KG:

Yes, that course was a tremendous opportunity! We should give a big shout-out to Mondragon folks Jose Mari Luzarraga and Ana Aguirre for being tireless program coaches and cat herders, and to Greg Brodsky, our US cohort troop leader, for bringing warm cookies of encouragement to every meeting. And Trebor Scholz, of course, for his relentless thought leadership. I don’t think I’ve had a chance to ask you, what attracted you to the course?

KG:

I’d been puzzling over the platform cooperative construct and its potential since attending “Who Owns the World?”, the 2019 conference on platform cooperativism at The New School. My advocacy for worker coops is based on their potential to liberate labor from the “divine right of capital” to extract profits from and control the lives of workers. I don’t see that potential in other cooperative models. While other forms of cooperatives, such as consumer and producer coops, can soften the harsh edges of capitalism, they don’t structurally change the capitalist paradigm.

KG:

I’m curious to see what kind of ownership model they will implement. Capitalist platforms exponentially magnify riches and ruins. That’s why they’ve attracted vast amounts of venture capital.

And that’s why they’ve been able to harm huge swathes of populations on such an enormous scale that we’ve more or less been cornered into surrendering. Can platform tech companies with their capacity for mass exploitation be converted to engines of liberation? Or are we going to merely replicate what I call brothel capitalism and end up owning the markets at which we sell ourselves? What a privilege to explore these issues with our course colleagues!

KG:

Well then you were obviously the smarter one! It was a lot of work but I knew the course would force me to walk the talk I always give my own clients about the necessity of developing a comprehensive business plan. And I highly recommend it to all cooperators and their advisors.

KG:

“How to scale” is a topic that has dominated much of the conversation and work around cooperatives in the U.S. for the eight years I’ve been involved, and I’m sure well before that. Meanwhile the meaning, value and objective of scaling receives a lot less discussion in my experience.

I suspect that a lack of consensus on the “why” and “what” of scaling has impeded some coordinated actions that might take place if we were clearer about our objectives. Of course, I recognize there is no single best way forward, or else everyone would already be on that road. For sure no one has been slacking and progress has been made on a number of fronts.

Still, we need to acknowledge that worker cooperatives in the U.S. remain “a fart in a hurricane,” in the colorful words of a recent conference presenter. And we need to ask why, and what we can do differently.

KG:

Exactly! I wanted to explore what value the concept of scalability at the individual business level brings to the work of building a cooperative economy.

What problems are we trying to solve and why? Are they real and pressing problems that are preventing progress for a lot of people? If not, let’s focus our energies elsewhere.

KG:

Yes, that’s the concept as explained in conventional business literature, although sometimes in a fuzzy or loose sense. Within an individual business, scaling means making the business scalable by creating capacity. Scaling is achieved most readily by measures like reducing the cost to provide goods or services to new customers such as through efficiencies like automation, delivery platforms, volume purchasing, and the like, or by reducing the expense of acquiring new customers.

I’m not concerned with linguistic purity, but I like to poke at terminology that can obscure and impede true consensus. So, if we’re going to talk about scaling coops or scaling the coop movement, let’s understand what we mean by it and what that word means in the conventional business world.

KG:

By loose analogy, scaling the cooperative movement means creating capacity to generate and support more cooperatives with greater efficiency and less cost.

The co-op community has done a lot of work to build capacity by training more lawyers, accountants, technical assistance providers and peer-to-peer coaches, promoting co-op-specific statutes. And enhancing access to capital for co-op formation.

KG:

That’s right. Your business is scalable if it has capacity to meet additional demand without needing to invest in a new factory, add a lot of new employees, raise a lot of money or build surplus inventory. Scalability is the capacity to deliver — and therefore to receive — more with less.

A platform-based business is typically going to be highly scalable because once the technology has been developed, it will have excess capacity and few costs or barriers to adding new users. So, you can see why they’ve been attractive to VCs. Certainly we want the co-op community to be scalable. But I don’t think the lack of scalability is our biggest problem in building a cooperative economy.

