Cooperative Model Ensures Business Longevity & Empowers Employees
Updated: May 23, 2022
Diversifying business ownership can seem daunting at first, especially if you are a founder who is scared of relinquishing control. But once you take a chance in ownership diversification, you’ll experience its far-reaching benefits. In particular, a cooperative business model takes some of the burdens off of leaders and involves all co-op members in key decision-making processes. This way, it ensures business longevity and an empowered workforce.
Corey Kohn joins us in Episode 139 of the Her CEO Journey™ podcast to discuss the cooperative model. She shares the basics of this ownership model and how to know whether it’s right for you. Using Dojo4 as a case study, we learn the key considerations when changing to a cooperative and how to adjust its structure based on what the business needs.
Make sure to tune in to Steward Ownership: Ownership Diversification Through The Cooperative Model - The Journey of Corey Kohn to learn more.
Here Are Three Reasons Why You Should Continue Reading:
Discover how Dojo4 transitioned from a traditional business model into a cooperative model.
Understand the basics of the cooperative model and how you can adjust it based on the needs of your business.
Learn how the cooperative model can empower employees to take ownership of their work and improve business growth.
Resources
Learn more about alternative ownership through Christina Sjahli’s Weekly Blog:
Rethinking Profit as a Business Owner and Using Your Business for Good with Steward Ownership
Transitioning to the Perpetual Purpose Trust Model: What You Need to Know to Succeed
Chat with Christina and set up a time here!
Download the Financial Modelling Guide so you can show investors how your company is going to look in the future!
Corey’s Journey in Dojo4
Dojo4, founded in 2009, is a custom software agency in Colorado. While Corey is not one of the original founders, she founded its current business model.
The company first started as a coworking space for developers and designers, and quickly grew into an agency.
A few years later, Corey and her business partner Ara helped the company become B Corp-certified.
Currently, Dojo4 mostly caters to clients who have socially or environmentally impactful work.
Dojo4’s Transition to a Cooperative Model
After the original owners left the company, business ownership was shared by Corey and Ara.
From 2012 to 2015, they explored diversifying ownership, responsibility, and liability. However, the business was not mature enough to be attractive for others to buy into.
By 2015, the company transitioned to a cooperative model with the help of a lawyer.
The transition process included knowing how things are going to change—from financials to management practices.
The cooperative model also allowed them to decide the company’s hierarchy.
“It's actually a very flexible model, and it can accommodate all sorts of management practices.”
Concerns About the Transition to a Cooperative Model
During the transition, several employees raised their concerns about liabilities, accountabilities, and the company’s financial situation.
Employees were also concerned about being stuck in meetings, having to decide on matters for the business.
Based on this feedback, they modeled the cooperative such that employees only had to decide on three matters: hiring or firing clients, co-op members, and board members.
Why Transition to a Cooperative Model?
Corey shares that she and her partner felt that there was a decision-making bottleneck around them as owners.
By transitioning to a cooperative, they hoped to open this bottleneck.
They also wanted to make sure that the company can have longevity, especially when one of them decides to do something else.
“We also wanted to promote the possibility of longevity. So that if, you know one of us decided that we wanted to do something else in our lives, that it wouldn't then mean the end of the business that we had built over time.”
Opening the ownership could also open the possibility for company growth.
How the Cooperative Model Supports Growth
There are two kinds of capital in any business: financial and human.
Dojo4 values human capital growth. So, they needed to find ways where people can participate in the company other than being an employee or contractor.
They made it so that becoming a Dojo4 co-op member still required some commitment, but was not overly prohibitive.
Cooperative models can help companies that want to achieve an internal acquisition, but that was not Dojo4’s intention.
How the Cooperative Model Changed Dojo4
Corey and Ara stayed as managing directors even after the transition, and there was no major reassignment of roles.
The main difference is, employees are now able to make decisions on the aforementioned matters.
Even if the structure stayed mostly the same, there was a shift in energy and enthusiasm among employees.
People’s sense of accountability and engagement grew.
“It's fun for people to be able to say, "I'm an owner of the business now." You know, that's, I think it feels good. And I felt people's engagement really kind of go to the next level.”
How Dojo4 Embraced the Cooperative Model
In Dojo4, Corey is the business lead while her partner is the technical lead. When her partner left the company, employees were able to fill in the gap.
