Making a case for co-ops: how the rarely-taught business model is gaining traction in Bellingham

Making a case for co-ops: how the rarely-taught business model is gaining traction in Bellingham
A-1 Builders employees Justin Deane, left, and Mike Gill working on a remodel project. [Photo Courtesy of A-1 Builders]

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Filed on 04. Jan, 2016 in Features, News

Rick Dubrow first considered turning his company into a worker-owned cooperative in 2007. He felt it would be the right thing to do for his long-time employees and for the long-term health of his business, a Bellingham remodeling company called A-1 Builders. More owners—more people with “skin in the game”—would make for a stronger company, Dubrow reasoned.

He put the idea on hold when the recession hit. But now, Dubrow, 64, is looking toward retirement and once again taking up the process of converting his business into a worker-owned cooperative. He hopes to complete the process in the next couple years but it could happen in as soon as three months, he said.

If things go as planned, the business will have about six owners—at least to start with—under the new structure. Dubrow, his wife, and four veteran employees will all own an equal share in the company. Employees who have been with the company for at least five years will be able to buy a share and join the ownership team.

The conversion process won’t be easy. Dubrow and the company’s future owners have a lot of details to work out, such as how much it will cost to buy an ownership share, and how the cooperative will buy Dubrow out when he retires.

It’s complicated by the fact that few business service providers are familiar with cooperatives; cooperative business models are rarely taught in business schools said Art Sherwood, Western Washington University’s David Cole Professor of Entrepreneurship.

“One of the problems people have is they can’t find a lawyer who knows about cooperatives or a bank or a credit union or whatever,” Sherwood said.

Sherwood is trying to change that. He teaches about cooperative businesses at Western and he’s part of a local movement spreading knowledge about cooperative business models. If Dubrow’s experience is an indication, that movement seems to be succeeding.

Assembling a team of business advisors for the upcoming transition wasn’t hard for Dubrow, and that’s partly because there are already other cooperative businesses in Bellingham. In fact, A-1 Builders won’t be the first builder cooperative; Bellingham Bay Builders, a worker cooperative, formed in 2008 and its owners have helped Dubrow get started.

“We went to Bellingham Bay builders and said, “Who did you use as your attorney and would you do it again?”” Dubrow said. “And that’s actually the attorney we’re working with. Same with the CPA.”

Jim Ashby, general manager of the Community Food Co-op, also thinks it’s getting easier to start a co-op. In addition to local resources, there are national organizations. The National Cooperative of Grocers is one such resource for food co-ops.

“Eight years ago if a person wanted to start a co-op they would have to find another co-op to help them out,” Ashby said. “That’s changed. A lot more resources are available.”

The case for co-ops

Others in Bellingham who are spreading ideas about the cooperative business model include founders of other cooperatives. The most notable example may be the Community Food Co-op. The co-op’s Member Advisory Committee has a Cooperative Education Project that hosted a talk by Sherwood in October, and a series of lectures on cooperatives in 2014.

Reasons for advocating for the co-op model vary. One reason Ashby likes the model is he believes the food co-op wouldn’t be able to give so much back to the community and provide support to local agriculture if it were not a cooperative, he said.

Dubrow believes that it is a way to make a business more resilient in the face of economic turmoil. With A-1 Builders, Dubrow said he’s already seeing more initiative from the future owners.

“People are acting more like a team already,” he said. “They care more. Imagine how much more focused and conscientious you’d be if you were an owner.”

Sherwood likes the way that a cooperative can be a tool for creative problem solving. For example, if a marine business needed to use a specialized piece of equipment once or twice a month, it might not make sense to buy it. But they could get together with other businesses who also occasionally need that piece of equipment, form a cooperative, and buy it, Sherwood said.

Sherwood is an owner of a 28-member consulting cooperative. Sherwood and others in the cooperative want to focus on their consulting work, rather than the administrative parts of running the business. So together, with a percentage of their paychecks, they pay for a full-time manager and part-time assistant to process payments for them.

“I don’t have to chase down money,” Sherwood said.

The term “cooperative” encompasses producer co-ops such as Darigold, where producers band together to get more selling power for their products; consumer co-ops like REI or the Community Food Co-op, where consumers buy-in up front to get more purchasing power; and worker’s cooperatives, where workers can buy into the business to share profit and make decisions.

In broader terms, a cooperative is an organization of people coming together to meet a shared need, Sherwood said.

When Sherwood spoke last October at an event co-hosted by the Community Food Co-op’s Cooperative Education Project, and Western Washington University’s Small Business Development Center, his goal was to train business advisors, accountants, and others on the ways co-ops can be used.

“Very few people actually have been trained in the cooperative business model, which is interesting and strange to me, but it’s true,” Sherwood said. “If you’re anybody who is giving advice to someone, your toolbox should actually be full.”

Why isn’t the model taught in business school? One factor is that not enough research has been done on the model—corporations have paid for research on more conventional business models, but there’s no one to foot the bill for research on cooperatives, Sherwood said.

Immense potential

According to a study by the University of Wisconsin-Madison, in 2009 there were more than 30,000 cooperative businesses in the United States employing two million people and holding $3 trillion in assets.

“Relative to the more traditional business forms they’re small, but yet the potential I think is really immense,” Sherwood said.

Sherwood thinks the potential is greatest for worker co-ops, especially for low-paying service industry jobs, he said. One of his favorite local examples is a cooperative of caregivers that provides service to elderly and disabled people in their homes.

The co-op model gives Circle of Life Caregivers Cooperative’s 50 member-owners advantages like higher pay and support for dealing with sporadic hours, difficult clients and other challenges of the job.

Jo Ann McNerthney founded the Circle of Life Caregivers Cooperative in 2007.

“I think the industry was just ripe for it,” McNerthney said. “Caregivers are underrepresented and isolated. You don’t have someone to call on if you get sick.”

Circle of Life member-owners will earn about $14 an hour in 2016, McNerthney said. Average pay in the industry is about $11 an hour, according to an informal survey McNerthney did of local caregivers.

If the company ends the year with a surplus of cash, members all get a year-end dividend. Last year, they got an extra $1.50 for every hour worked and the year before it was $2.78 an hour, McNerthney said. Workers also join Circle of Life for what McNerthney calls the “co-op advantage”—they have a say in their workplace and elect their board of directors.

But there are disadvantages to the business model, she said.

“It takes a lot of communication and sometimes that’s difficult,” she said. “When there’s not enough communication sometimes the member-owners start feeling like they’re left in the dark.”

Sherwood also thinks the business model isn’t for everyone.

“The business model is not hard,” Sherwood said. “It’s the cooperation that’s challenging.”

Oliver Lazenby, associate editor of The Bellingham Business Journal, can be reached at 360-647-8805, Ext. 5052, or olazenby@bbjtoday.com

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IFRoZSBKb3VybmFsPC9saT48L3VsPg==