There are no guarantees that a cooperative, or any business, will be successful. There are, however, procedures and practices that can enhance the potential for success:

1. Member determination. Members must decide a cooperative can meet an economic need and be dedicated to its organization and success. They must be "determined" to see it succeed. It is not enough for an advisor to perceive a need and propose the formation of a cooperative.

*Economic need is essential*

2. Member commitment. Members must commit to the cooperative. Commitment is shown in a member's willingness to invest money in the cooperative and commitment to do business with the cooperative. If the members are not willing to commit enough capital or product, do not organize.

*Expect to use the cooperative*

3. No member competition with the cooperative. We have experienced cases in which members wanted to protect their markets by gaining assurance the cooperative will not sell to a particular buyer.

*Cooperatives must be free to operate in any market*

4. Able board of directors. The competitive nature of agriculture and complexity of most cooperative businesses require a board of directors with exceptional skills in management of capital and human resources. There is no place on a cooperative board for a person who is not knowledgeable about cooperative fundamentals or the business of the cooperative, or who is unwilling to actively participate in the leadership of the cooperative.

*Directors must be committed*

5. Able management. This is one of the most difficult elements for success, but the most crucial. The proper search, compensation, and good supervision and regular evaluation are all part of getting and keeping a good manager.

*Good managers, directors and responsible members are essential*

6. Conduct businesslike meetings. A good meeting doesn't just happen. It results from carrying out several successive steps: Planning ahead, involving members (or board members), following an agenda, and following through on meeting actions.

*Meetings should begin and end on time*

7. Competitive goods and services. No business can be successful if it fails to provide quality products or services. Dedication to the cooperative concept is not a replacement for quality.

*Quality, Quality, Quality*

8. Follow good business practices. It is not enough to just get started. Continued success requires sound business decisions on a day to day basis. Maintaining membership records, preparing operating and capital improvement budgets, and financial reports, planning, maintaining personnel policies and practices, inventory control and the annual audit are but a few of the business responsibilities of cooperative managers and board of directors.

*Expect to help finance the cooperative*

9. Demonstrated profitability. Realistic projections of volume, prices, costs of operation and returns to growers is essential if growers are to commit to a cooperative effort. Unrealistic projections lead to disenchantment and abandonment of effort.

*Expect to pay necessary commissions and margins*

10. Cooperatives cannot live on grants. They may be good when first starting out, but over the long run a cooperative must be self sufficient.

*Cooperatives cannot provide service at a loss*

11. Thorough business plan. No business can be successful without a business plan. For a cooperative, made up of a large number of producers, directed by a volunteer board of directors and managed by a hired staff, this is crucial. By providing site specific business planning, RBS business projections are more accurate and helps in the survival of an emerging cooperative. It's a lot easier to work on a plan with a specific and identified facility in mind.

*If you don't know where you are going, any road will get you there*

12. Premature equity level setting is dangerous. It can lead to under capitalization of the cooperative. Equity levels must be determined by the needs of the cooperative and balanced by the economic ability of the producers to contribute.

*Plan ahead*

13. Meets members needs. Misdirected efforts to provide services that are not needed will result in failure. Members will pay for only those services that meet their needs, no more, no less.

*Developing leadership is essential*

14. Use advisors and committees effectively. Organizing human resources and effectively using their expertise is essential in the formation of a cooperative. People are willing to help in the effort required to organize a cooperative if their input is used in a timely manner toward the accomplishment of clearly defined goals. Interest and support is quickly lost if the total effort isn't focused toward those goals.

*Advisers do not have controls to make cooperatives go*

15. Keep members informed and involved. Members are the foundation upon which a cooperative is built. Their continued support requires they understand the cooperatives purposes, objectives, and operations.

*Expect to help make decisions*

16. Maintain proper board and manager relations. Differing responsibilities of the board of directors and manager must be clearly understood and carried out. Continued diligence is required, as management and board members change, to assure responsibilities are met.

*Know the roles of members, directors, management*

17. Include a cross section of producers. Efforts to organize to serve a limited portion of a production area, only small growers for example, have not been successful. Marketing usually requires the combined volume of large and small producers. Do keep in mind, however, all producers involved should have the same goals regarding the cooperatives operations.

*Expectations must be similar*

18. Start simple and small. High technology, capital intensive operations are difficult to finance on a cooperative basis from scratch. The scale of the proposed cooperative must be limited to the resource base of the producers.

*Know the limitations of a cooperative*

19. Where possible, linkages with existing cooperatives should be established. It could be a cooperative already in business can offer the same type of service you are interested in pursuing.

*Cooperate*

1. Volume of product -- Adequate volume is necessary to maintain low unit costs.

2. Flexible operations -- This makes it possible to take advantage of the higher priced products.

3. A sound membership policy -- Membership should include all patrons, and all members should patronize their associations. Many associations handle too much non-member business and have too many members who are not patrons.

4. A definite plan of building capital -- Such a program--to pay debts and to expand--should be adopted and rigidly followed whether an association is organized with or without capital stock.

5. Up-to-date articles of incorporation, bylaws and marketing agreements -- These should enable the association to work toward the four preceding safeguards, and to comply with income tax exemption provisions. Many associations believe if they are incorporated under the cooperative acts of their States, or have the word "cooperative" in their names, they are exempt from income taxes. That is not so. The absence of profits, or any gains which might be construed as profits, is the only thing entitling an organization to such exemption.

As for cooperatives which are unable to protect themselves by adequate volume, flexible operation, a sound membership policy, a plan for building capital, and up-to-date organizational papers--what of them?

It is impossible to prescribe in general terms for definite action for all of them. However, each association knows its difficulties and the situations of its neighbor cooperatives. They should get together for frank and open studies of their problems and the possible remedies. It is possible that in many areas, a consolidation of the legal structures and financial interests can be effected. There probably are many ways in which this can be done, and in which strong, large volume associations will develop.

1. Associations bought too much property instead of leasing until definite needs of the organization were more clearly established.

2. Managers attempted to set arbitrary prices.

3. Objectionable policies of board members resulted in distrust and rebellion on part of members.

4. Operation was attempted with insufficient volume.

5. Operating costs were too high.

6. Management antagonized existing trade interests by severe criticism of their methods of handling farm products.

7. Associations attempted to operate at too many points.

8. Managers and directors engaged in commodity speculation.

9. Facilities were poorly located.

10. Associations followed incompetent pricing, credit, and inventory policies.

WHEN-- Producers have more confidence in private marketing agents than in the management of their own cooperative.

WHEN-- its purposes and plans are not understood by its own members.

WHEN-- its only foundation is the promise to members of "cost of production plus a profit."

WHEN-- members expect to make all low-price years into high-priced ones.

WHEN-- large groups of the membership persist in acting upon rumors destructive to the organization without first getting an explanation from the board of directors.

WHEN-- the management believes that a cooperative is immune from all the rigid exacting rules which guide all business undertakings.

WHEN-- members are not given the "truth and nothing but the truth" about the operation of their organization.

WHEN-- members have sufficient confidence in their association to ignore the occasional tempt-offers of private dealers.

WHEN-- members can talk intelligently about the plan and purpose of their organization and about the productive operations on their farms.

WHEN-- the foundation of cooperation is not a promise of profits, but a conviction that cooperation will bring the best possible results under the circumstances.

WHEN-- members ignore rumors, always seeking the facts of the business.

WHEN-- the management knows the common pitfalls of both private and cooperative business enterprises and seeks constantly to avoid them.

WHEN-- the economic need for cooperating is as great as for a retail store in the member's home trading center.

WHEN-- each member reaps benefits according to his own skill in producing high-quality products.