are the
28:23
qualification of the members.
28:27
The fourth step is thinking
28:27
about the legal documents of it,
28:32  right
the articles of
28:32
incorporation, the bylaws, and
28:36
all that stuff. The fourth step,
28:36
the legal formation of a
28:40
cooperative, that you just
28:40
mentioned earlier, like one of
28:44
them is LCA.
28:45  Linda Phillips
So choosing the
28:45
right state with the right
28:48
statutes. For example, the state
28:48
of New York has terrible co-op
28:52
statutes. The state of Arizona
28:52
has terrible co-op statutes, but
28:56
doing your research to find out
28:56
where you should be
28:58
incorporated. And an example
28:58
would be the state of Delaware
29:03
is extremely well-known for its
29:03
corporate laws and corporate
29:07
statutes. And so a lot of people
29:07
form their C corps, or any other
29:14
kind of LLC or corporation in
29:14
Delaware, even though they may
29:18
be based in Minnesota or based
29:18
in North Dakota, or wherever;
29:23
they're incorporated in
29:23
Delaware.
29:25
So it's the same kind of thing
29:25
with a a co-op. We call Colorado
29:30
the Delaware of Co-op Law,
29:30
because we have really, really
29:33
good co-op statutes, and it's
29:33
very, very easy to incorporate
29:37
here. And we don't have any
29:37
franchise tax or anything like
29:41
that. So you can incorporate
29:41
here, but your main base of
29:44
operations might be in
29:44
Pennsylvania, might be in
29:46
Vermont, might be wherever, but
29:46
there are other states that have
29:50
good co-op statutes as well. So
29:50
that would be your next step is
29:53
looking where you want to
29:53
incorporate, and then find an
29:56
attorney to help you do that.
29:57  Christina Sjahli
So let's say
29:57
that if they already incorporate
30:01
under Delaware for their
30:01
business, do they like go to
30:05
Delaware?
30:06  Linda Phillips
It would depend
30:06
on whether they wanted to do the
30:10
transition at one time in one
30:10
step, or they want to transition
30:16
slowly. So they might form a
30:16
cooperative in Colorado, for
30:21
example, and start providing
30:21
some of the services out of
30:24
that, keep the Delaware, or sell
30:24
pieces of the Delaware
30:28
corporation to the co-op over a
30:28
period of time. So the founder
30:33
of that Delaware corporation,
30:33
could sell 10% of the co-op of
30:38
the Delaware corporation per
30:38
year to the co-op.
30:42
And the people that are in the
30:42
co-op are the ones that and
30:45
then there would be a contract
30:45
between the two entities, and
30:49
the co-op would provide the
30:49
services that the Delaware
30:52
corporation was doing. That's
30:52
another way to do it. Or if they
30:56
just want to do it all at one
30:56
time, then the Delaware
30:59
corporation could either convert
30:59
to a cooperative, to a Colorado
31:03
cooperative, or sell to a
31:03
Colorado cooperative.
31:06  Christina Sjahli
But that's
31:06
going to trigger some kind of
31:09
tax event with the IRS, right,
31:09
If you are selling?
31:13  Linda Phillips
Possibly. If the
31:13
Delaware corporation is a C
31:17
corporation or an S corporation,
31:17
and has been in existence for at
31:23
least three years, if they sell
31:23
that entity to a worker co-op or
31:31
to an ESOP, they can defer
31:31
capital gains tax on that sale.
31:36
And what happens is the proceeds
31:36
that they get from the sale of
31:40
their corporation to the co-op
31:40
needs to be reinvested in
31:45
another corporation, whether
31:45
that's, you know, a local
31:49
corporation or a or one that's
31:49
traded on the stock exchange,
31:53
and they have to hold it for
31:53
three years. And then they can
31:57
start selling pieces of it. And
31:57
they would have to pay capital
31:59
gains tax at that time, if there
31:59
is any.
32:02
Some, some don't have capital
32:02
gains tax. They don't have to
32:05
worry about it. There is no
32:05
capital gains issue. So if that
32:09  Christina Sjahli
So basically,
32:09
the last piece really from the
32:09
doesn't happen, then there's no
32:09
problem with selling it all in
32:14
one lump sum.
32:20
stop, is that choosing the right
32:20
state.
