6 ms·

Worker-owned tech cooperatives find a niche near Silicon Valley

65 points by sethbannon 11y ago

walshemj 11y ago
Tech coops are a new thing really as an ex poptel member that is news to me :-) Though you might have thought that a politically aware organisation which all coops are would know what Al Jazeera's line was in running this story - hint it isn't a dedication to the Rochdale principals.
- Joeboy 11y ago
  I don't know what you mean. What was Al Jazeera's line in running the story?
omouse 11y ago
I like this idea but only as one strategy for an exit for software engineers. A majority of employees are stuck being employees and need some assistance.
jasode 11y ago
The co-op structure is interesting but it's ultimately constrained by the members'/employees' financial resources to contribute capital. That's why co-ops are always modest businesses like grocery stores, or a co-op of cleaning people, or in this article's case, a co-op of IT techs. If you want to start a capital-intensive business like Google Inc or SpaceX, you have to use the typical corporate structure because you need the $X million in investments from angels, VCs, and the stock market. The typical employees don't have a million dollars in their bank accounts to pool together and launch a Google-sized business as a co-op. The enormous costs for rack servers and data centers to scale out would outpace the employees' tiny cash contributions.
- allochthon 11y ago
  > but it's ultimately constrained by the members'/employees' financial resources to contribute capital. Sounds like a variation of the bootstrapping problem; i.e., something that is not necessarily a blocking constraint to more ambitious projects.
- koolkat 11y ago
  I don't think employees are investors in co-ops. They are like founders. A co-op can still get capital from investors. Can't they?
  - jessaustin 11y ago
    Probably this would be debt rather than equity.
  - thedufer 11y ago
    The problem with that is there are tax implications to giving someone a chunk of a company (it's technically income), even if it is completely illiquid. Tax implications the employee probably can't afford much better than a buy-in.
    - mauricemir 11y ago
      coops normally have special status to get round some of these issues. And coop members can have direct or indirect ownership a full on worker coop normally has direct ownership and organizations like John Lewis have indirect ie shares held in trust.
  - dredmorbius 11y ago
    More typically a co-op will raise funds from members via shares. I'm a bit shaky on specifics, but those shares may be capable of being sold back (to the co-op as a whole). Voting righs often _don't_ accrue per share. Debt financing, as mentioned, is another alternative. Read with caution, I'm really sketchy on details.
  - mauricemir 11y ago
    It depends is some coops members do have to ante up the Spanish Mondragon coop is an example. And by definition the members of the coop must own the coop or own a controlling interest
  - dragonwriter 11y ago
    > I don't think employees are investors in co-ops. Typically, they are; their ownership stake is usually, as I understand, purchased on credit and sold back on separation. > A co-op can still get capital from investors. Can't they? Well, yes, in the form of debt, and perhaps non-voting equity depending on the particular rules applicable to coops where the coop is organized.
- michaelchisari 11y ago
  Usually modest businesses, but not always. http://en.wikipedia.org/wiki/Mondragon_Corporation http://en.wikipedia.org/wiki/Mondragon_Corporation
- mauricemir 11y ago
  Yep Capital is the killer for worker coops - there have been experiments with coops taking VC funding Poptel in the UK is one example. Unfortunately it did not end well :-(
- Joeboy 11y ago
  > it's ultimately constrained by the members'/employees' financial resources to contribute capital I don't know about the rest of the world, but in the UK co-ops can raise investment via loanstock.
- dragonwriter 11y ago
  > The co-op structure is interesting but it's ultimately constrained by the members'/employees' financial resources to contribute capital. Not quite true. Its constrained -- pretty much by definition -- to internal source of equity-based financing, but it can get external non-equity financing. > That's why co-ops are always modest businesses like grocery stores, or a co-op of cleaning people, or in this article's case, a co-op of IT techs. I don't know that I'd describe Mondragon corporation as a "modest business". OTOH, they are usually by design fairly moderate-risk businesses, as their aren't many established financing instruments (or financiers providing them) suitable for high-risk coop ventures.
