A document to help you start a tech cooperative
feeltrain.com
feeltrain.com
It seems fundamentally unfair that in most industries you don't have any real share of the company, or any say in the direction of it. People who control those companies are solely executives or wall street share holders, not the people who spend countless hours making the company run and function, thinking about it for even a moment reveals how messed up our system is. Things have only gotten worse recently too with the decline of unions, workers rarely even get a say in their own rights, wages, or working conditions!
In short, sharing information like this is great, I'm all for more co-ops!
But
> "People who control those companies are solely executives or wall street share holders, not the people who spend countless hours making the company run and function"
You imply that you think workers should all own equity in their employer. That sounds cruel and arbitrary to me. How is it OK to dock Barista Bob's pay because a national ad campaign went badly?
In my companies, your compensation is tied to your responsibilities. Executives are responsible to make sure the whole company succeeds, so their compensation is partially in equity. If the company does well or poorly, their pay is raised or docked automatically. People whose responsibility is limited to their immediate job are paid based on their time, at a rate that (ideally) tracks how good they are at their job... regardless of how well the company is doing. The idea that I should punish a stagehand for problems totally out of her ability to control, or even visibility... or that I should reward an executive for working extra hours, when that's a normal part of her job... well that sounds like a terrible way to treat the people who make things run. Who would want to work in that kind of environment? Ugh.
Speaking as a several-times-over founder and C-level... you should try starting a company sometime, even as a short term project. I think you'd gain some new definitions for "countless hours" and "making the company run and function."
But the wall street guys - those people are leeches. All they provide is the money to run the company. Why should they get a say in how it's used?
They're fair examples, but why do you shine no light on the other side? When businesses are successful, shouldn't everyone who had a hand in that share in the rewards? To me, that's the argument for including workers in the ownership of a company.
Structure it however you want - if the people putting in the money to start the business deserve more ownership because of that, that's your right. But don't paint an incomplete picture.
Most workers nowadays are not unionized, and it's declining[0], giving people with the "largest responsibility" pretty much all the control and profit. Clearest demonstration of the problems with this is the skyrocketing disparity[1] or massive top CEO pay disparity[2]. Yes, start ups and smaller companies aren't anywhere near that bad, but that's where the dream of a start up leads to, and most US employees work at large companies.[3]
Anyways, the point in my comment was solely that workers should have a large say in their company, and the blood sweat and tears of founders should be compensated, but far above everyone else? Sure, people who provide capital should be compensated, but should they decide what worker compensation is? Should they get most of the profits? I think there's ample room for improvement.
I also echo what neon_electro says about focusing solely on risk and omitting reward.
[0] https://en.wikipedia.org/wiki/Labor_unions_in_the_United_Sta...
[1] https://en.wikipedia.org/wiki/Income_inequality_in_the_Unite...
[2] http://fortune.com/2015/06/22/ceo-vs-worker-pay/Z
[3] https://www.bloomberg.com/view/articles/2016-04-20/big-compa...
People who want to help build an awesome company, and like being a part of the team, and not just an accessory to it.
You really call attention to the reality that execs can handle automatic penalties/rewards because their pay is so many multiples higher than employee pay. On the other hand, there's really no reason one couldn't reject that as nonsense, eliminate penalties altogether, place executive pay at a significantly lower multiplier, and then share rewards equitably among everyone.
The physician's assistants, nurses, billing staff, typing pool (yes dictaphones are still a thing), IT staff, equipment repair contractors, and cleaning crew don't tend to also be owners.
As an entrepreneur, it's actually pretty difficult to find folks who prefer getting compensated primarily in shares rather than cash. If you want to have significant ownership in a company that usually isn't much of a challenge.
Start ups typically want large success, and are more pitching in for a gamble. What this person is talking about, and I imagine many co-ops are in general, is just want to exist as masters of themselves with a steady job. That's just my 2 cents on it, people probably have wildly different ideas based on who and what the co-op was for...
When you launch a start up, the best case scenario involves selling off large chunks of the company at every step of the way to your amazing success. By the end you and your original owners have a diluted share (and say) in that vision. Very different than, "we're all making steady pay with democratic leadership." Sure it's a matter of taste as to who would want which.
It's probably going to take some effort if we want to bring the idea back that employees should have a say in the direction and leadership of a business.
And people don't like to get played.
If you want to have significant ownership in a company that usually isn't much of a challenge.
A related issue - I know many people who are more than happy to consider joining early for "significant ownership" (however we define that) but only if it comes with "significant decision making input" as well, in similar ratio. If as an entrepreneur you are looking at this sort of arrangement as primarily a tool to manage early cash flow, you are thinking about it the wrong way in my opinion.