It takes time for people to learn and transition to a new business model.
Before the transition, the company tended to take clients that only Corey and her partner felt comfortable handling.
Now, they can take on clients whose needs other co-op members have expertise on.
Cooperatives' Accounting and Financial Structure
Structures can be customized based on the needs of the company.
Dojo4 charges clients time and materials. So employees keep track of their time so it can be billed.
The company then includes both billable and non-billable hours to compute co-op members’ patronage dividends.
Co-op members get paid based on their efforts and time. What the company decides as valuable should be stipulated in the bylaws during the formation of the cooperative.
“For a cooperative, you get paid on effort, because everyone owns the same amount. But not everyone puts in necessarily the same amount of effort.”
Dojo4’s finances are transparent and their employees can look it up anytime. However, Corey makes sure to present them in a more digestible format at least once a year.
Corey’s Advice on Transitioning Into a Cooperative Model
Remember that the cooperative model is very flexible.
Diversity and inclusivity in the workplace can extend to ownership.
Turning into a cooperative is a way to service your community and impact your local economy.
“Diversifying ownership and becoming a cooperative is one way that you can really provide a community service by impacting your local community or your local economy in a different way, by modelling that for other business owners.”
Cooperative models can also empower employees to take ownership of their work and gain experience in owning a business.
Powerful Quotes on Cooperative Model
“We felt like a lot got bottlenecked around us, as owners, and we wanted to open that bottleneck.”
“By becoming a cooperative, it allows a structure that is less dependent on specific circumstances.”
“Part of transitioning into a new business model is that it takes people a while to learn how to be with each other in that new way.”
“I just want to underline that you can really make this what you want it to be. So that in some ways is daunting, right? Because there's so much flexibility there.”
“It doesn't impact just financially, it's also so empowering. It gives people access to… knowledge and experience of what it means to own a business.”
About Corey
Corey Kohn is the CEO, co-founder, and founding co-op member of Dojo4, a community-based, global-scale, and member-owned technology cooperative that creates meaningful change through design and technology.
For over a decade, the cooperative has been dedicated to improving lives, communities, and environments by solving complex problems with straightforward solutions. Through her blog, Corey also shares insights on the technology industry.
Interested in Corey’s work? Check out Dojo4!
You can also connect with her on LinkedIn, Twitter, and through email (corey@dojo4.com).
Enjoy this blog?
If you want to ensure your business’ longevity while opening it up to growth opportunities, then a cooperative model may be for you.
Hopefully, Corey’s explanation of how this alternative ownership model helped Dojo4’s employees become more engaged and empowered inspired you. If you enjoyed this blog, tune in to the Her CEO Journey™ Podcast, subscribe, and share it!
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To fuelling the life you want to live,
Christina
Transcript
Corey Kohn: Diversity and inclusivity is something that people are really rightfully focused on right now. And I think one thing that people can consider in thinking about: How do we include people? How do we actually impact people? And how do we do that in like a real material way? Well, one way is that you can diversify ownership.
Christina Sjahli: Usually, the financial purpose in a traditional business model is to maximize profits in the short-term, where the owner is often disconnected from the life of the enterprise and the corporate governance is controlled by how much the investors own in the business. What if the reason you started your business is to create conditions for life over the long-term where ownership is in the hands of those who care about the greater good of our people and the planet, and the corporate governance is controlled by those dedicated to the social mission? What would be the non-traditional business model you should know and consider?
If you want to know more about the non-traditional business models, we invite you to follow along in this Alternative Ownership Podcast Series. Starting with Episode 137 and throughout the next few weeks, we want you, as a mission-driven founder, to explore the non-traditional business model and really think outside the traditional exit strategy, so you can protect your mission over the long term.
By the end of this podcast series, you will learn about the four different types of alternative ownership and how each of the alternative ownership model can also be your exit strategy option, which is likely more in alignment with who you are as a mission-driven female founder. You will also have a good understanding of key steps you need to think about if you are interested in alternative ownership.
In last week episode, Episode 138, was the second episode in the series. We had a conversation with Natalie Reitman-White on how she led Organically Grown Company to transition from a traditional business model to a perpetual purpose trust model.
Today's episode is the third episode in the Alternative Ownership Podcast Series. And we are joined by Corey Kohn, the co-founder of Dojo4, a B Corp certified business located in Boulder, Colorado. In addition to the B Corp certification, Dojo4 business model is a non-traditional business model. In 2017, Dojo4 transitioned into a cooperative model.