Kalium 11y ago
I've seen one or two of these. I've also not seen any really successful or compelling products come out of any of them.
- lawnchair_larry 11y ago
  Pick any 2 random conventional startups, and this will be just as true.
  - Kalium 11y ago
    True! That said, my personal experience with coops is that they tend to be consensus-driven and give everyone a veto. This is a problematic model when vision is required. Works well for more readily-defined things like grocery stores or running a dorm, though.
    - nickpsecurity 11y ago
      The kinds that have management representing the coop work around that problem a bit. They have someone with vision, experience, and the ability to work through disagreements. That person normally does his or her thing with others adding opinions, votes, or whatever. The critical benefit is that such a person can step in to clear out obstacles caused by a lack of consensus. So, even with its issues, representational democracy can be better than pure democracy so long as everyone is doing his or her part. :)
    - yochaigal 11y ago
      I'm the founder of this co-op - and no, it isn't consensus based. In fact, we made a point of NOT doing things by consensus! Not all co-ops are consensus-based, in fact I'd say the majority are not.
anonhn82 11y ago
If this is such a good way to run a tech company, why isn't it also a good way to develop software? In other words, why are projects led by BDFLs like Linux and Python so successful, while the design-by-committee approach is usually regarded as producing substandard outcomes?
- thaumaturgy 11y ago
  Because the software development industry is stupidly fragmented. Get 12 developers together in a room and you'll get 12 different answers on the best way to build anything.
  - michaelchisari 11y ago
    It's a cultural problem, definitely.
- nickpsecurity 11y ago
  Depends on the committee. The Ada designers, acting on committee's needs, came up with pretty much what they wanted. Had performance, availability and pricing issues that kept it from taking off as much as it could. Yet, the language's features accomplished their goals very well as proven by a number of empirical studies by military and defense contractors. So, that's one success story. Anyone have any other examples? I'm asking because I really think this recurring theme is a myth about committee-design languages where the problem really is a prevalence of bad committees.
davidbanham 11y ago
This sounds like a wonderful way to work. I can't figure out who died the sales though. How do they attract clients. Is that just everyone's job?
- thaumaturgy 11y ago
  This is actually something I'm actively working on in my area, where there are a number of independent small tech consulting companies (most of them with just one employee), all with different niches and skillsets, and none of whom have offices or shops. So everyone already has their own client base. The goal is to share some work, leverage eachothers' skillsets, and share a common space with inventory and a shop setting where you can meet customers in a professional environment. The downside is that everyone's pretty independent-minded so it's a bit like herding cats. But the upside, if it works, will be pretty great for everyone involved.
bcx 11y ago
This article is "OK", but their example is a 4 person co-op, which makes you think that all co-ops like the food co-ops you see in college towns. There are actually multiple forms of co-ops. Typically capital does come from the members (whether they be companies or individuals), but it could also come in as debt i.e. from a bank. For example: Sunkist is producer co-op owned by citrus growers to vertically integrate. http://www.sunkist.com/about/cooperative.aspx http://www.sunkist.com/about/cooperative.aspx REI is consumer co-op owned by the shoppers of the store (though arguably managed much like a normal corporation): (And did over $2.2 billion in sales for 2014) http://www.triplepundit.com/2015/04/reis-co-op-business-model-produces-record-results/ http://www.triplepundit.com/2015/04/reis-co-op-business-mode... http://www.seattleweekly.com/2003-06-18/news/who-owns-rei/ http://www.seattleweekly.com/2003-06-18/news/who-owns-rei/ http://www.rei.com/about-rei/financial-information.html http://www.rei.com/about-rei/financial-information.html Ace Hardware is a retailer-owned cooperative. Where the franchise board is owned by the member franchises. https://www.myace.com/invest/about-ace https://www.myace.com/invest/about-ace
- jasode 11y ago