I think the reason things are as they are is that people don't care about these things. At least not enough to put their own time and money in exchange of it. I would easily choose to take a higher salary and enjoy not having to worry about managing company's risks and direction in addition to my main job. Also, evil executives who specialize in managing companies are probably more competent in managing companies and maximizing profits than random people in the office.
The fact that people tend not to do this very often tells you that people don't actually want to have any "real share of the company, or say in the direction of it".
1. Can't buy "as many shares as they want".
2. Whatever they buy, considering the market cap and required volume for voting, will be statistical noise.
It looks like people prefer to spend, not to own.
Outside of the down town cores, and few high demand industries, people 'get by'.
Having extensively seen both worlds, it seems to me that the richer end is always quicker to say: I just ate a big meal, how can world hunger exist.
[1] https://www.usatoday.com/story/money/personalfinance/2016/10...
Whenever one of these posts hits reddit or this website, there is a surge of interest - and then nothing. Our rate of growth (400 or so worker co-ops in the US) is abysmally slow; if anything I've seen more co-ops fold than start anew! Our conferences seem to bring more and more each year, though - just not workers; instead we get specialists, folks from social justice and non-profits... Just very few workers. At the East coast conference two years ago, 75% of the speakers were non-owners, just co-op specialists; do-gooders and SJWs.
The only new co-ops I seem to see are those that get created by top-down institutions; non-profits and the like. I'm talking Evergreen, WAGES, etc. Once in a while we get web co-ops (like the one liked here); more often than not, they too have a political bent (beyond worker-ownership).
Not sure why I'm saying all this here; I suppose I just wanted to offer a different perspective on all this. I love worker co-ops, and think they should be everywhere. But I'm not sure culture in the US is yet compatible!
Checkout http://reddit.com/r/cooperatives it you want to know more.
I think part of the reason that they haven't succeeded is the necessary capital and scale of technology organizations these days. It seems there's a hollowing out of the mid-tier of bootstrapped organizations where a co-op would be feasible, and if you're a founder who is going to put in years of unpaid or low paid work and funding, giving up ownership is a tough sell.
In other industries (repair, baking, house-cleaning) I'd say it pays a lot more than average.
> I'm fundamentally opposed to making people buy their way into the company, it feels like a scam to me. You don't have to demonstrate your value "to" the company -- we each as individuals hold far more value than this taxable structure that can be dissolved when it no longer benefits the members. Also, whatever value a person has is being brought by their skills, thinking, and experience, not by cash. You aren't creative with cash.
I strongly disagree with this. People who have 'skin in the game' are much more likely to perform well than people for who joining up is a freebie and it's a lot easier to take someone on board than it is to remove them again if they don't work out in a collective like this. In fact, they might demand to be bought out and before you know it you're in court even though your 'collective rules' were made on the assumption that everybody would always be nice and play nice.
This would also allow them to reduce the candidacy period to something more reasonable, now you are essentially asked to give up a year of your life on the gamble you will be accepted. Better to put down some money then, which you can recover if and when you leave, hopefully with a bonus because the company has appreciated in value.
Also: people change over time.
I've seen this in practice in one of my own companies, the people who actually put money down for their shares were all hard workers and super dependable, the people that got their shares 'for free' (or in some cases with money borrowed from the company) were a lot less likely to work hard and were the first to run off when there was a speedbump (which we weathered).
On another note: I'm investing in a company that is a strange cross between a traditional company and a cooperative like this. It's been running for the better part of 10 years now, it's also a consultancy business and it's one of the most interesting companies that I've ever dealt with. The CEO is a very inspiring young man who manages to make all the employees of the company stakeholders, who has made it possible to account for project based income to be fairly distributed amongst the employees and who is now in the process of streamlining all this so the idea can be applied to other companies.
I really should do a write-up on that company and their story one of these days, it's been fascinating to see this idea take root and flourish over the years.
And that's pretty much what any 'traditional' (as in bootstrapped) company would do, and its working capital would be the initial buy-in. That way the company can open a bank account before the first customer pays and has a way to rent and office and get an internet connection.
Later, after operating the company for 5 or 10 years the value of the brand would be reflected in the value of the company (or goodwill, if you wish).
This is actually fairly common with architects, dentist collectives and legal offices where partners are brought in over the years and rotate back out again when they reach their pensionable age.
This collective the way it is described here is just a way for a bunch of individual to operate under a common brand without assigning any value whatsoever to their creations other than the money flowing through the company, the company is deemed to be worthless (which they may very well be right about at the founding date, but which I would be surprised would still be the case after a decade with a nice fat portfolio of customers and a steady stream of income).
