ASK HN: Is a worker-cooperative a model for sustainable and successful business? | Hacker News Reader

ASK HN: Is a worker-cooperative a model for sustainable and successful business?

16 pointsroder15 comments

After watching this video posted on HN (http://www.nytimes.com/packages/html/business/2009-private-equity/index.html) and seeing Michael Moore's new release over the weekend, I am wondering how viable you think it is for a startup to succeed using a worker-cooperative model (http://en.wikipedia.org/wiki/Worker_cooperative)?

Here's some other good resources:

http://www.ncba.coop/abcoop_work.cfm

http://www.ica-group.org/2nd%20Row/FAQs.html

Example Companies:

http://www.belugasoftware.com/overview_s.html

http://www.webcollective.coop/

http://www.isthmuseng.com/aboutus/workerownedcoop/workerownedcoop.aspx

http://www.alvaradostreetbakery.com/coop.html

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There is one very interesting example at a fairly large scale, the John Lewis Partnership which runs very successful major department store and food store chains in the UK. This is a real partnership, owned by the permanent staff (no public shareholders), with a written constitution which sets out how the management operates and how the employee-partners participate and share the profits.

A FAQ about the organization with copy of its constitution is online:

http://www.johnlewispartnership.co.uk/Display.aspx?MasterId=...

Another popular success in britain is the group of companies simply called the Co-operative:

http://www.co-operative.coop/aboutus/

Note the cool domain name: *.coop

Incidentally, Does anyone have a good resource for understanding leveraged buyouts and how they work? I understand that this broadly means funding the acquisition of a company by placing the debt on the target company's balance sheet but every explanation I have read just leaves too many obvious holes: The goal is to buy a company for $100m and sell it for $500m. (why does such a gap exist and why are private equity funds the only ones jumping on it?) or Instead of taking on the equity themselves, the fund will place this debt on the target company's balance sheet, not its own and statements like target companies often have strong cash flow that can be used to service the loan (How does a company worth $100m take on $500m in debt without going bankrupt? If it can do this [I assume they would be paying very junk bond rates of 20% or so], that means that they could have paid that amount in dividends to the owners instead and should be worth a lot more then purchase price.)

It reminds me of those hack video by Guy Kiyosaki about how rich people print money: I create a company and invest $10,000 in it. At $0.01 per share that is 1,000,00 share. Then I take the company to IPO and sell the shares for $1-$2 each. He then explains the math on whiteboard. $10,000 /0.01 * $1 - $10,000 = $990,000. Wow! This guy is one smart cookie.

In any case, if you know any books, articles etc. that will make a dim person like me understand, please tell.

Many companies are "under-leveraged". The example you gave is just an extreme. If borrowing a ton of money means you can build new factories / expand product lines / take on new markets, then it might put you in the red for a little while to service the debt, but over time those capital expenditures will pay themselves off.

You don't take out one $500m loan, you leverage yourself in many different ways to maximize the cash you can get out of it (with the rates you pay on it increasing over time.)

Also note that large companies that lose some money are "worth more" than smaller companies that make a little.

What you are describing is just normal financing. IE using debt or equity to fund additional business activities. My understanding of a leveraged buyout is that it usually means:

Buying a company using its own balance sheet. Borrowing at a high rate. Paying back the loan using the companies own cash flow. Selling the debt-ridden company off.

I feel like I am missing something. If it can service these massive loans, why isn't it worth more? How does it become worth more after taking on this (expensive) debt? If the company is so under financed that junk bond rate debt is going to be well worth it, any form of financing should do. Why would you need a private equity fund to do that? I never hear private equity funds described as "experts at finding under financed companies and growing them to full potential."

I am not sure. How can I be? There aren't many examples of this existing and something like this would have to be answered empirically. If it is roughly as good as more common structures, then you might have an uphill battle because those other structures have the benefit of other people's experience. To succeed it would probably need to be an advantage of some sort.

In any case it is worthwhile (for society) having as many such experiments happening as possible.

In many senses, you might say that you are searching for a non coercive socialism.

It is almost certainly very viable, provided you don't plan to get bought out.

Near as I can tell, a worker cooperative is nothing more than an LLP with a cool name. Many law offices, consultancies and family businesses are structured this way.

http://en.wikipedia.org/wiki/Limited_liability_partnership

I like consumer cooperatives like REI and credit unions. The incentive should be to serve people! The profit motive is just one way of trying to achieve that...

A worker cooperative has the incentive to maximize wage expenditures, which isn't exactly ideal for thriving in the marketplace. The traditional corporation's incentive to maximize profits is healthier from a competitive standpoint.

If the company management runs a more efficient company, than they get more profits.. it just so happens that the rest of the "shareholders" are also the workers. I don't think it is right to look at the profit-sharing is not a "wage expenditure."

Also, the desire to maximize short-term profits, as a traditional corporation with liquid equity is incentivized to do so, often leads to a lack of research, maintenance and other negligence that eventually adds up. The profit-sharing employees arguably have the long-term health of their source of income in mind and so they don't suffer the same tendency.

Good point on the idea that a coop might have a longer-term planning horizon. However, the point that a corporation has only short-term profit in mind is overstated. Drug companies take decades to bring a product to market, that's some long-term planning.

Drug companies are a special case due to extreme regulation, research grants, and tax breaks.

In San Francisco there's a very successful grocery store called Rainbow Grocery that's a worker co-operative. I think this kind of thing can work well on this scale but I doubt it scales very well.

When I try to think of how it might scale, I usually end up with small pieces.

* Eg, imagine a business model similar to YC bu relying on revenues of companies they helped create rather then exits. More integrated then I think YC is. A company where divisional managers are (or start as) majority owners of their division. They raise capital themselves (with help). They run their own game. Thinking about it, it sounds similar to research institutes. These businesses would need to mature at a relatively small size to make this resemble a coop in some way.

* A franchise is something like this also. Here (in Australia) there are a lot of franchises that aim to have <2 full time employees per franchise on average.

* Limited partnerships often scale.

* Some Israeli Kibbutzes were run like cooperative businesses or cooperative clusters of businesses.

* A traditional agricultural village may actually be some version of a cooperative.

The first one is interesting in concept. I don't think that tech startups are the best area to experiment. There is already plenty of expirementation going on with company structure and financing.

maybe look at the amish or the hutterites

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