In this episode, Corey share the flexibility that the cooperative model has to offer to mission-driven female founders, how the cooperative model aligns with Dojo4 values, the important steps you need to consider to transition from a traditional business model to cooperative, and how to set up a capital structure that is accessible to all employees.
You're listening to Her CEO Journey, the business finance podcast for mission-driven woman entrepreneurs. I'm your host, Christina Sjahli. If you are new here, a big warm welcome. If we are not connected on LinkedIn, please reach out and say hi, because that's where I hang out and share my business finance tips.
If you have been listening to this podcast for a while, and you are a regular listener, I want you to know I appreciate you. My podcast won't be around without your support. This is a free weekly show where my guests and I want to inspires you to balance between mission and profit, to create an impact in this world, and to achieve financial equality through your business for good.
Any business decision, especially the big decision, always involve financial forecasting, including when you want to transition to cooperative model or any other alternative ownership model. Think about it this way: Your future cooperative members are your investors.
Before they decide to join your cooperative, first, they want to know if your business is thriving and will survive in the long-term. They want to know how your business is going to look like in the future in terms of profitability. Why? Because whoever decided to become a cooperative member is taking a financial risk. So how can you uplevel your forecasting process to show future profitability?
If you are not sure how to get started with the forecasting process, we have created a guide for you. Use the link in the show notes to download the guide and jumpstart your financial forecasting journey. When you are ready to focus on building your business and want us to manage the financial back office process in your business, connect with us at christinasjahli.com/lets-chat.
Welcome to Her CEO Journey. It's a pleasure to have you here today.
Corey: It's a pleasure to be here, Christina.
Christina: Corey, before we dive into the discussion on forming and running a worker cooperative, I really want you to start sharing your journey in creating Dojo4 and becoming the founder of Dojo4.
Corey: Dojo4 is a small custom software agency here in Boulder, Colorado. It was formed in the very end of 2009. And actually, I was not one of the original, original founders. There's four original founders, and I came on a month or two afterwards to help them manage the business. And then over time, most of those other owners left. I became an owner very quickly, within a few months, I believe.
I'm the founder of the current business model that we have. So it started sort of, at first as a co-working space for developers and designers. It quickly became an agency. A few years later, my business partner and I turned it into a B Corp certification. We honed down the business model a little bit differently.
Christina: Give me an overview a little bit about the solution that Dojo4 provided to the clients, and then the type of clients that you are serving.
Corey: We build custom software. We're definitely on the nerdy end of that continuum. What that means is that people come to us to build sort of complex applications. Now that could be a simple iPhone application. But more often than not, it's something that works with a large amount of data that needs high security, that has a lot of different moving parts. Mostly it's stuff for the web, but we have things that also don't use the web as much.
Our clients, in the past, we worked with a lot of startups, but that's really changed over the last few years. We've refocused our work to be more centered around clients that are doing what we consider social or environmentally impactful work, stuff that we feel like, is meaningful and is making good change in the world. So we work with anyone, still with startups. There's a lot of startups that fall in that category.
We work with NGOs, with government organizations and institutions. We work with, even large corporations that need a small team that can kind of figure out a hard problem for them, technically. We're a small team. But we have years and years of development experience under our belts. So we often get called in for what I think of as like the hard technical problem.
Christina: So I know that a few years ago, you basically switched Dojo4 to the cooperative model, right? When you first started, what was the traditional model that you used to have, and then the thought process you and your co-founder went through to switch and transition to cooperative model?
Corey: It was a business partner and I that owned the business solely as a partnership for many years. And at one point, we had employees, then at another point, we just had contractors. That changed a little bit over time, but the whole time, it was just he and I you know, after the original founders left kind of early on in the game, it was just he and I that own the business 50/50. We made most of the decisions 50/50. We had been in business since the very end of 2009. So I like to just say 2010.
In, let's say between 2012 and 2015, we had sort of explored some various options of having, inviting other people to be owners with us. That way, you're also diversifying the ownership, but you're also diversifying the responsibility and liability. That was appealing to us as well. But every time we tried to do that, it kind of just, even if there was sort of some initial enthusiasm, it just kind of fizzled. My theory on that is that our business wasn't mature enough to be appealing to someone who might want to buy into the business in that particular way.