And then someone wants to retire and suddenly that lack of 'buy-in' from the next partner looks like a major stumbling block.
So this is a fairly idealistic document without much in terms of future proofing as far as I can see.
If that's true, then why do you think traditionally structured businesses generally out-perform cooperatives? People have tried.
The obvious response, of course, is that none of these metrics matter because they only apply to traditionally structured highly inequitable corporations. There's a lot of truth to this! Yet it perhaps attempts to dodge the question. If cooperatives are more efficient at convincing people to be more productive, you would expect that this would allow efficient, motivated cooperatives to outperform traditional corporations and their inefficient, demotivated, dehumanized structures by financial metrics.
There are three stakeholders in any company:
* The owners (stockholders)
* Employees
* Customers
When a company makes profit (eg, they manufacture a mattress for $500 thats worth $1000), the profit is divided between those three groups of people. How the money gets divided depends on the relative power those groups hold.
- In a market with lots of competition, the price goes down and the customers get a windfall through cheaper products
- When there's not enough supply of labour (like in software), the employees can demanding higher wages, better working conditions or shorter hours
- And otherwise, usually the owners get the profits.
The easiest metric of a company is to evaluate profit to shareholders. Thats not what coops are trying to optimize for. Instead they want a high quality of life for their employees. So I would expect you would see coops rated poorly, even when they're functioning (for their employees) very well.
Fortunately, I think this is addressable. Cooperatives still have owners, be they employees or customers. The structure works by merging two of the three legs you sketch out. For worker-owned cooperatives, it should still be possible to evaluate how effectively they return profits to owners. You just have to evaluate it a little differently, perhaps by classing worker pay as dividends (or maybe the premium over non-coop competition).
Plus, you can look at things like their offerings and the cost or quality thereof. I don't know anyone who goes to Rainbow Grocery Coop for reasonable prices.
To recap, you're absolutely right. Coops are not optimizing for returning profits to uninvolved investor/owners. Instead, they are optimizing for returning profits to actively involved who act as one of the active groups above. As a result, I would think that metrics for evaluating a business could still be calculated and examined for a enterprise. After all, cooperative enterprises are still businesses.
My website is at http://jacquesmattheij.com/ and my email is jacques@mattheij.com
But thanks for the warning, I'll set up a redirect.
I'll ask the company for permission to write it up.
I've had the same ideas over the last few years, even the hard limit on the number of people. It sounds like they are just doing some paid consulting work and sharing profits. But what I would like to do, is that everyone only works around 10 hours per week on consulting work, and we spend the rest of the time working on our own app or website ideas. Then we could share in all the risk / reward. So it would be like a self-funding startup incubator. And if we came up with a couple of things that were really successful, then everyone could just retire, or at least switch to "maintenance mode" where we only release bugfixes and minor updates. No need to take over the world, I would just love to have a few little apps bringing in some passive income.
I guess that's the tricky part though.. what happens if someone wants to leave? Do they keep some shares and continue to share profits, or do they have to give up everything? I couldn't find anything in the linked operating agreement.
For your idea where considerable income is expected to come from past work, I'd say it makes more sense to have ownership of the app assigned to an ad-hoc company that owns just the app, owned by the people there at the time the app was written. The coöp might take a hand in marketing the app and performing other administrativa, in which case it would collect a fee from each sale.
App_1_Co is owned by A, B, C, D and owns App_1. App_2_Co is owned by A, C, E, F and owns App_2. Coöp_Co is owned by C, E, F, G and sells App_1 and App_2 (taking a 10% cut) as well as providing consulting services.
Minor nitpick with the note about forming in Oregon vs Delaware - Businesses generally pay tax where they do business instead of/in addition to where they are incorporated. The discussion of corporate taxes also isn't particularly relevant to a usual LLC situation where all the income is passed through, and the members will just pay tax where they live.
In addition Delaware has a very complete body of business case law that is a major reason businesses choose to incorporate there. It's not generally for dodgy tax reasons. I will definitely concede that a lot of people start business in Delaware when they definitely don't need to because of some magical perceived advantage but there are real benefits for some businesses that don't involve ripping off your home state.
I also take slight issue with the note about the business not existing to make a profit for itself. Every business exists for the benefit of the people who own it. Obviously not all businesses are owned by the people who work in it, but nowhere is there a business that exists solely for the purpose of loading up a corporate bank account with no shareholder as the ultimate recipient.
The note as it's written points more to the distinction between big C-Corps and every other entity than it does to the distinction between business as it's done today and co-ops.
It's basically a justification for self employment rather than a justification for a co-op specifically.
