Advantages & Disadvantages of a Cooperative Business

by Devra Gartenstein ; Updated December 04, 2018
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Cooperative businesses are owned by their stakeholders who have a say in crucial decisions, from electing board members to deciding which products to stock on their shelves. Worker-owned cooperatives are workplace democracies where employees have equity and a voice. Consumer cooperatives are owned by their shoppers, who may also work hours in exchange for deep discounts. Producer cooperatives are collaborative ventures by independent entrepreneurs. A business can also be a solidarity co-op, owned by multiple types of stakeholders such as workers and consumers.

Advantage: Workers Get a Voice

The member-owners of a cooperative business work together to make large and small decisions about the mechanics and direction of running the company. This collaboration is an advantage because multiple minds can weigh in with diverse perspectives, forcing the organization to consider issues from a variety of perspectives and ask questions that may not have been addressed in a narrower conversation.

Disadvantage: No Quick Response to Market Changes

Collective decision making can be cumbersome and slow, and member-owners with a disproportionate amount of knowledge and experience don't always get a say that reflects the extra value of their opinions. In addition, the cooperative decision-making process can be disadvantageous when a business is faced with decisions that must be made quickly, such as seizing opportunities or responding to threats.

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Advantage: Easier Sources of Financing

Cooperative businesses can be financed in part by their members, whose buy-in equity can go towards working capital and expansion. This approach to financing is an advantage when members are buying in and making contributions, but it can be a disadvantage when member-owners leave and the business has to pay back their investments. Cooperative businesses can manage this risk by creating terms that avoid sudden cash flow drains, such as a worker cooperative designating in its bylaws that existing members will be reimbursed over a period of five years.

Disadvantage: Difficulty Finding Additional Needed Funding

Cooperative businesses also face challenges with regard to financing because many traditional lending institutions don't understand the cooperative structure and may be reluctant to grant loans when these sums won't be guaranteed by individual business owners.

The Cooperative Economy

There is tremendous enthusiasm in cooperative circles for the idea of building a cooperative economy made up of a network of collectively owned businesses supporting each other with services, referrals and joint marketing. There is vast potential to create symbiotic relationships based on shared values and opportunities. In addition, many progressively minded customers will support cooperative businesses specifically because of their cooperative structure. However, the message of cooperative business has yet to gain widespread traction, and many consumers are still unclear about what cooperative businesses are and how they operate.

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.

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