Avoiding Potential Pitfalls

New organizations are most vulnerable in their early formative years. Here are some tips for new cooperatives to avoid potential pitfalls:

1. Lack of clearly identified mission-A new cooperative shouldn’t be formed just for the sake of forming one. The potential member-user must identify a clear mission statement with definite goals and objectives.

2. Inadequate Planning-Detailed plans for reaching defined goals and the mission are important. In-depth surveys of the potential member-user needs coupled with business feasibility studies are necessary. Stop the organizational process if there isn’t sufficient interest in the cooperative by potential member-users or if it isn’t a sound business venture. The human cost in time and organization expense may be better used elsewhere.

3. Failure to use experienced advisors and consultants-Most persons interested in becoming member-users of a new cooperative haven’t had cooperative business development experience. Using resources persons experienced in cooperative development can save a lot of wasted motion and expense.

4. Lack of member leadership-Calling on the services of experienced resource persons can’t replace leadership from the organizing group. Decisions must come from the potential member-user group and its selected leadership. Professional resource persons should never be in decisionmaking positions.

5. Lack of member commitment-To be successful, the new cooperative must have the broad-based support of the potential member-users. The support of lenders, attorneys, accountants, cooperative specialists, and a few leaders won’t make the cooperative a business success.

6.  Lack of competent management- Most cooperative members are busy operating and managing their own businesses and lack experience in cooperative management.  The directors hire experienced and qualified management to increase the changes for business success.

7. Failure to identify and minimize risks-The risk in starting a new business can be reduced if identified early in the organizational process. Careful study of the competition, Federal, State, and local Government regulations, industry trends, environmental issues, and alternative business practices helps to reduce risk.

8. Poor assumptions-Often, potential member-users and cooperative leaders overestimate the volume of business and underestimate the costs of operations. Anticipated business success that ends in failure places the organizers in a “bad light.” Quality business assumptions tempered with a dose of pessimism often proves to be judicious.

9. Lack of financing-Regardless of the amount of time spent in financial projection, most new businesses are underfinanced. Inefficiencies in startup operations, competition, complying with regulations, and delays often are the causes. Often, the first months of business operations and even the first years are not profitable, so adequate financing is important to survive this period.

10.  Inadequate communications – Keeping the membership, suppliers, and financiers informed is critical during the organization and early life of the cooperative.  Lack of or incorrect information can create apathy or suspicion.  The directors and managment must decide to whom and how communications are to be directed.

Considerable time and effort are spent in starting a new cooperative. Avoiding the pitfalls experienced by others helps to increase your effort to be successful.

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