Co-operatives can fail like any other business, but the message from the CCF is that 'their success rate is much higher'. Not all new co-operatives, set up with enthusiasm and hope by their founder members, make it into long-term sustainable businesses. Inevitably, some fail.
Andrew Bibby
"I suppose they fail for the same reasons as conventionally structured organisations," says Ian Taylor of Co-operative and Community Finance (CCF). "They fail because of market collapse, because the produce is no longer needed, because of recession, poor financial control – all the normal stuff. But co-ops certainly fail less."
Hard statistics on co-operative failure are elusive. Co-ops UK is unable to provide firm data, pointing out that not all co-ops that cease trading will necessarily formally deregister. In any case, deregistrations of Industrial & Provident Societies (the main legal vehicle for co-ops) do not distinguish between co-ops and other forms of society. Some co-ops choose to register under the Companies Act anyway. Government statistics on business failure do not identify co-operative businesses.
Nevertheless, if anyone has a hunch in such matters it should be Taylor. For over 25 years, as investment manager of CCF, he has been overseeing the principal source of loan capital for start-ups and expanding co-ops. As well as its own funds, CCF also administers the Co-operative Loan Fund, provided by the Co-operative Group and three regional societies. And according to Taylor, defaults on CCF's loans are very low. "Last year, it was 0%. The average over the last 15 years has been less than 3%," he says. These are bad debt ratios that commercial banks would be delighted to obtain. Furthermore, unlike the banks, CCF normally does not take individual guarantees, on the basis that co-op members do not personally own their business: "If there's no personal gain, there shouldn't be personal loss," he explains.
One of the success stories of recent years has been the growth of community-owned and run shops, now numbering several hundred. CCF has lent to over a hundred of them, with only one failure – "and that turned out not to be a genuine community shop anyway," Taylor says. He talks of the way that volunteer support has helped many community shops become established businesses.
With other types of co-ops, particularly workers' co-op start-ups, there may be more challenges to overcome on the path to success. Co-operative business adviser Dave Hollings of Co-operative and Mutual Solutions (itself a workers' co-op) points out that small co-ops can be at risk if key members leave. "If you are a four person co-op and one person leaves, maybe a significant skill set will leave the business at the same time," he says. He also suggests that very small workers' co-ops can struggle to grow to the size – perhaps with 10 to 20 members – where longer-term viability becomes more assured. "So co-ops stay small and vulnerable," he says.
Potential co-operative businesses have the advantage over sole traders of several people discussing the business idea and, hopefully, scrutinising the financial projections. As business advisers know too well, many small single-owner businesses – particularly shops and cafes – are set up by individuals fired with enthusiasm (and funded perhaps by redundancy pay), only to prove in practice hopelessly unprofitable.
Taylor sounds a slight caveat, however: new co-ops have to work harder to create income to support several pay packets, when compared with one-person ventures. "One of the problems with new-start co-ops is that you can get, say, three people coming out of university doing something like graphic design, or photography, or working with computers and wanting to work together. What they can fail to do is to build a customer base that provides them with a sustainable business," he says. In practice, and perhaps not ideally, the early days of a co-op may be funded by sweat equity (contributions of unpaid or underpaid time and effort).
Co-operative conversions of existing businesses pose other issues. Business adviser Norman Watson of Co-ownership Solutions was previously with the Wales Co-operative Centre, where he worked closely with the miners of Tower Colliery on the highly successful employee buy-out. Conversions to co-ops, typically on the retirement of an owner or, more problematically, after business failure, have led to some highly successful worker-owned businesses. Nevertheless, Watson says that finding the capital to buy the business can be problematic. "Some of our buy-outs are difficult to fund. We would do a lot more co-op buy-outs if we had a proper fund," he says, such as the arrangement in Spain where regional governments match the money invested by employees.
New and growing co-operative businesses have access to a specialist network of advisers now covering the whole UK. The Co-operative Enterprise Hub, funded by the Co-operative Group, aims to be "a one-stop shop for any group thinking of pursuing a co-operative model for their enterprise" and claims to have helped over 1,500 enterprises and would-be enterprises to date. Taylor says the hub helps improve the quality of applications to CCF for funding: "If we feel the business plan isn't credible, we refer them to the Enterprise Hub," he says. (
http://www.theguardian.com/social-enterprise-network/2013/aug/21/co-operatives-success-and-breakdown)
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