No Stupid Questions

The kind of people who would start a business (to enrich themselves) and the kind of people who value co-ops and employee-owned businesses (to enrich others) does not have much overlap. I love the idea of coops, but I do not have the skills or ambition to start any kind of business.

I actually tried to do this with a bar I owned back in the day. It was exciting / hopeful.

It went into effect January 1st, 2020. January for bars is rough because people do "dry January" so we hoped February and March would be good.

We all know what happened. It didn't survive. Spent a good year or so continuing to pay wages and healthcare out of my own pocket, but I hit a point where I had to call it (mostly because I ran out of money and couldn't get any more loans).

I plan to try again in the future, once I have the loans paid off and some padding saved again.

I also dream of a day where somewhat self-sustaining communes become more prevalent. Everyone living together on a shared plot and exchanging goods & services instead of money. Maybe it's a pipe dream? I don't know. I feel like it'll become necessary over the next 4 years though.

Poor communities already do this to support each other. They watch each other's kids. They run errands for each other. They don't keep track and charge cash and create an LLC. But community support is real.

People who would start co-ops are usually decent and don't care about profits that much. They wouldn't exploit their workers or other obvious strategies that would put profit more important than wellbeing.

All the companies that don't care about this have much less costs. Thus the companies that don't care about morality can offer lower prices than the co-ops, and since most customers care about that more than anything else, the co-ops are driven out of business much more often.

They are run out of business, most simply.

The operation that does not focus their profits on building further capital and establishing monopoly will fail in the arms race of those that do.

For example: there are countless community and public efforts establishing childcare and pre-k through pooled resources. They are in direct competition with things like Bezos' childcare academies. (Personal anecdote: they bought out my kids' building for public pre-k and evicted them.)

And a successful co-op will get pressure to be bought out like a start-up. (Often starts as a great way to expand! Then the expansion changes the culture, the new location feels corporate and the original location is later shut down and left vacant. -Also personal anecdotes for a grocery co-op and an employee owned operation I once worked at.)

I think a lot of people don't know what co-ops are. I have been pretty left leaning my whole life and I only found out co-ops in my late 20s and the majority of people I talked to in real life have no idea what coops are. And from that few that do know, many dont know how big cooperatives can be.

For the uninitiated, I am sharing the [International Cooperative Alliances definition of coops here: https://ica.coop/en/cooperatives/what-is-a-cooperative

and the list of largest coops in 2023 here: https://ica.coop/en/media/library/research-and-reviews-world-cooperative-monitor/world-cooperative-monitor-2023

Screenshot of the top 10 coops based on turnover in USD from the report here:

Because corporations will sweep in and take all the business by taking a loss just long enough to put the others out of business.

In short, co-ops are the closest socialist/communist business model that’s actually implemented in the U.S., so why are more leftists not doing this?

Starting a business (that is based on a sound and viable business plan that has even a snowball's chance of surviving its formative early years) is really REALLY hard. It takes massive amounts of money or debt, the early years promise years of having no income for yourself (or paying yourself below minimum wage), it means a staggering amount of hours you need to put in to keep it going, forgoing vacations and important family events, loss of friendships because you're having to put all your time and energy into the business without socializing, having to work when you're incredibly ill, incredible amounts of stress (which increases by 10 times when you have employees that now depend on you for their livelihood) and even if you do everything perfect your business can fail leaving you with nothing for the years that you put into it, and potentially also with tens of thousands or millions of dollars in debt. It means many times being force to make decisions that massively affect other people's lives (your employees or your customers). It can be versions of the Trolley Problem time and time again.

"According to the U.S. Bureau of Labor Statistics (BLS), approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more." source

So ask yourself if you want to go through all of that, and instead of wealth you can live on and support your family with at the end of it, you get simply a "thank you" for building a co-op.

They don’t have access to capital (means of production). Consider the following scenario:

All of the employees at a car manufacturing plant are sick of being paid a fraction of the total sale price of the cars they make. They decide, in solidarity, to quit en masse and start a worker co-op car plant instead so that they can all enjoy sharing 100% of the profits themselves.

So they quit. Now what? Well, knowledge isn’t an issue because they already knew how to operate all the machines in a car plant. The problem is that they don’t have the money (or the land) to build a new car plant. We’re talking billions of dollars and a huge piece of land which ideally should be located on a railroad line so that parts (which are very large and heavy) can be delivered affordably by rail.

So where are they gonna get the money? Not from private investors, of course, since that nixes the worker only profit sharing arrangement. Not from banks either because these workers, while highly knowledgeable and motivated, don’t have any collateral to put up for the bank loans. The banks do not want to be in the position of repossessing a bunch of specialized manufacturing equipment and trying to resell it at a loss.