32:24  Linda Phillips
Choosing the
32:24
right state, there is one other
32:27
piece that we haven't talked
32:27
about, and that is choosing the
32:30
right financial model.
32:32  Christina Sjahli
Yes, please. I
32:32
like that.
32:34  Linda Phillips
You're familiar
32:34
with S corporations. You're
32:37
familiar with partnership,
32:37
taxation. You're familiar with C
32:41
corporations. There's a little
32:41
part of the Internal Revenue
32:44
Code called subchapter T. And
32:44
that's for cooperatives. And
32:49
it's a very small section of the
32:49
Code; it's not very long. But it
32:53
has specific ways for co-ops to
32:53
be taxed, or not taxed. And it
32:59
sort of combines partnership and
32:59
corporate taxation; it's really
33:04
kind of interesting.
33:05
What happens is, and we'll just
33:05
use a worker co-op because it's
33:09
an easy example. And then I'll
33:09
tell you what the issues are. So
33:14
a worker co-op, the employees
33:14
are providing the services for
33:18
the company. And we'll say 100%
33:18
of the employees are members of
33:22
the co-op. So all the income
33:22
that the company generates, all
33:27
of the revenue it generates is
33:27
created by those worker-owners.
33:32
That income after expenses, you
33:32
know, and you have you go
33:36
throughout your year, and you
33:36
have payroll, and you have
33:38
bonuses, and you have you know,
33:38
your 401K contributions, and you
33:43
have your rent, and all your
33:43
other regular expenses,
33:46
insurance, whatever. The end of
33:46
the year, you have your net
33:49
margins or profits. Those
33:49
profits are then distributed to
33:54
the members based on their use
33:54
of the co-op. And usually in a
33:58
worker co-op. That usually means
33:58
number of hours.
34:02
So you could have a co-op with
34:02
20 people, and you've got a
34:06
president of the company. You've
34:06
got a janitor that works.
34:10
There's also an owner of the
34:10
company. If they both work 2000
34:14
hours last year, they would
34:14
receive the same percentage of
34:18
the profits. Doesn't matter what
34:18
their salary was, doesn't matter
34:22
anything else they would receive
34:22
that, and they receive a like, a
34:26
1099 dividend statement. That's
34:26
called a 1099- PATR, stands for
34:33
patronage. And the
34:33
employee-owners report that on
34:37
their personal income tax
34:37
returns. The co-op does not pay
34:41
any tax on that net margin as
34:41
long as it is all distributed to
34:48
the worker-owners.
34:49
Now the co-op, unlike a limited
34:49
liability company is allowed to
34:54
retain some of that net margin.
34:54
Say they've got some capital
34:58
expenditures coming up next
34:58
year, and they want to set aside
35:00
some money to buy new computers
35:00
or whatever, they can do that.
35:05
They would have to pay corporate
35:05
tax rates on that net income
35:08
that they set aside.
35:10
The other trick is, say only 50%
35:10
of the employees are owners of
35:17
the co-op. So that means that
35:17
50% of the revenue, and you'd
35:23
have toand say they're all
35:23
doing the same job, just to make
35:26
it easier. They're all doing the
35:26
same job. So they're all making
35:31
widgets, and those widgets are
35:31
creating revenue, but 50% of
35:35
that revenue is being generated
35:35
by non-members. That non-member
35:40
income is calculated differently
35:40
under subchapter T.
35:45
Another example would be say,
35:45
it's a worker co-op, and
35:48
everybody's a member. But say,
35:48
the co-op owns a building next
35:52
door, and they rent out that
35:52
building to another company
35:58
that's not a member of the
35:58
co-op. That would be non member
36:01
income that's generated by the
36:01
co-op. So the co-op would have
36:05
to pay taxes. Of course, you
36:05
don't pay taxes, if the expenses
36:09
if expenses offset the income,
36:09
but that's all tax stuff.
36:14  Christina Sjahli
So that's
36:14
means, and I'm thinking from the
36:17
accounting perspective, when you
36:17
are doing the the accounting,
36:20
the internal accounting of
36:20
recording all of this
36:23
transaction, and then if 50% of
36:23
the workers are not members, and
36:29
then the other 50% is members,
36:29
the book needs to be separated.