In 2015, we started thinking about transitioning to a cooperative instead. We worked with our lawyer, Jason Weiner, who is really expert at these kinds of transitions. He suggested this kind of consensus-building process to really find out whether the cooperative model would have legs for our particular company. We went over financials. We talked about management and practices. How things were going to change, how things might be the same with the people that we were inviting to become co-op members with us. And the people that were working with us at the time, almost all of them had been working with us since the very beginning.
Part of that process was also us figuring out what kind of cooperative we wanted to have. Because it's actually a very flexible model, and it can accommodate all sorts of management practices. It can be like a flat hierarchy, or it can be very hierarchical. It can have everyone participate, you know, if especially if it's small, it can have everyone participating in every decision, or you could have co-op members just participating in very few of the decisions that might need to be made. Through that process, we kind of started to feel out, "Okay, is this going to work for us? And if so, what is our cooperative going to look like?" Yeah, it took us a year to get there.
Christina: So you basically kind of like sharing your idea about transitioning to a cooperative model with your employee, is that correct?
Corey: Yes.
Christina: So during that process, when you testing this or getting the consensus, what were the concern from some of your employees?
Corey: Yeah, that's such a good question. Yeah, there was some real concerns from our employees about transitioning to being a cooperative. Part of it is that you're becoming an owner of a business. They thought, "If I had wanted to be an owner of a business, I would have done that. I don't want all the responsibility. There's financial liability; there's a different level of accountability."
Corey: So there was questions around kind of, "How viable is this business, actually?" Like we, we've always had really transparent bookkeeping. And so mostly people kind of always knew, but they just wanted to really test out like, "Am I gonna become part of a business that's just going to fail soon? What are the financial liabilities involved? What are the tax implications?"
So on the one side, there was this kind of, like, practical piece of just like, "What does it actually mean to be an owner?" And, you know, "How is that going to affect my family's financial life? How's it gonna affect like, our schedules? And we're gonna have to put in more time, less..." You know, that kind of thing.
Then there was, I would say, kind of more like, philosophical considerations for people, which had to do with, I mean, I remember the kind of most, the most common concern was, "I don't want to be part of meetings all the time." You know, "I don't want to be making decisions about things all the time." And then, "If we're going to do that cooperatively, are we going to have to find consensus about big decisions, little decisions?" All that kind of thing.
So the consensus amongst the people that we were asking to join us was that they really did not want that. They essentially kind of didn't want their lives to change. Like they said, "Can you guys as the original owners, can you stay on as the Managing Directors, and essentially continue to do your jobs? And that way, we don't have to be part of the day-to-day management of the business." Which is a completely valid way to form a cooperative, it's absolutely fine. I can talk a little bit later about how there was some advantages to that and there was also some disadvantages to that in the end.
So in the end, we decided what people felt good about was that we would, as a cooperative, we would only make what I think of as a set of three decisions together, or it's really six decisions, that we would always have to bring and get votes from the cooperative about. Those decisions are hiring or firing a new client or a legacy client. So we all decide if we're going to take on a new client or get rid of a client that we have.
Hiring and firing new co-op members. So if we want, every contractor is eligible for membership after six months, according to our operating agreement, and so we vote as a cooperative: Do we want to have this person? Or if I guess, you know, in a hypothetical situation that we had a cooperative member who wasn't a good fit, or, you know, people didn't want to be part of as members of the co-op anymore, that the cooperative would have to decide together to ask that person to leave.
Then the last one is hiring and firing board members. And now that we have still not formed a board because we're small enough that we have a threshold that we are not required to form a board until we're over a certain number of members, and we haven't hit that threshold yet. We're in the process of considering whether or not we want to form a board anyways. But those are the only decisions that we have to make together. And we tend to make those decisions through a consensus process rather than just a yay or nay vote.
Christina: They basically saying, "Hey, I don't want to get involved in the day-to-day of managing." But you basically selected three criterias that are important for the cooperative to make the decision among the members together. Did you have to bring in like expert advisor to explain, for example, like the tax implication of this, the financing implication of this?
Corey: We did not. But we did have our lawyer, Jason Weiner as part of the meetings that we had before we decided to go ahead and make the transition to being a cooperative. We did talk about those things a lot. Ara and I made presentations about our finances. We talked about what we do in our jobs, just to be really explicit about it, all those kinds of things. So although we didn't bring in, necessarily an outside, like business expert, our lawyer addressed some of those things and he was part of all over those meetings. And we did address this is what it looks like to be a business owner.