The common response to this is: the government. But think about that. Do you want your government giving billions of dollars to a few hundred people so they can start a car plant and then keep all the profits?

Maybe people won’t become billionaires doing this

And that's exactly why. Even if the founder wants to be altruistic, the venture capitalists he depends on to get his business off the ground sure as Hell don't.

co-ops don't get loans. It's hard to start a business without loans.

Starting a business requires resources and coordination. It is easier for one individual with many resources to get the ball rolling than for many people with few resources to do the same. Even if you need to take out a loan, it's simpler to do as an individual than as a group. Most people who front all the resources for a business are going to want creative control over the structure and operation, and consequentially claim to the profit. It's much easier, logistically, for one person to roll existing capital into a new business than to coordinate a board of founders. Democracies are much slower at making decisions than dictatorships, obviously.

I am 100% pro co-op. I'd love to see credit unions offering start-up loans to groups of founding members, specifically designed to develop co-ops. It's just currently uncommon, so the infrastructure isn't there. Without that financial infrastructure, you're relying in everyone fronting a portion of the start-up funding.

So, in short: it's more complicated, financially and logistically. I'm all for it, but before we see co-ops carve out a more significant market share, we'll need to see some chipping away at these barriers to entry.

Its really hard. People who start businesses put a shit ton of work into it for a time but if it takes off as long as they make a profit they can expand their way to wealth. Does not always happen but it is the motivation. coops do get started when there are enough folks to share the load but it takes a good enough group. Like I was part of a condo of 12 units and getting a board when half the units had to do it was tough as hell. Now im in one with eighty plus units and its easier but you still get uncontested elections. This is from a group that is probably pretty competent overall and motivated for their own good. So I would say you have to get together a group that is like two standard deviations more responsible and competent than average to get something like this going.

They tend to get out competed by companies with enough investment funds to undercut them without making a profit until they have a stranglehold on the market and can jack up prices.

The short answer is that starting or incorporating is the easy part, and the hard part is guiding the seedling of an idea through a array of hazards, any of which can quickly sink the plan.

For clarity, I will use the term "organization" to broadly refer to a group of people and resources dedicated toward a goal, which includes what you described as profit-sharing companies and co-ops, as well as the predominant business structures like for-profit corporations (ie INC, LLC) or non-profits charities, plus groups that use those structures in non-conventional ways, like 501(c)(4) "social welfare organizations" that incorporate for flexibility but constrain their operations to what is within their remit (eg DSA, NRA). Although it might seem that I'm focusing on tax-exemption by referencing the American IRS tax code, this is more a short-hand to refer to organizations voluntarily constraining themselves by their own terms, in contrast to even narrower types of entities which are constrained by law. The latter might include a Limited Liability Partnership, which in California is only granted for a union of lawyers, architects, or accountants.

As for why I've expended a whole paragraph to describe the different ways that organizations can form themselves, it's because the formation often has little to do with the intent of the organization, the current or future size of the endeavor, or whether they're likely to make it off the ground. Any and every organization enters this world as a small, tender operation, and neatly falls into what the US Small Business Administration (SBA)'s Office of Advocacy would describe to as a "small business". This includes any prospective co-op or even a one-person venture, and unfortunately the odds are heavily stacked against small businesses.

Since co-ops and profit-sharing companies would play in the same capitalist environment, I think it's fair to equate these organizations with "small businesses" at large, for the purpose of this analysis. From that SBA document, only two-thirds (67.6%) of new businesses last longer than 2 years, and less than half (48.9%) make it past 5 years. And of the businesses led by minorities -- specifically women, veterans, Black, Hispanic, and Asian descendants -- their percentages were even lower.

When you think about it, a successful organization requires 1) genuinely visionary leaders, as well as 2) the staff to carry out the objective, plus 3) resources to enable the organization, plus 4) a measure of luck. Much like in a game of Settlers of Catan, it is rare to hold all the requisites at once, let alone at the very start of the game. Whereas conventional stories of capitalist success generally focus on a genius or lucky young upstart that upends the business world through shrewd business acumen -- thus providing their organization with the first requisite -- I think the co-op and profit-sharing models start with having the second requisite, usually forming the initial group of dedicated employees.

And I don't disagree that there are lots of community-minded individuals that are able and willing to come together towards a common cause. But the crux of an organization is that it, er, organizes people and resources in an efficient manner for that common pursuit. I am of the opinion that true leaders with the necessary impassioned drive and ability to inspire and rouse their organization's staff are far and few between. And that's even before considering their core competencies in addressing organizational crises, their handling of public relations, and their personal and business roles in the socioeconomic environment.

