Yeah the problem with co-ops is that every new employee means reduced profit-sharing for existing employees. Ironically, companies in SV actually have a nice solution to this problem: Employees get equity, but newer employees get less than older employees. So from the perspective of old employees, it still makes financial sense to hire new employees, because the old employee equity becomes more valuable.

In technical econ terms, the marginal profit of new employees is typically below the average profit of existing employees. A profit-maximizing business only cares that the marginal profit is positive, and will hire until there is no additional profit to be made. A co-op is incentivized to keep average profit per employee high, which can mean reducing headcount in order to keep the average strong. So that's why co-ops can have a sort of exclusive club feel to them.

SV is actually an interesting example which proves how employee ownership can drive prosperity, but the typical co-op crowd doesn't want to talk about it because it's too capitalist-coded. In a way, SV companies show that employee ownership is not some sort of instant cure for everything which ails capitalism.