Why We Need Co-ops in 2019

A primer on the growing ecosystem supporting platform co-ops.

Why It Matters

Platform businesses are not necessarily the financial success that their market valuations suggest, even if they have a dedicated community who use them. Now, however, networks of like-minded people and organizations are emerging to accelerate a first wave of digital co-operative enterprises.

Today, 4.4 billion people — a good 57 percent of humanity — are now online. More than 1 million people per day joined the internet in 2018. In 2016, the digital economy represented 15.5 percent of global GDP, and that share will continue to grow to 24.3 percent by 2025. That rapid economic growth is being driven in part by the “network effects” of digital platforms, including iconic brands such as Amazon, Uber, and Airbnb.

The potential for positive social impact of global platforms, however, remains elusive. Platforms have disrupted the global economy by using massive investment to quickly scale up in sectors that governments have been slow to regulate, and — in some instances — this has helped maximize unused resources and create wealth. But platforms’ method of growth has also bred less pleasant consequences, ranging from the subversion of labour standards to the collection, control, and monetization of personal data to the distortion of housing markets. Overall, the expanding platform ecosystem is contributing to increased inequality.

Despite serious concerns, however, it’s fair to say that consumers have spoken over the last decade, and on-demand and sharing apps are here to stay. So can we change the way platforms operate in order to make them a tool for sustainable economic growth and deliver social, environmental, and economic impact? 

Conscientious entrepreneurs are turning to co-operative business models as they look to build more sustainable, purpose-oriented digital businesses. These models promise better and fairer working conditions, wages, privacy, and — most importantly — equity for those involved. The challenge is that for these new ventures, it is often a long road to achieve profitability without the massive injections of venture capital conventional start-ups receive. For them to succeed and make a positive impact at scale, there needs to be a broader definition of success in our tech start-up culture. They will also require the support and understanding of impact investors.

Building companies that contribute durable value to customers, communities, the environment, and shareholders isn’t new. B Corps have been assessing the holistic impact of businesses since 2007, but for the most part, B Corps are a brand commitment, rather than an entirely different business model.

The hope for a digital future that is “good” lies beyond brand commitments and rests instead in shared democratic ownership of digital platforms. Making a business owned by, and accountable to, the people who need it is a permanent feature of the co-operative model.

However, for a start-up, a co-op presents a “chicken and egg” problem for founders. A co-op is typically a project of co-creation designed to fill a need, and historically, co-ops and credit unions have started with a gathering of people — so it’s a challenge to assume that if you build it first, members will come. You also need a founding group of at least three people to incorporate a co-op in most jurisdictions. That may seem a small barrier, but knowledge of how co-op governance works and the distinct financial rules for co-op investment can combine to create genuine barriers to entry for aspiring founders.

 

Building new business templates for platform co-ops

Promoters of the platform co-operative model are developing legal templates to guide entrepreneurs as they found and finance such ventures. Co-op business models range in complexity from simple consumer owned co-ops like MEC, producer/marketing co-ops that have historically been agricultural, and worker-owned co-ops. Digital platforms can be any of these, or any combination of these, member types that balance the interests of investors, founders, users, and sometimes, employees. 

In the United Kingdom, the FairShares Association has been refining how democratic control can be balanced between founders, workers, investors, and users. Like B-Corps, FairShares projects involve a formal commitment to social, environmental, and financial impact auditing, but it also embeds the equitable sharing of power and wealth.  

The first Canadian platform co-operative to adopt the FairShares approach is Brave.coop. Brave is a digital supervision platform where drug users can receive remote and anonymous support in real time to prevent accidental death from overdose. In the co-op tradition, they are stepping in to fill a need for stakeholders – addicts, their families, and health professionals – that otherwise would not be filled. For this award-winning start-up, the co-operative model was and is a means to co-create digital tools to combat the fentanyl crisis. In the experience of their CEO Gordon Casey, “Being a co-operative, our tech, design, focus, ownership, and direction are all determined by the community growing around us.” 

Importantly, the FairShares model puts founders like Gordon Casey at the centre of the co-operative membership structure rewarding sweat equity and innovative ideas by accommodating appropriate rights and compensation without sacrificing democratic control. (After all, without founders committed to social impact, we would be missing out on the creative innovation that entrepreneurship can deliver.)