  >Ace Hardware is a retailer-owned cooperative. Where the franchise board is owned by the member franchises. The Ace Hardware franchise requires ~$1 million[1] in startup costs to open a store and be part of the "co-op". Most employees don't have that kind of money and they don't have the collateral to secure a $1 million loan from the bank. When the ticket for admission into the "co-op" costs $1 million, that's not the type of co-op people are discussing. The REI stores co-op is also not a good example of what workers are thinking about. REI is not employee-owned. I think we need to level-set. When threads pop up about cooperatives, the driving sentiment is from typical workers/employees who don't like the corporate ownership structure (founder has equity worth millions/billions, and/or CEO is drawing $500,000+ salary, etc). Therefore, the co-op structure where all employees are also the owners and share the profits looks very attractive. The problem is it will end up being a modest business. E.g. a cooperative of IT consultants. The IT Consultants Co-Op don't need members to contribute $1 million each to capitalize the business; they just start billing clients right away. They can pool their modest funds from their hourly billings to buy the shared office a laser printer and a coffee machine. It would be great if a cutting edge big company (like Google, Amazon, or SpaceX) with ambitious and very expensive goals (driverless cars, drone delivery, Mars colony) could be "employee-owned" but it can't. Employees don't have the money. [1] http://www.franchisechatter.com/2013/08/31/franchise-costs-2013-detailed-estimates-of-ace-hardware-franchise-costs-2013-fdd/ http://www.franchisechatter.com/2013/08/31/franchise-costs-2...
apineda 11y ago
According to this article co-ops are a place where non-whites congregate and find their safe space. Wow. Bringing ignorance to the masses I see.
- mauricemir 11y ago
  Not in the USA its mostly Farmers and American coops don't have the left wing roots that they do in Europe and to a lesser extent in the UK
nickpsecurity 11y ago
One of the best I've seen that's similar to this model is Publix: http://www.forbes.com/sites/briansolomon/2013/07/24/the-wal-mart-slayer-how-publixs-people-first-culture-is-winning-the-grocer-war/ http://www.forbes.com/sites/briansolomon/2013/07/24/the-wal-... They're an employee-owned, private company in one of the most low margin and cut-throat industries around. Both their profit and effect on the competition is incredible. Also, their management to worker ratio. ;) It would be interesting to see tech companies adopt a model like this. The results could be exciting to watch and maybe lead to more job security as well given every other kind of company likes to sell out.
- allochthon 11y ago
  > Also, their management to worker ratio. Can you elaborate?
  - dredmorbius 11y ago
    From this line of the article, quite low: "A distribution-center manager overseeing 800 associates..." That is, many workers per manager. Which suggests that workers 1) know their jobs, 2) do them, and 3) managers facilitate and largely get out of the way.
    - sukilot 11y ago
      Is that uncommon for warehouse/factory work?
    - nickpsecurity 11y ago
      Exactly. Likewise, their stores had 400 workers and 2 managers. Most retail workers I know say their company keeps staff too low to get the job done while having way too many managers with micromanagement. One of the top chains local store recently had only 2 stockers per fast moving department with about 40 managers auditing and coaching them on best practices. Walmart and Target employees told me they had similar issues but not as extreme effect. So, as dredmorbius says, they have managers that pick good employees, give them incentives, show them justifiable best practices, listen to feedback, and otherwise stay out of the way. And the management works for the employees, who are the shareholders, not Wall St. Results: highest profit in industry, highest customer satisfaction, one of highest retention, and little risk in operation. IT startups should copy this if they're not just about selling out.
innovator116 11y ago
Multi-stakeholding coops http://community-wealth.org/content/solidarity-business-model-multi-stakeholder-cooperatives-manual http://community-wealth.org/content/solidarity-business-mode... and open cooperativism http://p2pfoundation.net/Why_We_Need_a_New_Kind_of_Open_Cooperativism_for_the_P2P_Age http://p2pfoundation.net/Why_We_Need_a_New_Kind_of_Open_Coop... points to transition towards post-capitalism. As for lack of capital fairshares model is interesting http://www.fairshares-association.com/ http://www.fairshares-association.com/

