Case Study: Whomadeyourpants?

I always enjoy supporting new co-operatives and hearing their story. Here is a case study of Whomadeyourpants? by Becky John one of the founder members.

I had the idea in May 2006 to start a co-operative underwear business and started making formal enquires to CAN (Co-operatives Assistance Network) in January 2008. I quit my job on June 30th 2008, and started full time work on this on July 1st 2008. We were incorporated and registered with the FSA on the 12th December 2008.

We are based in Fairways House, Mount Pleasant Industrial Estate, Southampton, SO14 0QB. Currently just three founder members, with40 volunteers around the country. We are training 25 women who will become members when they are employed by us and complete probationary periods.

Why did you choose to set-up as a co-operative?
I believe in the concepts of fairness, equality, democracy and also sharing responsibilities and rewards.

We set out to empower marginalised women. We basically mean women who have had little opportunity or who have had opportunity taken from them. We define this as women marginalised by their status as refuges or up to 20% may be marginalised by other factors such as being taken out of school as a child due to abuse (at the discretion of the committee).

This came from a number of things. I had become empowered through 2.5 years counselling at Rape Crisis and wanted to share that feeling. I knew there was a huge refugee population in Southampton. And I knew that women are, even within marginalised groups, some of the most marginalised.

Women who have had really hard times, and have very little opportunity offered to them in our society often become isolated and develop mental health issues. It can be hard for people to feel powerful and involved. We believe that supporting the women to feel strong and capable is critical to their real and full empowerment.

How did you start?
By talking to Nathan Brown of CAN, and then Chris Funnell of SACDA. We received support around everything from co-operative structures and how they work to bid writing and registration. We also use the SACDA office as our registered office which was handy as before we had premises I didn't want it to be my house!

What issues have you faced?
There has been constant headaches and waking up at 3 in the morning moments. In particular funding is a nightmare, so many people don't understand social enterprise or worker ownership and the effects of that, ie, that we can't take equity funding.

We never seemed to be at the right stage to get this or that fund and funders all want the same information in a different format. It takes AGES to get grants applied for and decisions made, which is understandable, but it would help to plan ahead a bit more than I did - I tended to be firefighting today's problems rather than planning ahead to prevent the ones coming in 6 months.

Grants being paid in arrears by some funders makes for a huge cash flow problem. As we are a start up, we deliver training up front before we are making pants to sell - so we are spending but not generating income. Cash flow has become a word I dread.

Negotiate with suppliers on utilities - ask to spread bills over a few months. If you don't ask you don't get and they can only say no.

Bureaucracy and paperwork - tedium that is vital

Being REALLY busy means mistakes and cock ups can happen - getting more people involved as volunteers if 1) they are good 2) they don't need micromanaging and 3) they know you can't pay them is brilliant.

Juggling all the balls in the air - project managing everything from finances to supplies to premises to which kettle to buy to which bows to designs to training to recruitment to the day to day stuff like answering emails- it takes huge amounts of time and mental energy. I'm almost constantly exhausted.

But the joy is, I love it. I know I'm doing this because I want to and so, yes, it's a headache and yes it's hard, and yes some days are truly awful - but I still know I want to come to work every day.

What do you do?
To the public - we make and sell gorgeous ethical pants.

To marginalised women -

We provide opportunities for work, learning at various levels, computers, social space, advice space - all in a safe women only environment.

We provide access to a range of advisers from partner agencies on languages, personal finance, safety, computer training, supporting family dynamics - whatever the women want.

Have you had any major achievements or recent successes?
Happily they seem to be coming every day:

• Just been offered an interest free loan by a venture philanthropist
• Got through to last stage of level 2 UnLtd award completion (interview 5/11/09)
  
• Been approached by a shop locally to sell our products.
  
• It's a massive success that we are here - we are supported by volunteers working on bookkeeping, web design and build, photography, professional PR, copy writing, marketing materials design, IT suite set up, PA.
• Invited and gave a lecture to a local Univeristy MSc Entrepreneurship course and got 10 willing volunteers out of it - their voluntary work for me is coursework for them.
• Received a bursay from NCVO to visit and learn from the lovely Infinity worker co-op.
  

I love that people just want to be involved.

What approach have you taken to starting up?
My approach tends to be 'I want to do that, what, who can tell me what I need to do' and then talk to them. Talking to people is vital - they know stuff you don't.

Find people involved in any areas you want to be involved in and talk to them, ask questions, make sure there is always someone you can call whatever you need to know about. DO NOT try to know everything yourself. We are linked with CLEAR, a local refugee organisation, Solent MIND, various community groups, various churches, local Universities, Southampton Women's Forum.