KG:

Growth is another fuzzy concept, and there are several modes of conventional growth such as organic growth, internal growth, strategic growth and growth by acquisition. But all forms of growth have to do with improving or adding new products and services, new markets or processes, or optimizing sales.

In a healthy business, growth stimulates demand for products and services which in turn stimulates further growth until a stable dynamic is reached.

By contrast, scalability relates only to the ability to respond to demand, but scalability itself does not create or enhance demand. If we again analogize growth of a business to growth of the coop sector, we can see pretty clearly that scaling capacity is not going to drive the creation and sustained success of cooperatives that build houses, cars, computers, batteries, banks, guitars, furniture and refrigerators.

So I’m just making the small and obvious point: if we think it is imperative that worker-owned businesses grow to critical mass in all sectors of the private economy, then we need to talk about strategies for generating growth and demand at both the individual co-op level and at the cooperative sector level.

KG:

We don’t talk enough about growth strategies, probably because the word “growth” carries the stigma of capitalism’s worst practices of growth-for-growth’s sake, growth-at-all-costs, growth-at-the-expense of everything and everyone.

Uncontrolled growth depletes and destroys. But sustainable growth is replenishing and invigorating — and necessary for individuals, ecosystems and businesses alike. I liked the photograph of a forest you used in your first issue of O.M. to represent the cooperative ecosystem. In a forest ecosystem, different plants have a natural optimal size they will try to grow to — whether big or small.

When we look around at the 99.9 percent of enterprises in this country that are small local businesses that employ about 50 percent of all working adults, we see restaurants, stores, electricians, and construction businesses that will generally stop growing in size after reaching sustainable profitability.

These businesses require continued growth through innovation, process improvement, and new offerings to remain right-sized, and some may expand by opening branches nearby. But they are not striving to become the biggest or the only hair salon chain, home builder or restaurant in the world. Far from being a failure to thrive, being right-sized is an asset that gives a business the flexibility, quality control, and community connections that its success requires.

Growth is not likely to become cancerous unless it is infected by the extractive mindset of capitalists. I think worker cooperatives can be trusted to pursue optimal growth as a means to achieving sustainable profitability and not as an end in itself.

KG:

Of course. That’s not their MO. They are irrelevant in this context. Why would a worker cooperative ever want VC funding? When you stick your head in the mouth of a shark and it asks for an arm and a leg, you quickly begin to see the value of losing a limb if you can get away with keeping the rest.

That’s “mindcapture,” the most potent risk to co-op development.

Moreover, VC funding is unnecessary. In the U.S., 99.9 percent of all businesses are small businesses and only a miniscule fraction of a percent of those receive VC funding or even angel funding from wealthy individuals. SBA statistics from 2012 show that about 82% of small businesses were started with personal savings or no startup funding at all, and only 8% received a bank loan. A quarter were started with less than $5,000, a third were started with less than $25,000.

That is not an optimal or equitable startup financing model for many reasons worth working to correct, but it does not in itself forestall co-op development. Access to capital is not easy for any small business but it is not hugely more difficult by virtue of being organized as a cooperative corporation. To be fair, the other half of the labor force works in the 20,000 or so businesses that make up one-tenth of one percent of the businesses in the country. Replacing or converting those businesses to worker cooperatives will require a substantial redirection of capital and government involvement.

KG:

Yes, I think a lot of people mistake scalability for growth and that’s part of why we aren’t getting where we want to go.

I want to see more worker owners and more worker co-ops. Scaling will not grow coops and scalability will not generate demand for more coops.

For the time being, there are enough professionals and consultants; there is even enough access to capital. Right now, I would rather have the problem of too many entrepreneurs and retiring business owners waiting in line for help to start a worker cooperative than too many coop developers and professionals waiting for more worker cooperatives to assist, which is the case now.