Now, we didn't actually know what was going to change once we became a cooperative. We knew on paper, but we didn't know was this going to, you know, was it going to change the feel of the place? Was it going to change the way people's level of engagement in the process, people's level of engagement with clients? All those kinds of thing. And, and we really couldn't predict. I mean, one of the things when we decided, when my business partner and I decided that we wanted to try and cooperatizing was, there was a few reasons we were trying it, you know, we were hoping to try it.
One was that we felt like a lot got bottlenecked around us, as owners, and we wanted to open that bottleneck. We do client services, right? So we could only take clients that we knew either he or I could provide the service to. Now we could always hire contractors, right? And that's our model. We hire contractors to help us perform the service. But we knew at the end of the day that the contractor was not going to be on the line, if let's say, the client was unhappy about something on the weekend, or, you know, really ever.
It was always going to be us having to deal with kind of the more difficult aspects of being business owners. That also meant that, we then had to make decisions to be able to be sure that we could do that. So everything started getting like tighter and tighter around what was possible for us to do when it was just us that always had to be kind of the buck stops with us every time, right, which is a common issue in a small business, right? So we wanted to open up those bottlenecks.
We also wanted to promote the possibility of longevity. So that if, you know one of us decided that we wanted to do something else in our lives, that it wouldn't then mean the end of the business that we had built over time, you know, and that is a valuable part of a lot of people's lives and holds a place in our community, and all that kind of thing.
In fact, actually my business partner Ara, he actually did just this year, he decided to move on to something else. It was very amicable separation, but it felt much different doing that. I imagine it would have felt much different, because when he decided to move on, although of course, it's impactful, you know, we've been in business together for 10 years. On the other hand, the company is really well-held by the other members. So it made it much more fluid and possible for something like that to happen.
So we wanted longevity and stability in that way that wasn't just dependent on us. And we also wanted to open up the company for the possibility of growth if people are interested in that, so that more people could be involved in a much more active way. So those were the reasons we decided to do it. I'd say actually, so far, it's actually panned out pretty well in those departments.
Christina: How is this decision to become a cooperative support the future growth?
Corey: I think of it as like two kinds of capital, basically: financial capital, growth of human capital. But we were actually more interested in the human capital growth of including more people, because we really like our company. We think it's a great place to work, and so we want it to be more inclusive and allow more access for people who might be interested in being members or participating in our company at all, right?
So before, the only way someone could participate in the company was by becoming a contractor. In the years that we had employees, you could become an employee. But there was no other way for them to kind of participate in the company. By becoming a cooperative, it allows a structure that is less dependent on specific circumstances.
So all you have to do to become a co-op member is you have to have worked with Dojo4 for at least six months, the capacity, usually, as a contractor, you have to be invited and voted by the current co-op members as being invited to be a co-op member to be accepted, and you have to be interested in participating in that way. And one way of participation is you pay a one-time membership fee.
We tried to keep that membership fee enough that it felt like real buy-in, but not so much that it was prohibitive. So our membership fee was $6,000, US dollars. And we allowed club members to pay that for a year, over a year, every month. And I think a few people even took like a tiny bit longer.
So ours was like a little different in that I think sometimes when people transition to becoming a cooperative, one of the reasons they're doing it is because they're actually looking for an internal acquisition. So they're looking to sell their company, but they don't want to sell their company to someone else; they want to sell it to their employees or their colleagues, right?
In our case, that was not so much the case. What we really wanted is we wanted to, in some ways, you could say, if we were doing it for selfish reasons, then it would be because we wanted to ensure that we had a healthy company that we could work with for a longer amount of time and get paid for, have our livelihood insured in that way. And we felt like it was the kind of the healthiest way that we could stabilize the company going forward into the future and provide us with a sense of a long runway of being able to participate financially and culturally and all the different ways in which we participate in the company.
So since we didn't want to leave, that was one reason. Another reason is we're really small, right? We actually grew at one point years and years ago, and we decided we didn't really like that as much we didn't want to spend all our time managing people at that time. I think maybe we would feel differently now. But at the time, we didn't like that feeling of growth. So we pared down again.
