Meet the new startup: It’s a co-op, keen to spread that model
The term “co-op” might bring to mind a small-town natural-foods store, a commonly owned apartment building, or maybe the bookstores at Harvard and MIT. A start-up? Not so much.
But a Boston program for entrepreneurs is pushing young companies to consider cooperative ownership, nurturing a handful of promising firms with the goal of showing that the model can help them grow quickly while attacking the growing social problem of economic inequality.
Start.coop, based in the Back Bay, says it is the only accelerator in the United States focused on startups that are controlled not by investors, but by customers and employees. Co-ops generally share their profits with members, much as conventional companies distribute dividends.
“There is renewed interest in models that are not winner-takes-all,” said Greg Brodsky, the founder of the program. “If, by design, we’re sharing ownership and profits on Day One, we think cooperative ownership should be the model of choice for people who care about wealth inequality.”
Cooperatively owned businesses are more common than you might think. One study estimated there are about 29,000 in the United States, employing about 2.1 million people.
Well-known co-ops include Massachusetts-based Equal Exchange and Ocean Spray, along with Cabot Creamery in Vermont.
But many in the co-op world believe the model should be used more widely.
“I think there would be less income inequality in the country if this became a significant portion of the economy,” said Rob Everts, co-executive director of the worker-controlled Equal Exchange, which is a financial backer of Start.coop.
Other co-op brands, including farmer-owned Cabot, are supporters, contributing a few thousand dollars and helping coach leaders of the startups.
It’s a modest effort in the face of the billions being poured into venture-backed startups that use traditional business structures. Start.coop provides training and advice and invests about $10,000 in its companies over 10 weeks.
Tech companies are a prime target of the accelerator. Co-ops have made limited inroads into the technology sector, even as companies such as Facebook and Uber have faced criticism about their limited accountability to the users and workers who fuel their businesses.
And though the tech boom has played a significant role in the recent US economic expansion, not everyone is seeing the benefits. A 2018 study of Silicon Valley by the University of California Santa Cruz, for example, found that wages for the bottom 90 percent of earners in the tech hotbed had dropped over two decades, even though per capita economic output in the region had grown by 74 percent since 2001.
Some observers of startup culture are skeptical that there’s much of a market for the co-op model among early-stage businesses that hope to grow fast.
Venture capitalists can offer the money and guidance entrepreneurs need to fuel rapid growth without expanding ownership beyond a handful of knowledgeable people, said Fred Tuffile, director of entrepreneurial studies at Bentley University.
Tuffile said it’s a good idea for companies to motivate early contributors by sharing their profits — but he worries that large groups of initial owners could make it harder for young companies to be decisive and move purposefully toward their goals.
“I’m very liberal where it comes to sharing profitability,” he said. “I’m stingy when it comes to sharing control.”
Co-ops are generally not direct democracies, though. Members, like shareholders of a public company, usually elect a board of directors, which oversees a management team that makes most operational decisions. Co-ops can decide to distribute profits to members, or reinvest them to help the company grow.
Brodsky said cooperative ownership can take many forms, some of which are better suited to rapid growth. That’s one of the goals for the accelerator: to try out different models.
The accelerator’s first group, which is at the tail end of the program, includes five companies, several of which are using a relatively new model of cooperative ownership that could have particular relevance to the technology industry.
All but one of the companies at the accelerator are “platform co-ops,” which are technology-enabled companies owned in part by their users — a structure that could have implications for how businesses use, store, and value personal data.
The idea has been percolating for a while in some corners of the tech world, largely as a response to the gig economy, in which workers are often considered contractors and don’t get the same protections and benefits as employees. In New York, for example, Up & Go, a kind of Uber for house cleaning, is owned by the cleaners who provide the services.
Savvy Cooperative, a Queens, N.Y., company that is participating in Start.coop, helps companies and medical researchers find patients to participate in paid surveys or focus groups. Patients pay $34 to become members of the co-op, and they are compensated with cash payments and shares of the future profits of the company when they offer their insights.
Savvy’s founder, Jen Horonjeff, who holds a doctorate in environmental medicine, has participated in studies both as a patient — she has juvenile arthritis — and as a researcher.
Those experiences led her to wonder whether there might be a better way for researchers to collect a diversity of patient perspectives. She looked at traditional startup models to launch her company linking patients with researchers. But she said she was troubled that, if her idea succeeded, she and her investors would be profiting from the patients’ work.
“I know what it’s like . . . being asked to do everything for free while somebody else profits,” Horonjeff added.
In its efforts to ramp up quickly, Savvy has tried to adapt traditional startup elements to the cooperative structure. For instance, it will always be majority-owned by its users, but there are classes of stock set up for employees, the founders, and outside investors.
This leaves open the possibility that if the company succeeds, Horonjeff and her co-founder can make a return that will reward them for their early work. They probably won’t wind up with the billions that other startup founders have taken home, though.
Savvy’s founders are entitled to 10 percent of the company’s profits.
And though the company won’t have a traditional “exit” in which it is sold to a larger company or goes public, there are structures that can pay back investors with a portion of the revenue as the company grows.
“In the other startup groups we roll with, nobody gets why we’re doing what we’re doing,” Horonjeff said. “People think we’re cute.”
People who have followed the co-op movement say the model, and a broader shift toward increased employee and consumer control, is likely to become more prominent in coming years, especially as aging baby boomers look for socially responsible ways to cash out and retire by selling their companies to groups of employees.
But Peter Walsh, a partner emeritus at the management consulting firm Oliver Wyman, said the beginning stage of a company is the easiest time to form a co-op. He believes the financial system will come up with new ways to support those companies’ growth.
“In every boardroom, people are talking about the unequal distribution of wealth,” he said.
“Here’s a way to address this huge social issue, but we’re doing it in a way that we’re not just giving handouts.”