65 points by sethbannon 11y ago

Tech coops are a new thing really as an ex poptel member that is news to me :-) Though you might have thought that a politically aware organisation which all coops are would know what Al Jazeera's line was in running this story - hint it isn't a dedication to the Rochdale principals.

Joeboy 11y ago
I don't know what you mean. What was Al Jazeera's line in running the story?

omouse 11y ago

I like this idea but only as one strategy for an exit for software engineers. A majority of employees are stuck being employees and need some assistance.

jasode 11y ago

The co-op structure is interesting but it's ultimately constrained by the members'/employees' financial resources to contribute capital. That's why co-ops are always modest businesses like grocery stores, or a co-op of cleaning people, or in this article's case, a co-op of IT techs. If you want to start a capital-intensive business like Google Inc or SpaceX, you have to use the typical corporate structure because you need the $X million in investments from angels, VCs, and the stock market. The typical employees don't have a million dollars in their bank accounts to pool together and launch a Google-sized business as a co-op. The enormous costs for rack servers and data centers to scale out would outpace the employees' tiny cash contributions.

allochthon 11y ago
> but it's ultimately constrained by the members'/employees' financial resources to contribute capital. Sounds like a variation of the bootstrapping problem; i.e., something that is not necessarily a blocking constraint to more ambitious projects.
koolkat 11y ago
I don't think employees are investors in co-ops. They are like founders. A co-op can still get capital from investors. Can't they?
- jessaustin 11y ago
  Probably this would be debt rather than equity.
- thedufer 11y ago
  The problem with that is there are tax implications to giving someone a chunk of a company (it's technically income), even if it is completely illiquid. Tax implications the employee probably can't afford much better than a buy-in.
  - mauricemir 11y ago
    coops normally have special status to get round some of these issues. And coop members can have direct or indirect ownership a full on worker coop normally has direct ownership and organizations like John Lewis have indirect ie shares held in trust.
- dredmorbius 11y ago
  More typically a co-op will raise funds from members via shares. I'm a bit shaky on specifics, but those shares may be capable of being sold back (to the co-op as a whole). Voting righs often _don't_ accrue per share. Debt financing, as mentioned, is another alternative. Read with caution, I'm really sketchy on details.
- mauricemir 11y ago
  It depends is some coops members do have to ante up the Spanish Mondragon coop is an example. And by definition the members of the coop must own the coop or own a controlling interest
- dragonwriter 11y ago
  > I don't think employees are investors in co-ops. Typically, they are; their ownership stake is usually, as I understand, purchased on credit and sold back on separation. > A co-op can still get capital from investors. Can't they? Well, yes, in the form of debt, and perhaps non-voting equity depending on the particular rules applicable to coops where the coop is organized.
michaelchisari 11y ago
Usually modest businesses, but not always. http://en.wikipedia.org/wiki/Mondragon_Corporation http://en.wikipedia.org/wiki/Mondragon_Corporation
mauricemir 11y ago
Yep Capital is the killer for worker coops - there have been experiments with coops taking VC funding Poptel in the UK is one example. Unfortunately it did not end well :-(
Joeboy 11y ago
> it's ultimately constrained by the members'/employees' financial resources to contribute capital I don't know about the rest of the world, but in the UK co-ops can raise investment via loanstock.
dragonwriter 11y ago
> The co-op structure is interesting but it's ultimately constrained by the members'/employees' financial resources to contribute capital. Not quite true. Its constrained -- pretty much by definition -- to internal source of equity-based financing, but it can get external non-equity financing. > That's why co-ops are always modest businesses like grocery stores, or a co-op of cleaning people, or in this article's case, a co-op of IT techs. I don't know that I'd describe Mondragon corporation as a "modest business". OTOH, they are usually by design fairly moderate-risk businesses, as their aren't many established financing instruments (or financiers providing them) suitable for high-risk coop ventures.