36:33
So it's clear which one is going
36:33
to be taxable, and then which
36:39
one that is not taxable.
36:41  Linda Phillips
What you have to
36:41
separate out is your revenue.
36:44
You have to track where your
36:44
revenue is coming from. And
36:47
that's what you have to track.
36:47
And then of the worker-owners,
36:51
you have to track how many hours
36:51
they worked. If it's a producer
36:54
co-op, you you track how much
36:54
they produced. If it's a grocery
36:59
store co-op, you're going to be
36:59
tracking income from the
37:04
community who are members and
37:04
income from the community who
37:08
are not members. So you might
37:08
have a community membership
37:13
card, and a member shows that to
37:13
the cashier, and the cashier
37:18
punches in a button that says
37:18
this is a member sale, and the
37:22
next person coming in the line
37:22
is not a member. So it's a
37:25
non-member sale. So yes, you do
37:25
have to track that.
37:28  Christina Sjahli
In all of
37:28
this, the other thing that I'm
37:31
curious about is about the
37:31
funding and financing option
37:36
when you are forming a
37:36
cooperative. Can you explain a
37:40
little bit about that, because
37:40
I'm pretty sure, especially if a
37:45
founder has been an owner for
37:45
quite some time, and and even
37:48
you mentioned this earlier, the
37:48
employee will need to purchase
37:53
an ownership.
37:54  Linda Phillips
Right. And most
37:54
employees are not going to be
37:56
able to come up with 1000s of
37:56
dollars
37:59  Christina Sjahli
Exactly.
38:00  Linda Phillips
to buy from the
38:00
from the owner. There are
38:02
several ways to do that. The
38:02
employees can be asked to try
38:06
and go find the money, which is
38:06
usually not very successful.
38:10
They can try to go to a bank,
38:10
which is also usually not very
38:13
successful. The most commonly
38:13
used way is for the owner to
38:18
finance it. So say the company's
38:18
worth a million dollars. And the
38:22
company, the owner wants to
38:22
start sharing ownership, and so
38:27
wants other employees to come
38:27
join her in the enterprise. And
38:32
there's a promissory note that
38:32
the co-op fills out signs that
38:38
says, "We will pay you the owner
38:38
a million dollars." Or they give
38:44
the owner a million dollars in
38:44
preferred stock. And that
38:48
preferred stock earns a dividend
38:48
rate of whatever they decide: 5%
38:53
6% per year. And that preferred
38:53
stock is redeemed to the owner
38:58
over a period of time, again,
38:58
depending on the books, and the
39:03
cash flow of the company.
39:06
So we did one a couple of years
39:06
ago with an architectural firm
39:11
here in Colorado owned by four
39:11
ladies, and 90% of their
39:19
employees were women, and they
39:19
wanted to sell their business.
39:23
And the four ladies had agreed
39:23
among themselves who was do what
39:29
in terms of percentage of the
39:29
purchase price, and I think it
39:33
was 1.5 million, I think
39:33
something like that. The co-op
39:37
signed a promissory note, and
39:37
the co-ops been paying on that
39:41
note. So all the employees that
39:41
bought into the coo-op and
39:44
became owners, over the next
39:44
several years, some of their
39:49
profits will be going to pay
39:49
that promissory note. So they're
39:53
essentially paying themselves.
39:56
Some of the owner in this
39:56
particular instance, two of the
39:59
owners retired. And two have the
39:59
old owners retired, and two of
40:03
the old owners stayed on with
40:03
the company. stayed on with the
40:06
co-op. They're not receiving as
40:06
big a percentage of the profits
40:11
as they did when it was just the
40:11
four of them. Now, there's 20
40:14
owners, so they're not receiving
40:14
as big a share of the profits,
40:18
but they are getting paid for
40:18
starting the company by getting
40:22
paid back on that loan.
40:25
Now, there are entities out
40:25
there, there's a lot of capital
40:29
fundraising companies out there
40:29
that will help with with co-ops.
40:34  Christina Sjahli
Can you give
40:34
some examples?
40:36  Linda Phillips
There's
40:36
Cooperative Capital. There's
40:39
National Cooperative Bank. There
40:39
are three or four different
40:43
organizations in the United
40:43
States that are known for
40:48
helping with fundraising and
40:48
capital raising. Now a co-op can
40:52
go ahead and do crowdfunding.