We need only look at the conventional business world to see where corporate leaders absolutely drop the ball and pull the organization downward, be it Boeing's various CEOs following the MD merger, to convicted fraudster Martin Shkreli of Turing Pharmaceuticals, and more. But while there are a lot of really awful leaders taking their organizations down with them, there must also be run-of-the-mill leaders who do actual leadership, whether for manufacturing, charities, food banks, actual banks or credit unions, and more. The problem then for requisite #1 is a matter of incentive: for those leading successful capitalist organizations with nation-wide scope, what would attract them to help lead a smaller organization to provide daycare and pre-K at the local level? If there is a genuine shortage of qualified leaders, then capitalist incentives would mean they seek out bigger operations to use their skills, not smaller ones.

That, of course, just means that communities need to be producing more people that are qualified to be leaders (requisite #1), in addition to forming the communities that will become the staff of those organizations (requisite #2). I will not dwell on the third and fourth requisites, as it's fairly obvious that even with good leaders and good people, if the means of production aren't present, there's not much to be done.

As a closing food-for-thought, much of what I've discussed above is very American-centric, as our notions of organization are both democratic yet republican in nature. That is, we want to enable the masses to participate (requisite #2), but we also expect leadership to be singular individuals (requisite #1). This does work, and certainly dates back the eras of kingdoms and empires -- have you thought of the Roman Empire today? -- but it may be worth exploring leadership that is also democratized.

Switzerland comes to mind, as their Federal Council -- the closest equivalent to the US President or a company chief executive -- is actually seven people, whom all serve as the collective head of state and head of government for the country. Note that this is not equivalent to a company Board of Directors, which is more analogous to the Federal Assembly of Switzerland, which is the parliament with legislative powers to set policy. Furthermore, this is not to be confused with direct democracy, which the Swiss also do, by way of referendums.

It's possible that rather than needing to develop more skilled leaders, an alternative is to assemble a small, core group of individuals who together have enough skills to competently lead a co-operative organization. This would certainly be more tractable, although I haven't given enough consideration as to how this would work, and whether there are any existing models to look at. It might or might not mirror the qualities needed from existing, successful co-ops and profit-sharing companies, with REI and WinCo Foods coming to mind.

I can't afford it and it's hard to get people to agree on things, especially where their money is concerned.

This requires capital to do and the traits that drive having capital in the first place under capitalism also drive making capitalist structures to get more capital. It takes acting against your interests in capitalism to make a co-op.

That said, as a group a bunch of people could invest equally and have a fair amount of capital, especially with access to business loans. The key problem here is accessing finance and legal structures. The structure of an LLC is not really ideal for a co-op as it assumes individual ownership not group ownership. This can be worked through in a few ways but it is always a workaround, just something to make it work in the current system. The ideal would be some sort of shared, maybe creative commons, legal frameworks written up and cross checked by a bunch of lawyers. I think it could be done and very successful, but making that structure would require input from a bunch of people with experience with co-op structures. That said, once it is done they can all benefit for future endeavours and so can anyone else.

The other issue is culture. The USA has a culture of avoiding interdependence and being very individualistic. This is great for atomising workers and preventing unions, so it is encouraged from all capitalist sources including western media such as film and TV but also in things like which books are published and which are passed on. Nobody wants to produce media that will result in their own loss of financial wellbeing or status. Finding a way of shifting the culture is definitely a hard and currently unsolved problem.

As others have already stated, it's expensive to start, expensive to maintain, and very high-risk.

Most startups fail within the first two years, and an organization that doesn't focus first and foremost on profit is I imagine even more likely to fail within those first couple of years.

Unknown! Profit share is something I've done with my own business and feel like it produces better outcomes for everyone (we measure our impact on customers, employees, owners, the business and community to make sure we are serving all of them). I'm looking into actually granting shares, so it is more real for the employees. Maybe other owners don't do it because it does require some amount of effort and transparency into company performance. IMO, owners can be really lazy.

They're extremely popular in the US, especially in banking (credit unions). I have yet to find any country in Europe or South America with US-style credit unions and it drives me crazy

Lots of people have ideas, few people actually want to implement ideas. This is why there's more workers than business owners.

Look into Germany's co-determination laws for an example of this being required to a certain degree, in every corporation.

It’s a good question OP. I think about this too.

If I share profits, then how do I, a lowly CEO, keep all of the profits for myself?

It's not uncommon in a lot of industries for more traditional enterprises to refuse to do business with these sorts of companies.

Rei says it's a coop.

Effort, risk

I have an idea for a building decarbonization co-op enterprise that I’m really excited about, but it’s difficult for a few reasons: lack of time outside of work to develop the business plans, lack of connection to others to build with, and lack of financial capital to get off the ground. I’m not opposed to putting in the effort to try fixing those, but they are all significant challenges.