Kalium 11y ago

I've seen one or two of these. I've also not seen any really successful or compelling products come out of any of them.

lawnchair_larry 11y ago
Pick any 2 random conventional startups, and this will be just as true.
- Kalium 11y ago
  True! That said, my personal experience with coops is that they tend to be consensus-driven and give everyone a veto. This is a problematic model when vision is required. Works well for more readily-defined things like grocery stores or running a dorm, though.
  - nickpsecurity 11y ago
    The kinds that have management representing the coop work around that problem a bit. They have someone with vision, experience, and the ability to work through disagreements. That person normally does his or her thing with others adding opinions, votes, or whatever. The critical benefit is that such a person can step in to clear out obstacles caused by a lack of consensus. So, even with its issues, representational democracy can be better than pure democracy so long as everyone is doing his or her part. :)
  - yochaigal 11y ago
    I'm the founder of this co-op - and no, it isn't consensus based. In fact, we made a point of NOT doing things by consensus! Not all co-ops are consensus-based, in fact I'd say the majority are not.

anonhn82 11y ago

If this is such a good way to run a tech company, why isn't it also a good way to develop software? In other words, why are projects led by BDFLs like Linux and Python so successful, while the design-by-committee approach is usually regarded as producing substandard outcomes?

thaumaturgy 11y ago
Because the software development industry is stupidly fragmented. Get 12 developers together in a room and you'll get 12 different answers on the best way to build anything.
- michaelchisari 11y ago
  It's a cultural problem, definitely.
nickpsecurity 11y ago
Depends on the committee. The Ada designers, acting on committee's needs, came up with pretty much what they wanted. Had performance, availability and pricing issues that kept it from taking off as much as it could. Yet, the language's features accomplished their goals very well as proven by a number of empirical studies by military and defense contractors. So, that's one success story. Anyone have any other examples? I'm asking because I really think this recurring theme is a myth about committee-design languages where the problem really is a prevalence of bad committees.

davidbanham 11y ago

This sounds like a wonderful way to work. I can't figure out who died the sales though. How do they attract clients. Is that just everyone's job?

thaumaturgy 11y ago
This is actually something I'm actively working on in my area, where there are a number of independent small tech consulting companies (most of them with just one employee), all with different niches and skillsets, and none of whom have offices or shops. So everyone already has their own client base. The goal is to share some work, leverage eachothers' skillsets, and share a common space with inventory and a shop setting where you can meet customers in a professional environment. The downside is that everyone's pretty independent-minded so it's a bit like herding cats. But the upside, if it works, will be pretty great for everyone involved.

bcx 11y ago

This article is "OK", but their example is a 4 person co-op, which makes you think that all co-ops like the food co-ops you see in college towns. There are actually multiple forms of co-ops. Typically capital does come from the members (whether they be companies or individuals), but it could also come in as debt i.e. from a bank. For example: Sunkist is producer co-op owned by citrus growers to vertically integrate. http://www.sunkist.com/about/cooperative.aspx http://www.sunkist.com/about/cooperative.aspx REI is consumer co-op owned by the shoppers of the store (though arguably managed much like a normal corporation): (And did over $2.2 billion in sales for 2014) http://www.triplepundit.com/2015/04/reis-co-op-business-model-produces-record-results/ http://www.triplepundit.com/2015/04/reis-co-op-business-mode... http://www.seattleweekly.com/2003-06-18/news/who-owns-rei/ http://www.seattleweekly.com/2003-06-18/news/who-owns-rei/ http://www.rei.com/about-rei/financial-information.html http://www.rei.com/about-rei/financial-information.html Ace Hardware is a retailer-owned cooperative. Where the franchise board is owned by the member franchises. https://www.myace.com/invest/about-ace https://www.myace.com/invest/about-ace

