ImpactAlpha, May 30 – Greg Brodsky grew up watching his father build a local carpet store into a 2,000-store chain that buys and sells floor coverings on par with Home Depot and Lowes. A key difference: the stores were cooperatively owned by local independent carpet dealers. Later, Brodsky used the same model to create a purchasing co-op for bicycle stores.
Now, Brodsky is helping other entrepreneurs scale their own shared-ownership business models through Start.coop, a co-op accelerator in Boston that he co-founded with a half-dozen other co-op evangelists.
“We want to help the entrepreneurs, but we also want to help update the narrative and take some of the mystery out of the word ‘co-op,’” Brodsky told ImpactAlpha.
Start.coop’s first cohort of five companies completed the 12-week training program and started raising money in May. The businesses range from Driver’s Seat, a data-sharing platform for rideshare drivers, to Arizmendi Roots and Returns, a bakery co-op in Oakland, Calif. that is branching out into affordable housing.
A cooperative represents an ownership model, “that changes the incentives in some very powerful ways,” says Brodsky. Yes, there’s profit-sharing, among customers, workers or other business owners. There’s also usually shared governance or accountability rights. “And then there’s also kind of this psychosocial thing: What does it mean to be an owner of a company versus just a customer? The ownership actually changes our relationship with businesses.”
The 30,000 co-ops in the U.S. have a combined 120 million members, according to Cooperatives for a Better World, a co-op advocate group led by Brodsky’s father. The familiar consumer-owned food co-ops are just one example of the shared ownership model. Agricultural cooperatives, like Blue Diamond almonds, and mutual insurance companies, like Hartford Mutual Insurance, are owned by members. Ace Hardware is an example of a business-owned purchasing cooperative.
In a typical business, “incentives get out of whack if the people who support the business are over here, but all the decision making is over here,” says Brodsky. “We’re bringing the incentives together.”
Brodsky shared his story and laid out his vision for the co-ops of the future at SEED in San Francisco, where Savvy Coop, part of the Start.coop accelerator program, won a startup competition. Some excerpts from our conversation:
ImpactAlpha: Let’s start with a little bit of background on you. How did you get into co-ops?
Brodsky: When I was growing up in Manchester, New Hampshire my dad owned the local carpet store. When I was about seven years old in 1984, my dad got together with 11 other guys who owned carpet stores and said ‘Hey, you know, we’re all buying from suppliers. We all have the same marketing challenges, we all have the same training challenges. We all have the same sort of operational expenses. What if we got together and tried to create some economy of scale in our industry?’
Fast-forward 35 years later: Today that group has 2,000-something stores around the country. They do $10 billion in sales. They buy and sell more floor coverings in the U.S. outside of anyone except for Home Depot and Lowe’s. He went from the carpet store to co-managing this giant cooperative of carpet dealers around the country, and I got to see that happen. My personal passion was around bicycle stores, so in 2003 I was basically able to use the exact same model to help create a purchasing co-op for bicycle stores.
And then I worked for a few years in the tech community and it was really interesting to see the counterbalance of the tech community versus the co-op community. And my personal vision was, ‘Wouldn’t it be great if we could blend the agile, lean nature of the tech startup community, but the values and the shared ownership of the co-op community? What would that look like?’
We looked at a few models and we realized that the accelerator model that the tech community figured out years ago was a more efficient way to do more startups.
ImpactAlpha: When you say we, who do you mean?
Brodsky: We have a planning team of seven of us that are working on this, and we also have a community of 35 mentors that have signed on to support these entrepreneurs. We raised enough money to run a pilot accelerator program. This is the graduation week of our pilot class. This class was selected from 82 applications last summer. The entrepreneurs are from all over the country. We have seven criteria on our website — the three most important ones are around scale, ability to execute, and social impact.
ImpactAlpha: How much money did you have to raise and what’s the next round?