It's hard to have a significant buyout from a very few number of people, right, especially for a services organization, because let's say you'd be asking people to put in a substantial amount of money. And what they would be getting out of it was basically just the branding of the company. Because we provide a service. There's nothing material other than that, maybe a client roster, but it's hard to put a number on that. So in that way, it wasn't practical to do an internal exit like that.
Christina: I want to go back to what you just mentioned in the earlier conversation about the model you choose this cooperative, the benefit and risk where you and Ara are the project managers. I would like to hear you choose this model that you continue to become the project managers, to me, how is it different than you still running the business, right? Except for the three decision that you have to ask the other members to vote, right? But technically, you are still going to be dealing with clients.
Corey: The advantage of us staying on as the Managing Directors, my business partner and I, was that it made the transition very smooth from a day-to-day perspective, in that we didn't have to kind of reassign roles in any real significant way. We didn't have to change pay structures in any real significant way. We didn't have to change who was interfacing with clients in any significant way. So it just had this very smooth feel to it.
But there was also kind of this excitement of people kind of going, "Oh yay, now we're gonna make these decisions, you know, these few decisions together." So that was the advantage. And we also, you know, my business partner and I knew how to do our jobs. We had already been in business for, at that point, I think it was six or seven years. We we knew how to do our jobs well and kind of take care of things in that regard.
The disadvantage was then exactly what you're saying, Christina, which is "So then what's different?" I did notice right away that there was an energetic shift. Even though our structure stayed mostly the same just from a management and hierarchical point of view. I just noticed people had, it's almost like they had like a little ownership spring in their step. You know, they're kind of like, "This is my company."
We've been in business long enough that if you say the name of our company around town, people tend to know who we are. You know, we're well respected in the community, and we have good relationships in the community, with our clients, with our competitors, all that kind of thing. And so it's fun for people to be able to say, "I'm an owner of the business now." You know, that's, I think it feels good. And I felt people's engagement really kind of go to the next level.
I noticed that people sort of had a different sense of accountability in their relationships with our clients. And yet internally, within the company, because we had decided not to change the management structure, the thing that was difficult was the patterns of things that didn't work. So the kind of interpersonal tensions, the ways in which people would kind of go, "Oh, someone else is going to take care of that." Or "I get to decide how this is going to go and you don't." Or "I'm not going to be accountable for those things. But I will..." You know.
Anyways, every company has its things, right. I really think it wasn't until my business partner decided to leave the company earlier this year that it really kind of gelled, that the co-op really shifted into this place where everyone feels fully engaged with their ownership. And I think that would make sense in most companies, right? If all the same people are there, but you transition into a different model, then a lot of that is going to feel like it's just on paper. Whereas if you shift up the people, then that just changes the interpersonal dynamics, the energetics of that place.
Christina: When you explained to me that you and Ara are still the project managers, to me, it sounds like the leadership are still you and Ara.
Corey: Right. Exactly. And that's really shifted now because I mean, in our case, it's also because Ara was a technical lead of the company, and I was the business lead of the company. We shared a lot of responsibilities, but almost everyone I work with is also technical. So now that he's not in the picture anymore, now everyone else's head is still in that space. Whereas if I left, I'm not sure it would have changed things in the same way. Because there's no one else to kind of do a bunch of the stuff that I do.
Christina: One of the reason that you want to transition to the cooperative is also because of the bottleneck issue that you mentioned, since you and Ara are still the project managers, don't you still have to deal with the bottleneck issues?
Corey: Yes, that is true. I noticed that, but it did kind of open those bottlenecks somewhat. Suddenly, now much more so, you know, over time. I mean, the other thing is that nothing happens on the turn of a heel or whatever you say. People can't switch their minds instantaneously. I think part of transitioning into a new business model is that it takes people a while to learn how to be with each other in that new way. It can take that long for something to really settle.
We're actually just now in a place where we're really starting to feel like, "Okay, we're ready to accept new members." But it took that long to really go, "Who are we? How do we do things? What makes us different? How do we work well together? Where are people's natural..." You know, for people to find kind of their natural fit in terms of like, "What does ownership mean to me, and how can I contribute that kind of ownership quality to this company?" Didn't go away right away.