Quick edit: I love the spirit this is written in but I feel like it's unnecessarily critical of the way businesses are formed today. In my experience, people who run small businesses think a lot about fairness, and just because that doesn't always manifest itself in all equal everything doesn't mean it's not fair.
In other words, fair management is one thing; abolishing management as such is something else. Like you point out, "Obviously not all businesses are owned by the people who work in it" -- I think that's the heart of this issue.
(That said, in what I've seen of the co-operative movement, there do end up being some sort of specialized managerial people much of the time. So it's far from clearcut on the ground, as you're pointing out.)
Don't studies show that when there's a profit motive creative people perform more poorly than when they're just paid enough to make money not a distraction?
I have so many questions seriously.
How do decisions get made? What if it's really successful and people get lazy and decide to chill on a boat? So many more... where can I find a great argument explaining the benefits and tradeoffs of starting a tech cooperative?
Whoever did that study, they didn't interview me.
I mean, it's true that I care more about doing good work, learning new things, and making an impact. But I can do that on my own, and I've been self-employed for the last few years. The only reason I would join or start a new company is for the money.
> How do decisions get made? What if it's really successful and people get lazy and decide to chill on a boat?
If I started a coop, that would actually be our goal. I think it's funny that people don't admit this.
More like decades of studies. Read "Drive" by Dan Pink.
> he asserts that the secret to high performance and satisfaction-at work, at school, and at home—is the deeply human need to direct our own lives, to learn and create new things, and to do better by ourselves and our world.
> He examines the three elements of true motivation—autonomy, mastery, and purpose
I totally agree with that. I guess I am in the very fortunate position where I feel like I can achieve all of these things without being an employee at a company. I've been freelancing for a few years now (sometimes very part-time), so I feel like I'm "out of the system", and I have no desire to become an employee at a company. I feel like money is the only thing that would make me change my mind (and it would have to be a lot.)
I admit that I am using a strange definition of "work". To me, work is something that is boring and difficult. When I am "working" 12 hours per day on my own apps, or if I'm volunteering full-time for a cause that I care about, then I don't consider that to be work. Yes, I know it's still work, but it doesn't feel like it.
I suppose if I found the right company, where I have a high degree of autonomy, I had access to a lot of resources, and I can learn and invent things all day, then I would consider that. But in my mind, when I think of "company", I'm picturing "yet another SaaS or mobile app".
And so I guess that might be the gist of these studies.
- https://github.com/nilenso/cooperative-agreement.
We've also written and talked about it a bit:
- https://blog.nilenso.com/blog/2014/11/19/huh-a-software-coop...
Added as a reference to our incorporation documents: https://github.com/astralship/astralship.github.io/issues/47
Our rules: 1 page max.
If something more complicated - create a separate 1 page document.
Anyone know if any civic tech co-ops exist? Or would folks be willing to start some up? ;)
Once revenue is there, everybody can buy in. The enterprise does not need to actually be profitable or even have a workable plan to profit or exit or anything like that. What it needs is revenue.
Someone has to be the pig that gets the enterprise from zero to revenue. Smart pigs become politically-adroit capitalist "pigs", dumb pigs get slaughtered. But someone has to take the lead, and the rest have to follow.
Uniting collectively behind a vision seems to be one of those things humans just can't do very well. They can unite behind a person with a vision, but not the vision by itself.
Workers cooperatives were a big thing back in the heady days of the early 1800s. Most died out fairly quickly but a few caught on and lasted for a good while. The story was the same throughout, the cooperative eventually ossified and could not retain the magic in the face of broader economic change.
Ossification and failure to remain vital in the face of changing market conditions is a pervasive problem for businesses that become established, not something special affecting labor coops.
OTOH, Mondragon still seems to be going strong.
That's insightful. Can you speak more about this?
Whereas if you have a person where the buck stops, vision-wise, then you don't have to know every little detail, you can just trust the person to make everything work. Most people aren't very imaginative, they want to deal with their own stuff and leave the kingdom-building to someone else. It's just enough for them to keep the faith.
Picture it this way. Say you have a plan for a better world. If the plan is, "hope X will happen," then that's a very different thing to believe in than "do X, Y, and Z, and if we do those things right, then A will happen." Both are imagined sequences of events, but one is more concrete than the other. A person in charge of the vision makes the vision that much more concrete than if it's spread out amongst random others.
It was quite a long process but I got the impression that people knew after a reasonable time if things were going in the right direction.
I don't know what I would do if I were in your position and someone pointed this out to me.
It is quite clearly a stylised human head.
Sex sells and all that.
https://www.amazon.com/Great-Game-Business-Expanded-Updated/...
He practices what he preaches and hundreds visit his company every year to see how it works in practice.