STAGES OF DEVELOPMENT OF A COOPERATIVE
R. W. Sutton, Extension Ag. Economist

The purpose of this publication is to help lend insight into the process of cooperative and group development. There are many different ways for the evaluation, change and beginning of new entities. A properly formed group entity is, at least, a complex and difficult process. It requires the recognition of need for change, agreement, organization, commitment, and financial responsibility. This is not a simple endeavor. These suggestions are based on experience and the referenced publication at the end.

Cooperative Purpose

The basic reason(s) for considering the development of a cooperative is usually rooted in the fact that an individual business can voluntarily own and control, in association with others and on a democratic basis, another business enterprise that will benefit them. And, this benefit is greater than that which they could accomplish singularly. The three most common purposes of a cooperative are:

Many specific goals could actually be listed as the real reason but they usually refer back to one or more of the broad purposes. Some of these specific objectives include: increasing user income; expanding markets (possibly not available locally); obtaining economies of scale; assuring a source of supply; capturing a market or supply unavailable otherwise; increasing level of competition for user products; providing higher quality of products and supplies (possibly not higher/lower prices but competitive); and, increasing control (success) of the users individual business. These are a few examples that are critical for long-term success.

Stages of Development

In working with farm/rural/buying and other related groups, the steps have generally been divided into some distinct areas. They are shown below. Some of these will be discussed further.

A. MOTIVATING CHANGE

The simple steps in the decision making process that would entail motivating change (not discussed) are:

B. PLANNING FOR ORGANIZATION

1.	INFORMALLY ORGANIZE/HAVE DISCUSSION WITH SMALL INTERESTED GROUP	-Establish a Pre-Organizational group and Pre- Organizational Chairperson -Hold group sessions and include outside counsel -Common needs are paramount; concentrate here
2.	OBTAIN OUTSIDE COUNSEL	-Use unbiased outside sources of information/ professionals in areas such as legal, financial, co-ops, technical, marketing, production, etc.
3.	SURVEY OF POTENTIAL MEMBERS	-Directed by Pre-Organizational group -Use pre-discussed forms
4.	GROUP DISCUSSIONS	-Make sure to include all possible members - Discuss results of survey
5.	VOTE	-Vote on continuing and stay with the decision
6.	SET BROAD GOALS	-Keep goals general but precise about what you are going to do
7.	FORM TEMPORARY ORGANIZATION	-Form a temporary board or Organizational Committee
8.	DEVELOP PRE-CO-OP STRUCTURE	-Utilize temporary board and outside sources

C. IN-DEPTH STUDY

1. MEMBER COMMITMENT

-Must estimate individuals willing to participate; use non-binding intent forms

2. FEASIBILITY STUDY

-Use unbiased, outside source; private; Agric. Coop. Service; USDA; Extension; etc. -Include general pre-business and marketing plans

3. GROUP DECISIONS

-Have announced, organized, specific meetings

4. PRE-LEGAL STRUCTURE PLANNING

-Extension, USDA, others have sample Articles and By-laws -Study these in detail, relate/change to fit this co-op

5. GENERAL BUSINESS PROCEDURES

-Consider the members; potential new members -Management structure -Record keeping procedures -How will members pay/be paid -Deal with out-going members -Establish by-law details that relate to business, etc

6. PRE-FINANCIAL STRATEGIES

-MEMBER CAPITAL - How much and how often -BORROWED/OUTSIDE CAPITAL - How much, when

D. ORGANIZATION

1. VOTE	-Hold announced meeting(s) -Vote whether to finalize the cooperative -If yes, also vote on keeping temporary organization -Form any additional individuals/groups/committees -Make general decisions; finalize the structure
2. BUSINESS PLAN/PROCEDURES	-Finalize; the business plan must be comprehensive as any good business plan and is detail of procedures; be certain this includes the payment schedule
3. MARKETING PLAN	-This technically is part of the business plan but for a cooperative, it is important to separate the two; coordination and scheduling is key; this is detail of what and when you are going to market or buy; who will decide on buying, selling products, production, broker/marketing needs, etc.
4. FINALIZE CO-OP STRUCTURE/	-Finalize objectives of the organization
FRAMEWORK	-Stock or non-stock & preferred stock decision
	-Other structure details
5. DECIDE SPECIFIC ORGANIZATION PROCEDURES	-By-laws -Articles of Incorporation
6. FILE PAPERS AND INCORPORATE	-Use legal counsel; include from the beginning
7. BOARD OF DIRECTORS MEET	-Elect officers; finalize responsibilities, other issues
8. MEMBERSHIP DRIVE	-Obtain member obligation and capital
9. FINANCIAL DECISIONS	-Plan needs and sources of capital funding from members, loans, stock, grants, etc.
10. MANAGEMENT NEEDS	-Determine management, office staff needs; hire management
11. FACILITIES	-This is tied with all objectives and financial plans
12. STAFFING/EMPLOYEES	-Will be ultimately determined by management but estimates and guidelines must be in place; this could be a major cost

E. START-UP

1. BUSINESS PLAN/PROCEDURES	-Have management put in place
a. PAYMENT SCHEDULE/ CAPITAL RETAINS	-Estimate; this depends on the marketing plan but is the driving force for the operation and members
2. MARKETING PLAN	-Management makes operational
a. CONTRACTS/MEMBER AGREEMENTS	-Normally, the users need to sign a contract or have some sort of legal commitment; deal with this issue from the beginning, keep current and on-going
b. COORDINATED PRODUCTION/ PRODUCTS	-Quality Standards: similar quality produce/products will not generally work but these must be precise and uniform;
(1) Production/Marketing Co-op:	-Producers must coordinate production by the same  or recommended varieties, fertilization, planting dates, etc. -- this is where Extension can help;
(2.) Buying/Food/Other Co-op:	-Members must coordinate purchases
c. PRODUCTION/BUYING SCHEDULES	-This must be done by the co-op and will depend on the marketing plan, time of year, crop/product, etc.

F. OPERATION

1. BUSINESS PLAN/PROCEDURES	-Utilize, re-evaluate, update, and keep on-going
2. MARKET PLAN/COORDINATION SCHEDULING	-Utilize, re-evaluate, update, keep on-going and keep highest priority
3. PAYMENT SCHEDULE/ CAPITAL RETAINS	-Amount the co-op must retain to operate and invest in capital items, new equipment, etc. This also determines how much of the net financial surplus is returned to the members. The co-op board and management must keep current
4. GENERAL	-Follow procedures and cooperative organization process; change according to structure

REFERENCE: Rapp, Galen and Gerald Ely, How to Start a Cooperative, USDA, RD, Coop. Info. Rept. 7, 1996.

NOTE: These are merely suggestions for procedures; they are prepared for educational purposes to assist persons in the process of considering the formation of entities such as a cooperative. Legal advice should be consulted and will supersede this document. This document is for discussion purposes of selected points and lacks detail.