From the July 2002 issue of Entrepreneur

Starting a business can be a lonely affair. Most times you're not only the CEO, but also the marketing director, mail-room clerk, accountant and sales rep. Independence is great, but do you really want to be completely alone?

If you answered a resounding no to that question, a cooperative might be right for you, for a number of reasons. For a quick refresher, a co-op is a business that's owned and democratically governed by the people who buy its goods (in the case of a consumer co-op) or use its services (in the case of a purchasing or marketing cooperative). Allying yourself with other business owners in your industry can give you both camaraderie and the ability to compete more effectively with larger, or even national, chain stores.

"One of the biggest benefits of a co-op is that they aggregate small-business activity," says Paul Hazen, CEO and president of the National Cooperative Business Association. "They're viable and competitive in the marketplace. We're really seeing an explosion; there has been a tremendous amount of growth over the past five years."

Gerald Levy, 41-year-old owner of Rapid Transmissions in Escondido, California, is part of that growth. He formed a purchasing cooperative with four other local auto repair shops in 1997 to get better prices from their parts suppliers. "Our five shops dominate the region as far as sales go," says Levy.

Competition doesn't really enter into the equation, he says, because the shops are far enough apart geographically to maintain their own distinct customer base-they even refer business to each other. Says Levy, "We're not a threat to each other [and] we don't steal from each other. I've always tried to align myself with shops with a great deal of integrity." Building the relationships took years, he admits, but Levy set the ball in motion by calling other entrepreneurs he respected and talking about his own business experiences. They established a rapport and discussed ideas and innovations that would improve all their shops.

While the benefits certainly outweighed the drawbacks in Levy's case, experts caution business owners to do serious research into the cooperative system before starting a co-op or joining an existing one. E. Kim Coontz, academic coordinator with the Center for Cooperatives at the University of California at Davis, likens starting a co-op to starting a business. "The number-one [mistake] is not having a clearly defined purpose for what you want to do," she says. Much like your business plan, your plan for creating and running a cooperative has to take into account your membership, finances and agreements as well as the type of co-op you want to be. Are you a marketing cooperative that shares advertising expenses? A purchasing co-op? A worker co-op? A service co-op? And, says Coontz, entrepreneurs should ask themselves this: What do I want to gain from this enterprise? Is a cooperative the best way I can gain that?

Still, experts agree that one of the most important things in a cooperative situation is an entrepreneur's willingness to work with others. "Small-business [owners] are very independent-are they willing to come to a common table?" asks Hazen. "Can they come to the table and take off their competitive hat and put on their 'I'm a member of a co-op' hat?"

NEXT STEP
For more information about co-ops, visit the Web sites of these organizations:
  • National Cooperative Business Association: This site includes primers on how to start a cooperative, definitions of different types of co-ops, cooperative statistics and links to other co-op organizations.
  • DotCoop: is affiliated with the NCBA and allows cooperatives to register the .coop domain name.
  • National Cooperative Bank: This site, which includes financial information and small-business loan information, is also affiliated with the NCBA.

Entrepreneurs take heed: Signing on to a cooperative means you will have to trade off a bit of your fly-by-the-seat-of-the-pants independence. When it works, though, it can be very beneficial. Need one more incentive? Notes Hazen, "Consumers trust co-ops more than they trust other kinds of businesses."

Just Give the Word
Where else but word-of-mouth can you get a sure sale for $5?

Marketing your company is a battle-a battle for air time, a battle for print coverage and, most of all, a battle for serious attention. Done with the war metaphor yet? To get down to the practical side of marketing your company on a guerrilla level, we talked to Maia Haag, 35-year-old founder of I See Me! Inc., a children's book publisher in Cannon Falls, Minnesota. In 1998, she wrote a book that could be personalized for every child. Her dilemma? Getting the word out on a limited budget.

Haag, who used to conduct expensive marketing campaigns for General Mills, attacked her marketing on a local level first. Sending books to local newspapers and TV stations, she scored some coverage in the Minneapolis area. Once people knew her name, she directed them to her Web site, where they could not only purchase the book, but also sign up to be what Haag calls sales enthusiasts. Besides loving the book, the 131 sales enthusiasts have another reason to promote it: They get a $5 commission on every book they sell. "Find a customer who is a champion of your product," Haag says.

Haag also offers the $5 commission to Web sites that sell copies of the book through a link to her site. In fact, Haag has hooked up with more than 2,000 Web sites via Commission Junction, a meeting place for Web sites and e-stores. She simply listed her product in the company's database and it did the rest. Rather than pay for banner ads, Haag pays a commission only when one of her books sells.

Still, nothing beats pounding the pavement to get attention. Haag hit local stores she knew were frequented by lots of grandparents and pitched her book along with the $5 commission theme. Once store owners accepted and started seeing sales, she asked them for referrals to sales representatives and ended up getting her book in a showroom. Now that she's added wholesale to her distribution list, Haag expects sales to hit $750,000 this year.

All that marketing sound overwhelming? Just live by Haag's credo: "Take it one step at a time; [don't] get overwhelmed by thinking of all the different markets and different customers."

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