As we can see from all the thriving international co-op communities, such as those in Spain and Italy, growth requires coordinated strategies. What we lose track of when we look at their success is how they got there and how long it took. They didn’t start with constitutional amendments and federal financing. We have to start with what we have — and the good news is — we have what we need to make better progress if we direct our efforts strategically.

KG:

Ironically, co-ops risk being swept aside by the rising tide of dissatisfaction with conventional capitalism. People are clamoring for a more compassionate, equitable, socially and environmentally responsible economy. That demand for change is real, but we have work to do to translate that into a demand for worker cooperatives.

I know many will dispute the premise that there is relatively little demand for worker cooperatives or they’ll want to explain it away. But we can’t afford to fool ourselves or preach to the choir. Capitalism can always co-opt real change when it needs to, as the proponents of replacing shareholder primacy with “stakeholder capitalism” are doing now. Worker co-ops are now struggling to differentiate themselves based on distinctive core values that are ostensibly being embraced by many mainstream businesses.

KG:

I ended with that speculation, as the start of a broader conversation to be continued in other forums about the obstacles to adoption of the worker coop model. These obstacles go way beyond brand identity and I look forward to other opportunities to discuss these with you.

But to continue the thought a little ways: we can see the power of the brand in the Mondragon franchise. Most people would be surprised to learn that Mondragon is a federation of about 100 individual coops that are not legally related and can leave the Mondragon federation if they choose.

More surprising to me is that there are another 1,800 or so worker coops in Spain, but I couldn’t name one. What makes Mondragon standout is more than its delightful name, impressive size, and the aura of its sustained success. I think the most appealing identity that the Mondragon brand conveys is solidarity. Solidarity within each co-operative business, solidarity among its member cooperatives, solidarity with its defining values, solidarity with the needs and aspirations of labor everywhere. Solidarity is a powerful and inspiring message of mutual care and belonging at every level. That message is one of several key elements missing from the worker cooperative identity as promoted in the U.S.

KG:

Capitalist businesses can pursue carbon neutrality, ecological packaging, circular economy initiatives, diversity, living wages, profit sharing, safety standards and other socially responsible practices, and some may do so better than many cooperatives currently do.

There is only one thing a capitalist enterprise can never do, and that only a worker cooperative can uniquely do, and that is to give 100% control of a business to its workers. From that birthright as a worker cooperative flows the right of the workers to hire capital instead of being hired by and controlled by capital.

And from that flows freedom from arbitrary terminations, freedom to decide what work your business will do and your role in it, how, where and when you will work, and what you’ll get paid for it. That resonates with a lot of people.

About one million new small businesses are started each year. In a survey of start-ups by Guidant, a small business financing company, 90% of people reported that their primary motivation in starting their own business was to be their own boss (55%), to pursue their passion (39%) or dissatisfaction with corporations. Do all those people want to pursue their own freedom at the cost of exploiting others? I don’t think so. I think most people realize that true freedom is the freedom to not to have to oppress others to take care of ourselves.

I don’t think we shy from that message of personal liberation in the context of solidarity with others, but it is often relegated to a supporting role in the coop success story of business continuity, community development, and job stability. And the message of liberation really gets lost on the public when worker cooperatives pitch themselves as being one more cooperative like all the other cooperatives you already know and love, like your local food co-op or credit union, REI or Land O’Lakes.

KG:

We are no doubt conditioned to our cages and blind to our options, but people can change and change quickly when the change aligns with their innate instincts and desires.

I am certain that someday most people in this country will look at the tolerance for poverty and wealth inequality in our era with the same revulsion and bewilderment with which we regard the tolerance for bigotry and racism in the generations before us. And they’ll wonder how we endured and did so little to end the suffering of our neighbors and communities.

I am so excited for this moment in time and hopeful for the future it portends. Thank you and the Ownership Matters newsletter for your work in spreading the good word about cooperatives!