40:52
They can issue preferred stock
40:56
and have investors come in. Say,
40:56
you get a group of people that
41:00
have a really great idea. And
41:00
they have an investor that
41:03
supports them and wants to
41:03
support them, whether that's a
41:06
family member, or whether that's
41:06
somebody that they know in the
41:08
business community. And so they
41:08
issue them preferred stock in
41:12
exchange for cash.
41:14
Again, you can do crowdfunding.
41:14
You can do direct Public
41:17
offerings. You can do pretty
41:17
much anything that a corporation
41:22
can do to raise money. You know,
41:22
we've been working with cause
41:25
for a long time. The issue of
41:25
venture capitalists is they like
41:29
huge rates of return.
41:30  Christina Sjahli
Yeah, yeah.
41:31  Linda Phillips
And we found one
41:31
that was mission-oriented enough
41:35
to work with one of our co-ops
41:35
and did provide them with some
41:39
some capital at a reasonable
41:39
rate of return. So it can be
41:43
done with venture capitalist,
41:43
but they are few and far
41:46
between. A co-op is not
41:46
intended, nor was it ever
41:50
intended to be an investment
41:50
vehicle. It just wasn't. It's
41:55
intended to provide, as I've
41:55
said, all along services or
41:58
products to its members. And if
41:58
its members are also investors,
42:02
that's fine. But the expectation
42:02
of a huge rate of return is
42:08
unusual.
42:09
But you can devise your
42:09
preferred stock. So that,
42:14
especially in a limited
42:14
cooperative association, you
42:16
can't do this in a cooperative
42:16
corporation. But you can issue
42:20
preferred stock that has a rate
42:20
of return that's based on net
42:24
revenue. That's based on net
42:24
profit. You know, a percentage.
42:29
As long as a majority of the
42:29
profits, as I said before, go to
42:34
the patron members of the co-op.
42:34
So you can be pretty creative in
42:38
your financing.
42:39  Christina Sjahli
When you are
42:39
working with a business during
42:44
their transition to become a
42:44
cooperative, and I'm talking
42:49
about the financing piece now,
42:49
what are the steps that you are
42:53
helping them with? Like the
42:53
thought process that you make
42:59
them to go through so they can
42:59
choose the right financing
43:02
options.
43:03  Linda Phillips
First step is
43:03
figuring out the value. Because
43:06
a co-op is not regulated like an
43:06
ESOP or some other entities, you
43:11
don't have to get a formal
43:11
valuation done of the company.
43:17
However, depending on the size
43:17
of the company, if it's a
43:21
$500,000 company, I don't think
43:21
a formal valuation is needed. If
43:27
it's 2 million or more, I think
43:27
they should spend the money to
43:31
get a formal valuation. If I was
43:31
a somebody who wanted to become
43:36
a member of a co-op or purchase
43:36
a co -op, I would want to have
43:41
that valuation if it was a lot
43:41
of money.
43:44
So that's the first thing you do
43:44
is figure out what the valuation
43:48
is. And if you don't do a formal
43:48
one, it has to be evaluation
43:52
that can be supported by the
43:52
books and records of the
43:55
company. In other words, you
43:55
can't just make up a number
43:58
saying, "I think my company's
43:58
worth $5 million," when it's
44:02
only worth 500,000. So has to be
44:02
something reasonable.
44:07
The other part of the valuation
44:07
process is with the
44:10
understanding of whether or not
44:10
you are going to be staying with
44:13
the company for any length of
44:13
time, or whether you're just
44:17
going to retire and go on your
44:17
merry way. So if you're going to
44:20
stay with the company, the
44:20
valuation will be higher,
44:23
because part of the value of the
44:23
company is your name, your
44:28
reputation, your knowledge of
44:28
the business, and your skills in
44:33
the company. So if you left the
44:33
company immediately and just
44:37
retired, the people buying the
44:37
company may or may not have your
44:40
skills and background and
44:40
knowledge to do what you do. So
44:44
that changes the value of the
44:44
company.
44:46
Then you look at, okay, you've
44:46
got a value of the company,
44:50
who's going to want to buy it?
44:50
Then you start looking at the
44:55
employees that have been with
44:55
you a long time. You start
44:58
having just casual discussions.