Brodsky: Each class will be between $200,000 and $250,000 to run it. It includes an investment in each team as well of between $10,000 and $20,000.
ImpactAlpha: What is next for your inaugural class in terms of funding and scaling?
Brodsky: We have several teams that are now looking for investment to get to their next stage. Driver’s Seat is a data aggregation platform for Uber and Lyft drivers. They just signed a pilot project with the one of the planning authorities in San Francisco to run a pilot. We have another team, Savvy. They got listed in Entrepreneur magazine as one of the 50 Most Daring entrepreneurs of 2018 on the same list with Elon Musk, as a world-changing idea as a patient-owned health-data platform.
ImpactAlpha: Is the interest from people who want to create co-ops or from people who want to be investors in these types of ventures?
Brodsky: It’s mostly people who want to create co-ops. We’re getting two kinds of interesting folks. One is people who want to start new cooperatively owned businesses, or let’s call it shared-ownership model businesses, because people trip on the word ‘co-op.’ But we’re also getting interest from people who have existing businesses and want to convert them to shared ownership. That’s a really neat opportunity because obviously those businesses are established. The financials are less risky than a startup. So we’d like to at some point also create a cohort to support those models.
ImpactAlpha: What about co-ops makes them impactful?
Brodsky: We believe that simply sharing ownership is an impact, and we believe this is a wealth inequality story. What’s the biggest issue of our time? It’s the haves and have-nots, it’s the wealth inequality thing that is getting worse every year. There are all these debates around universal basic income, tax codes, job training. On a very deep structural level, our argument is that if you share ownership from Day One, you are totally changing the beneficiaries in our economy and you’re changing wealth inequality.
When you talk about what people don’t like about the economy, they don’t like that it’s winner-take-all on the profit side, they don’t like the people don’t have a voice. They don’t like that corporations aren’t accountable. Co-ops change that. They change the profit sharing, they change the accountability, they change the decision making. So why don’t we have more of them, right?
ImpactAlpha: Tell me about the pushback.
Brodsky: There’s a narrative problem, which is that people don’t understand what co-ops are. People think that co-ops are just consumer food co-ops or just some housing situation they had when they were in college. We want to help the entrepreneurs, but we also want to help update the narrative and take some of the mystery out of what the word ‘co-op’ is.
It’s an ownership model. It’s only an ownership model, but it’s an ownership model that changes the incentives in some very powerful ways. You can have a shared ownership model in any sector of the economy — could be food, could be biotech or healthcare. It can exist at any level of the supply chain. It could be owned by consumers, it could be owned by businesses. There’s usually some sort of governance rights. People get confused and think that all co-ops are all consensus-based worker co-ops, but most co-ops at scale are more of a representative democracy than a direct democracy. Any farmer can run for the board of Blue Diamond almonds, they can vote for the board.
Ownership is this bundle of rights. It’s profit share. It’s some sort of governance or accountability rights. And then there’s also kind of this psychosocial thing: What does it mean to be an owner of a company versus just a customer? The ownership actually changes our relationship with businesses. That’s probably the hardest one to describe, but there is something that happens when you say this business is responsible to you.
Bringing the ownership back to the people who support the business versus outside shareholders is a fundamental shift in who gets to make the decisions.
ImpactAlpha: There’s a lot of anti-capitalist sentiment these days. How do co-ops fit into that conversation?
Brodsky: There’s this false choice of socialism on the one side and winner-takes-all capitalism. What I like about co-ops is co-ops are capitalist for-profit structures. There’s actually no such thing as a non-profit co-op because the whole point is how do we share the profits with our members. I believe that it’s a better form of capitalism that aligns incentives.
Incentives get out of whack if the people who support the business are over here, but all the decision making is over here. We’re bringing the incentives together. I believe it can be a compelling kind of third alternative. We believe that if you care about what’s going on in the economy, and you care about wealth inequality, this should be the better model for entrepreneurs to consider than anything else.