Difficulties most often encountered by new cooperatives

 A financial institution that played a key role in supporting new cooperative ventures in the northern United States notes the following problems as those most often encountered by NGCs:
 

  • Plant specifications are not met
  • Construction contract problems such as delays and cost overruns occur
  • The chosen location for the business is noncompetitive
  • Market projections are overly optimistic
  • Operating cost projections are unrealistically low
  • Government-based marketing assumptions are faulty
  • Management problems occur
  • The business has an excessive debt-to-equity ratio
  • Leadership is coming from an outside promoter rather than from within the producer group


Other problems that may arise for a cooperative are:
 

  • A failure to get assistance from advisors and consultants who have experience in cooperative development.  Most start-up cooperatives need the help of outside expertise.
  • A failure to conduct adequate planning, such as preparing a feasibility study and a realistic business plan.
  • A failure to adequately finance the business.  Many new businesses are underfinanced.  It usually costs more to start a business than originally anticipated.  This could be due to problems such as delays and plant start-up problems.  It could also be due to faulty assumptions in the business plan.  Adequate financing from both members and lenders is necessary, especially in the first few months of operations.
  • A failure to adequately communicate with the cooperative’s stakeholders, including potential members, lenders, and management.  A lack of communication can create suspicion among these groups.


NGC organizers should keep these problem areas in mind.  Difficulties can be mitigated if they are anticipated and planned for ahead of time.

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Sources:

Bostrom, Brent D. 1994. Potential pitfalls for new cooperatives. Year in Cooperation Vol. 1 No. 1: 14-15. Minnesota Association of Cooperatives.

Johnson, Dennis A. 1994. Financing new-wave cooperative ventures. Year in Cooperation Vol. 1 No. 1: 16-17. Minnesota Association of Cooperatives.

Myers, Mary, Greg Lawless and E.G. Nadeau. 1998. Cooperatives: A tool for community economic development. Manual published by the University of Wisconsin Center for Cooperatives.