44:58
"I'm thinking about this. I'm
45:02
thinking about that. And would
45:02
you have any interest?" And just
45:06
start making inquiries. "Would
45:06
you have any If there was a
45:09
possibility for you to be a
45:09
co-owner with me, would that be
45:13
something you'd be interested
45:13
in?" And of course, they're
45:15  going to want to know
What are
45:15
the risks? What are the
45:18
benefits? Et ectera.
45:21
There are quite a few
45:21
organizations out in the United
45:24
States, all around the country.
45:24
If you just look up cooperative
45:28
developers, you'll find them all
45:28
around the country, and they
45:32
specialize in helping companies
45:32
determine whether a co-op is a
45:37
good model for them.
45:39  Christina Sjahli
Do they need
45:39
to get an audited financial
45:42
statements?
45:43  Linda Phillips
No.
45:44  Christina Sjahli
Okay.
45:45  Linda Phillips
But their books
45:45
have to be clean. I find with a
45:48
lot of small businesses,
45:48
especially if it's a sole
45:50
proprietor, that they mix
45:50
personal and business bank
45:56
accounts frequently. So you have
45:56
to make sure that the books are
46:00
clean, and that the records that
46:00
they're showing are actual
46:04
records of the business and not
46:04
a bunch of, say, for example,
46:10
the company credit card is
46:10
actually being used by the owner
46:13
for personal expenses.
46:16  Christina Sjahli
How useful is
46:16
it to have a financial model
46:21
when you are thinking about
46:21
transitioning to a cooperative
46:25
model?
46:26  Linda Phillips
It's quite
46:26
useful. I think the more
46:30
knowledge that you have about
46:30
your own business and can share
46:33
that knowledge with other
46:33
people, many people are visual.
46:37
And so if they see numbers or
46:37
charts in front of them that
46:40
says, "Okay, this has been my
46:40
income for the last several
46:44
years. This has been my expenses
46:44
for the last several years. This
46:47
is the profit I've made. This is
46:47
what I hope to make." So say
46:51
there's $100,000 in profit each
46:51
year for the last five years,
46:55
that could be used to pay off a
46:55
promissory note to pay that
46:59
owner off. If there hasn't been
46:59
much profit, it's only been
47:03
$5,000 a year, then maybe a
47:03
different way of financing would
47:07
be required. So yes, a financial
47:07
model is highly helpful.
47:12  Christina Sjahli
Is there like
47:12
a minimum profit that the
47:16
founder needs to achieve before
47:16
they start considering becoming
47:20
a cooperative?
47:21  Linda Phillips
Oh, I don't
47:21
think so. I don't think so at
47:23
all. It totally depends on the
47:23
owner. Some people would prefer
47:28
to have a higher profit level.
47:28
Other people don't care about
47:32
the financial aspect of it. They
47:32
want their company to survive,
47:35
and they want to share
47:35
ownership. The thing about
47:38
cooperatives it's not just a
47:38
business model or a financial
47:41
model. It's also a philosophy.
47:41
It's one member, one vote. It's
47:46
democratic control, democratic
47:46
ownership small d democratic.
47:51
It's not just dollars and cents,
47:51
but dollars and cents are a big
47:55
part. We often get groups of
47:55
people come to us who have the
48:00
values have of a co-op but none
48:00
of the business sense. So you
48:05
have to combine the two.
48:07  Christina Sjahli
So you need to
48:07
have both.
48:08  Linda Phillips
Yes. If you
48:08
don't have the mindset of
48:10
sharing ownership and sharing
48:10
control, or sharingsharing
48:16
controls the big one. I will
48:16
often have founders say, "But I
48:20
want to have the right to say
48:20
no." There are ways you can do
48:24
it. If the founder is providing
48:24
the financing. You can give them
48:29
some veto rights, that kind of
48:29
thing. But other times I just
48:32
say, "Well, then this is not the
48:32
model for you. You should just
48:36
you know, if you want to start
48:36
sharing ownership, then just
48:38
sell pieces of your business to
48:38
the people that you think might
48:41
be interested."
48:42  Christina Sjahli
Have you ever
48:42
seen someone that is formed a
48:46
cooperative and then later on,
48:46
they basically said, "Oh, oops,
48:50
this is not really the model
48:50
that I want." What would happen,
48:53
then?