But I did notice that we were able to take clients that some of our members had the expertise to work with that Ara and I didn't necessarily have the expertise for. So when we were owners, we could only take clients that we felt we could take care of. But when we became a cooperative, all of a sudden, we could take clients that might need something built for them that some other co-op member could do. And so then things weren't bottlenecked around us in that particular way anymore.
Christina: Because your model as well is contracting the work to others, right? When they were not a member, the decision was with you and Ara to see, "Okay, this are my expertise, and then this is what I'm comfortable with." But now because you have other owners, technically, the members are owners, right, you can leverage and then in one of the decision is hiring and firing clients. So they can basically raise their hand and said, "Hey, I have that expertise, so I can do it."
Corey: Exactly, exactly that.
Christina: I believe in a cooperative model, there is something that is called patronage unit, like a patron unit. The members, it has to be keep track the numbers of hours, if that is the patronage units that is being used. And then for non-member, there is a different thing. So explain a little bit about the accounting structure and the financial structure of it.
Corey: Every co-op, you know, can be customized for your needs, for your business model, for your size, your style, that kind of thing. We use the model that you're talking about as our patronage unit is because our business model charges clients time and materials. And so we pay our contractors in time and materials, basically. So we pay by the hour.
So everyone working on every project has to keep track of their time, so that that can then be billed to the client. But it also serves as a way for us, we decided, I mean, this is an aside, but time of course is like a terrible measurement of value. And, you know, this is a conundrum that a lot of service organizations. It's horrible, right? And yet, it's...
Christina: It's important.
Corey: Every time I try something else, exactly. It's like you're in this stupid bind like, "Uhh."
Christina: I hate it too. I'm telling you, I know what you mean.
Corey: It's the worst, right? It really, it doesn't make sense. And yet, here we are.
Christina: Yeah, it's part of the process.
Corey: It's part of the process, exactly. Taking track of their time. And then we just use a simple formula for co-op members of both billable hours in a year and non-billable hours in a year. Although they might not get paid immediately for their non-billable hours, we include those in our patronage equation for figuring out how to distribute patronage dividends, as they're called, when we decide to do that. So that might be yearly. It might be quarterly. It might be when we have a certain amount of profit in the bank that we want to distribute, that kind of thing.
So then it could be, let's say, you know, we have one person who really just he works a lot. He does a lot of non-billable hours, and on the one hand, so that's one person. Then we have another person, and that person really prefers to work part-time and they do some non-billable, but not that much. They're both co-op members. So co-op member number one that I was thinking works a lot, their patronage dividends are also going to be significantly higher at the end of the year than the part-time person.
I think this is one way that is easier for people to understand. If they were both just regular owners, and we decided to split profits amongst owners, and if it was just a regular, let's say, like C Corp or something, then you know, some regular business partnership, then everyone would get equal, or they would get paid out to the degree to which they own the company. So let's say everyone owned 25% of the company. They will get 25% of the profits, let's say.
For a cooperative, you get paid on effort, because everyone owns the same amount. But not everyone puts in necessarily the same amount of effort. So a cooperative is one person, one share, one vote. However, in terms of how you distribute financial wealth, financial capital depends on how much effort is put in. And that can be measured in so many different ways, right?
But you could use these kind of units, you can be really creative in terms of like what feels valuable, depending on the business model, depending on the people involved. And then you can sort of set that up in terms of how you decide to distribute profits or, as it's called in a cooperative, patronage dividends.
So you might say, for us, we use this really simple formula: that hours. But it could be let's say that you have someone whose job is let's say, sales, and a successful sale is worth 10 points. But the time put in or the effort put into a sale that did not end up being successful is one point, let's say. I'm just making that up as an example.
Christina: I'm assuming this is all discussed during the formation before you really transition, and then all members needs to agree on this?
Corey: Yes, and it's in the bylaws. And I think maybe it's not included in just the kind of operating agreements, but it's all documented in the bylaws.
Christina: You said at the very beginning, you have always been open about the financial aspect of the business. You share it even when it wasn't a cooperative, is that correct?
Corey: That's correct. Yeah.
Christina: Now that it is a cooperative, how does it change in terms of financial planning for the long-term?
Corey: As the person who kind of keeps you know, who has my finger in the finances the most, I report on that to my co-members at least once a year. However, you share a project management tool, software tool, and they can go in and look at it anytime. Anyone can look in our bank account. They can talk to our accountant and our bookkeeper, you know, all that kind of thing.