 

Developing frameworks for ecosystem growth

Co-operative advocates are also adopting – and adapting – common start-up methods. We’re now seeing the birth of incubators and accelerators that focus on the non-technical, associative aspects of co-operation. These mainly help nascent enterprises establish healthy democratic functions and manage the glaring difference that separates them from typical tech start-ups — namely, the inability to hand over chunks of equity in return for venture capital.

The emerging ecosystem of information, training, and financial support for platform co-ops where none existed a few years ago is largely due to the work of a core group of academics and activists. One of the key influencers in the space is Nathan Schneider, a thought leader and promoter of platform co-operatives and co-founder of series of conferences that have helped popularize the concept of platform cooperativism. Schneider’s journey in advocating for platform co-ops led him to found the Internet of Ownership, which has a directory that tracks hundreds of projects and project support services. The website also hosts a library of information to guide entrepreneurs, policymakers, and other stakeholders in their platform co-op journeys.

The first ever platform co-op accelerator, start.coop, founded by Greg Brodsky in Boston, is also a project that Schneider is deeply involved in. Start.coop brings together a strategic support system designed to increase entrepreneurs’ likelihood of economic and social impact, and provides each startup with a $10,000 investment. Its first cohort of five platform co-operatives have already graduated from the accelerator’s 10-week program, but with more than 80 applicants from around the world still hoping to enter the program, more co-op accelerators are clearly needed. 

In the United Kingdom, Cooperatives UK and Stir to Action have taken a different approach by creating /Unfound, a strategy to advance platform co-ops. The strategy is to reach out through 20 events held in tech hubs across the UK in 2019 to find projects that could fit the platform co-op profile. One of the early participants working with /Unfound is Equal Care Co-op, a community care platform that is owned by caregivers and patients and ensures that caregivers earn a living wage. Equal Care Co-op created its digital platform and governance structure by starting with a pilot group, and the project will be expanded through crowdfunding and by building supportive networks in different regions. Growth will take time, but the UK’s co-op network has defined a pathway to sustainability for Equal Care — and others are sure to follow. 

For companies in Canada that don’t fit into the venture-backed search for “unicorns” or a not-for-profit model, these new pathways are urgently needed.

 

Building a competitive advantage for co-ops  

Some platform co-ops offer up such a fundamentally different model that their competitive edge is clear. For instance, Resonate, a music streaming service owned by musicians and their fans, is a blockchain-powered platform co-operative that puts power back in the hands of artists and listeners. Resonate is a mutually beneficial enterprise that represents broad-based ownership of the digital economy, and its success relies on the logic of fair compensation of artists and a payment formula that benefits music fans. Scaling up may take time, but artists have every incentive to participate — as do fans. (Resonate pays in nine plays of a track what Spotify pays in 200, so let the competition begin.)

In other cases, co-ops have the ability to organize into national and international federations in order to achieve the scale that will give them a competitive advantage to platforms like Airbnb and Uber, whose aggressive use of capital allows them to enter new jurisdictions easily. To compete, co-ops can form in each city or country under local regulation and share wider technological platforms to achieve the scale required to trigger a network effect. Eva Co-op, for example, is a rideshare co-op launched in Montreal in 2019 that will be in six Canadian cities by mid-2020. To scale, they only need to extend their platform to service new co-op nodes being founded by drivers in each municipality. 

Locally owned co-ops working within national and international federations are a key strategy for achieving scale and accelerating the social impact of user-owned platforms. 

 

Paving the way for a new way of business

The payoff from supporting the democratization of the tools that mediate our data, labour, and commerce could be significant. Both the sharing and on-demand economy are phenomenal tools in our economic toolkit, but the success of broad-based ownership may determine whether or not the digital economy is a driver of inequality or a tool for sustainable inclusive growth.

Fortunately, the digital economy is hyper-competitive and features rapid turnover of market leaders. New competitors can scale up and surpass incumbents, and impact investors should take note: a sustainable and fair business model does have a competitive advantage, and the implications can have global impact.