Published May 15, 2012 by Food Co-op Initiative

A start-up food co-op organizer emailed  recently to ask,

I’m wondering if you can help me know how co-op members pay their shares in other co-ops?

We’re looking at this model:

  • $300 full share purchase
  • $50 annual contribution toward share purchase
  • $12.50 quarterly contribution toward annual contribution toward full share purchase. (Does this seem like too much micro management? Too complicated? If not, when a member joins, do they get pro-rated into the current quarter, or does their quarter begin when they join?)

Any thoughts would be greatly appreciated.

Here are some thoughts:

If the co-op doesn’t need its full equity for six years, does it really need to set the equity share price at $300 per member?

If the co-op needs $300 per member (and most brick and mortar co-ops these days are setting equity between $200 and $300), I would think that the co-op would need it within a one year period at most.  $25/month is not uncommon or, for most members, unreasonable.  $50/quarter is another option, for payment over 1.5 years.  If you have members with exigent financial circumstances that you don’t want to exclude, then perhaps you could have a more flexible payment plan that is not widely available.

Our concern would be that the co-op could be creating a moral hazard, by essentially giving new members incentives to minimize their contributions and let other members take the risk.  That seems like a formula for slow growth, as well as unhappiness within the membership.

Another possibility to assist in rapid growth, especially if you don’t need the capital right away, is to use pledges for the first 200 or 300 members.  E.g. potential members can pledge that, when organizers have successfully recruited 200 pledged members, called a meeting to approve bylaws and elect the first board, they will come through with their membership payment within one week of that meeting.  This can reduce the risk borne by early adopters—and therefore motivate people to be early adopters.

Have you done a market study yet?  Another great idea from one of the co-ops we work with is asking each of the first 200 members to only pay the first $50 on their membership, so that a professional market study could be done with the funds.  If the market study returns bad news, everyone loses $50, rather than some people losing their full $300.  If the market study comes back with good news, as expected, then they can ask everyone to continue with their membership payments.