jasode 11y ago
>Ace Hardware is a retailer-owned cooperative. Where the franchise board is owned by the member franchises. The Ace Hardware franchise requires ~$1 million[1] in startup costs to open a store and be part of the "co-op". Most employees don't have that kind of money and they don't have the collateral to secure a $1 million loan from the bank. When the ticket for admission into the "co-op" costs $1 million, that's not the type of co-op people are discussing. The REI stores co-op is also not a good example of what workers are thinking about. REI is not employee-owned. I think we need to level-set. When threads pop up about cooperatives, the driving sentiment is from typical workers/employees who don't like the corporate ownership structure (founder has equity worth millions/billions, and/or CEO is drawing $500,000+ salary, etc). Therefore, the co-op structure where all employees are also the owners and share the profits looks very attractive. The problem is it will end up being a modest business. E.g. a cooperative of IT consultants. The IT Consultants Co-Op don't need members to contribute $1 million each to capitalize the business; they just start billing clients right away. They can pool their modest funds from their hourly billings to buy the shared office a laser printer and a coffee machine. It would be great if a cutting edge big company (like Google, Amazon, or SpaceX) with ambitious and very expensive goals (driverless cars, drone delivery, Mars colony) could be "employee-owned" but it can't. Employees don't have the money. [1] http://www.franchisechatter.com/2013/08/31/franchise-costs-2013-detailed-estimates-of-ace-hardware-franchise-costs-2013-fdd/ http://www.franchisechatter.com/2013/08/31/franchise-costs-2...

apineda 11y ago

According to this article co-ops are a place where non-whites congregate and find their safe space. Wow. Bringing ignorance to the masses I see.

mauricemir 11y ago
Not in the USA its mostly Farmers and American coops don't have the left wing roots that they do in Europe and to a lesser extent in the UK

nickpsecurity 11y ago

One of the best I've seen that's similar to this model is Publix: http://www.forbes.com/sites/briansolomon/2013/07/24/the-wal-mart-slayer-how-publixs-people-first-culture-is-winning-the-grocer-war/ http://www.forbes.com/sites/briansolomon/2013/07/24/the-wal-... They're an employee-owned, private company in one of the most low margin and cut-throat industries around. Both their profit and effect on the competition is incredible. Also, their management to worker ratio. ;) It would be interesting to see tech companies adopt a model like this. The results could be exciting to watch and maybe lead to more job security as well given every other kind of company likes to sell out.

allochthon 11y ago
> Also, their management to worker ratio. Can you elaborate?
- dredmorbius 11y ago
  From this line of the article, quite low: "A distribution-center manager overseeing 800 associates..." That is, many workers per manager. Which suggests that workers 1) know their jobs, 2) do them, and 3) managers facilitate and largely get out of the way.
  - sukilot 11y ago
    Is that uncommon for warehouse/factory work?
  - nickpsecurity 11y ago
    Exactly. Likewise, their stores had 400 workers and 2 managers. Most retail workers I know say their company keeps staff too low to get the job done while having way too many managers with micromanagement. One of the top chains local store recently had only 2 stockers per fast moving department with about 40 managers auditing and coaching them on best practices. Walmart and Target employees told me they had similar issues but not as extreme effect. So, as dredmorbius says, they have managers that pick good employees, give them incentives, show them justifiable best practices, listen to feedback, and otherwise stay out of the way. And the management works for the employees, who are the shareholders, not Wall St. Results: highest profit in industry, highest customer satisfaction, one of highest retention, and little risk in operation. IT startups should copy this if they're not just about selling out.

innovator116 11y ago

Multi-stakeholding coops http://community-wealth.org/content/solidarity-business-model-multi-stakeholder-cooperatives-manual http://community-wealth.org/content/solidarity-business-mode... and open cooperativism http://p2pfoundation.net/Why_We_Need_a_New_Kind_of_Open_Cooperativism_for_the_P2P_Age http://p2pfoundation.net/Why_We_Need_a_New_Kind_of_Open_Coop... points to transition towards post-capitalism. As for lack of capital fairshares model is interesting http://www.fairshares-association.com/ http://www.fairshares-association.com/