48:54  Linda Phillips
Yes, you can
48:54
convert back again to what you
48:57
were before. We had one little
48:57
tiny co-op, only had four people
49:02
in it. It did not last very
49:02
long. The people didn't realize
49:06
how much work it was to be an
49:06
owner. And so, and they were
49:11
just not interested. They wanted
49:11
to be employees. So they went
49:14
back to being employees. It was
49:14
converted. The old owner bought
49:17
the company back again.
49:19
It wasn't a whole lot of money
49:19
exchanged hands or anything like
49:22
that. So it wasn't that big of a
49:22
traumatic experience. But it was
49:26
disappointing for everybody
49:26
involved because they had high
49:30
hopes. And part of the thing
49:30
that the co-op developers do for
49:36
the community is work with these
49:36
groups that want to be co op
49:40
owners and train them how to be
49:40
owners and what it means to be
49:44
an owner. Not just financial
49:44
responsibility, but also how to
49:50
govern, how to make policies,
49:50
how to think like an
49:54
entrepreneur.
49:55  Christina Sjahli
I think you
49:55
you hit a very good point over
49:58
there, right? Because as a
49:58
cooperative, especially when
50:02
it's a workers cooperative, you
50:02
become a founder, essentially.
50:07
You own a business. So you
50:07
really need to have that
50:12
entrepreneurial spirit in you.
50:12
The way I think of cooperative
50:17
is also, this is an opportunity
50:17
for you, who has been working as
50:21
employees, and you've been
50:21
thinking about having a
50:24
business, this is an opportunity
50:24
for you to become a business
50:27
owner. When you become a
50:27
business owner is a completely
50:31
different mindset and different
50:31
ways of thinking than an
50:35
employee, right? Like your
50:35
responsibility is become bigger,
50:40
because the success of that
50:40
business, the profitability of
50:44
that business, also fall under
50:44
your hands.
50:47  Linda Phillips
Correct. And on
50:47
one hand, it can be very
50:49
exciting. When you get your
50:49
monthly report, your monthly
50:53
financial reports, and you learn
50:53
how to read that balance sheet,
50:57
you read, read that profit loss
50:57
statement, and you see what your
51:01
efforts are actually doing. And
51:01
other times it can be very
51:05
discouraging if the company is
51:05
not doing well.
51:08  Christina Sjahli
Yes.
51:08  Linda Phillips
So, you know, a
51:08
business is a business, and some
51:11
do well and some do not do well.
51:11
And it's the same is true with
51:14
co-ops.
51:15  Christina Sjahli
Yes, you
51:15
brought up a very good point
51:17
there. Is there anything that
51:17
you want to share with my
51:20
audience that I haven't asked
51:20
yet, Linda?
51:23  Linda Phillips
Well, we had a
51:23
very broad overview of what
51:27
cooperatives are. I think they
51:27
are a good business model. They
51:31
are not for everybody. But they
51:31
are something to think about
51:35
when you're thinking of
51:35
different options. If you're
51:39
looking for democratic ownership
51:39
and democratic governance and
51:44
sharing. It's more of a sharing
51:44
economy business model than
51:50
other business models.
51:52  Christina Sjahli
Linda, thank
51:52
you so much for being here.
51:54
Where can people connect with
51:54
you if they want to know more
51:58
about cooperative?
51:59  Linda Phillips
Go ahead and go
51:59
on our website. We have many
52:02
blogs about cooperatives. It's
52:02
www.jr whiner.com. That's
52:08
j-r-w-i-e-n-e-r.com.
52:12  Christina Sjahli
Linda, thank
52:12
you so much for being here.
52:15  Linda Phillips
Thank you.
52:17  Christina Sjahli
And that's
52:17
bring us to the end of another
52:19
show. Thank you so much for
52:19
listening to another episode of
52:23
Her CEO Journey, the business
52:23
finance podcast for women
52:27
entrepreneurs. If you want to
52:27
create a proactive financial
52:31
plan and process for your
52:31
business, so you are ready to
52:35
weather the financial storm over
52:35
the next few months, let's chat
52:40
and see what's possible for you.
52:40
Book in a time to speak with me
52:44
at
52:44
christinasjahli.com/lets-chat.