But I make a point to make sure that it's packaged up in a way that's easy to understand and consumable at least once a year, sometimes a little bit more often. So they can all see it if they were interested before we became a cooperative. I'd say that interest in it has gone up, for sure, but only slightly. I think that's for a few different reasons. I think, some of them we've discussed.
One is that the people that are now co-members, they weren't sort of naturally entrepreneurs anyways. Another piece is that we're really small, everyone can hear everyone else talking. We kind of know how much money is coming in and out. And so there's no kind of secrets.
Christina: Before we wrap this up, is there anything that you want to share with my audience in terms of if they are thinking about transition to a cooperative, what other critical things that we haven't discussed in here that you want to share?
Corey: I mean, a few things come to mind. One is I just want to underline that you can really make this what you want it to be. So that in some ways is daunting, right? Because there's so much flexibility there. On the other hand, if you think, "Oh, yeah, I'm sort of interested in cooperative model, but I couldn't do it because of this, or that," you know, whatever the thing is, reconsider it and kind of think, "Oh, no, actually, you know, maybe I can customize it to be what I need it to be."
You could even cooperatize, let's say part of your business and not all of it, for instance. Like if you think, "I'm not ready to give up all my stake in this business." You know, you could just say, "Okay, well then, I'm going to slice it up, and I'm going to make 50% of the business available for cooperative ownership, and I'm going to keep 50% for myself." You know, it's like you can really be creative with it.
I would say, another thing to keep in mind is that diversity and inclusivity is something that people are really rightfully focused on right now. I think one thing that people can consider in thinking about, "How do we include people? How do we actually impact people? And how do we do that in like a real material way?" Well, one way is that you can diversify ownership. And so I think that's, you know, depending on where people are committed in that way, that's something to consider.
I think community involvement is really important to me as a business owner in a somewhat, you know, small town, but I think I would feel this way, even if I still lived in New York, wherever, or Montreal wherever. I think that diversifying ownership and becoming a cooperative is one way that you can really provide a community service by impacting your local community or your local economy in a different way, by modelling that for other business owners. Like you can say, "Look, I can still be successful financially, while diversifying ownership in a way that will impact many individuals and families."
It doesn't impact just financially, it's also so empowering. It gives people access to exactly what you're talking about, Christina, access to knowledge and experience of what it means to own a business, and then they're likely to stick with you for much, much longer, which we know, as business owners, that turnover is hugely expensive. And so really keeping people is such a smart choice.
And then also just on a really personal level, it's really powerful in people's lives. And so you're giving people access to something that then even if they decide not to stay with you forever, then they can go and start their own business in a way that they maybe wouldn't have been prepared for otherwise. So the benefits are so far-reaching.
I know, you know, I will not, I'm not shy to say that I can be a control freak. The thought of giving up my business to other people after years and years of hard work and sacrifice, you know, there were some real challenges there for me, psychologically, and I really don't have any regrets about it. And it's not that I never, you know, there was moments where I thought, "Oh, no. Like, what did I do?" But now having, you know, been in it for... I actually realized that we didn't cooperatize in 2015. It was actually 2017.
We've been a cooperative now for four years, and I really, now having seen the arc of that transition, I really have no regrets and I feel like, fortunate to have made that transition. I feel grateful to be in relationship with my fellow co-op members. I feel really honored by our community. I feel you know, it's just it's all basically all good.
Christina: Corey, I really appreciate you sharing all your experience in forming and operating cooperative. And if people want to connect with you, where can they reach you?
Corey: I know it was really helpful for me to talk to people when I was in the process of, you know, making this transition or deciding whether or not to make the transition. And I have conversations with people all the time. I recommend people just email me and please don't be shy. My email address is on my website, dojo4.com, but you can also just email me at corey@dojo4.com. That's c-o-r-e-y@dojo4.com. That's a great way to reach me, and I welcome it.
Christina: Corey, thank you so much for being here. Appreciate it.
Corey: So happy to be here. So nice to have a conversation with you, Christina.
Christina: And that's bring us to the end of another show. Thank you so much for listening to another episode of Her CEO Journey, the business finance podcast for women entrepreneurs. If you want to create a proactive financial plan and process for your business, so you are ready to weather the financial storm over the next few months, let's chat and see what's possible for you. Book in a time to speak with me at christinasjahli.com/lets-chat.