Don't presume anyone is 'not your type' - talk to ANYONE about what you're doing and see what they have to say. If you are passionate people WILL help.

Any pros and cons associated with choosing a co-operative model?
We probably could get more money if we were a charity, but I still think this is the only way we can achieve our social aim. Members controlling the direction of the business democratically is key and I think the women will benefit from seeing their work pay off rather than just getting stuff given to them.

What are your future plans? Loads! whomadeyourbra? in 5 years time. Potential for global expansion, in times of resource scarcity let's look at keeping skills in each country in case there's a day when we can't import everything from china.

Case Study: Software.coop an LLP

We are seeing more new-start co-operatives set-up as LLP's and even some conversions of existing co-operatives. software.coop has written up their personal experience of setting up a Limited Liability Partnership and some of the practical things you should know. If you want to know more or interested in setting one up please contact Co-operativesUK. We can put you in touch with existing LLP's like software.coop or help regsiter your LLP, with the co-operative values and principles in mind.

Software.coop is a tech worker co-op centred on web and GNU/Linux development and maintenance, with particular interests in library management systems, email services and Django, Drupal and Wordpress web applications.

As well as being strongly in favour of Free and Open Source Software (FOSS) because of its importance for cooperative values, we're also fairly unusual in being a Limited Liability Partnership (LLP) instead of a Ltd company.

In 2002, we incorporated Turo Technology LLP (Turo means tower and we started in King's Lynn, which is famous for its towers, including the nationally-famous Greyfriars Tower), which may make us the oldest LLP cooperative. Our early days were assisted by a New Entrepreneur Scholarship, but we were also still heavily dependent on "sweat equity".

The co-op currently has four members and no employees. Our headquarters are now in Somerset, but no two members are currently in the same region, while we work for clients around the world. That wasn't intentional, but it seems to work.

Software.coop became a CooperativesUK member in 2007 and has recently applied to join Cooperatives-NW. Member MJ Ray currently represents tech/worker co-op views on the board of Cooperatives-SW and is struggling to get involved with the North Somerset Partnership and West of England Partnership.

Why We Chose the LLP Model
"The essential feature of an LLP is that it combines the organisational flexibility and tax status of a partnership with limited liability for its members." - Explanatory Notes to the Limited Liability Partnerships Act 2000

We chose LLP as the corporate form because it appeared to have low start-up costs and low administration costs. Also, we took the enthusiasm of professional services businesses like accountants for the LLP as a good sign. Finally, because we didn't have to file particular rules with the registrar of companies, we could improve them if we found any flaw or mistake in them, without much bureaucratic process. We actually used this feature when we replaced our original rules with a modified set that made it more obviously cooperative in 2005.

Pros and Cons
The main benefits:

• Lower overheads, although I feel you need to be clear with all partners from the outset that the LLP will only address partnership tax affairs and not all members' personal tax returns;
• it is an "inherently cooperative model"[1] and you can see this in the "Default provision" section of the Limited Liability Partnerships Regulations 2001. It implements several (but not all) of the key cooperative values: voluntary membership, economic participation, member control and autonomy;
• there was no requirement to file our rules, so we could fix initial mistakes fairly cheaply.
  

But there were drawbacks:

• LLPs had poor support from banks. Initially, we failed to open a bank account because banks did not recognise LLPs. This has improved since Community Interest Companies (CICs) were introduced (because they also have letters in their company numbers), but even in 2007, some banks would not accept company numbers that contained letters. I thank Norwich and Peterborough Building Society's Cambridge branch for living up to their mutual status and patiently learning about LLPs in 2002 while helping us to open an account with them.
  
• LLPs get fewer services from Companies House than Limited companies. While there is a helpful specialist LLP Team there, LLPs are excluded from key online services, but you have to use those online services to get discounts on filing fees. In effect, this means LLPs now pay higher filing fees than Ltd companies, although I think we don't file as many forms.
  
• LLPs get poor support from HMRC. Because LLPs are taxed as ordinary partnerships, we have the same limited range of software for filing tax returns as ordinary partnerships and I don't think any of them are Free and Open Source Software. So, we have completed paper tax returns for all but one year to date. In effect, this means LLPs must complete their tax returns months earlier than Ltd companies.
  
• LLPs are not always understood or promoted as an option by some Co-op Development Advisers and many Social Enterprise Advisers. I have been surprised by how many will tell us we cannot be a cooperative or a social enterprise because we are an LLP. In our region, Social Enterprise materials include phrases like "most Limited Liability Partnerships (LLP) are not eligible" before it even considers any rules!
  
• Co-operativesUK questioned our worker co-op status three times: before we joined, when we joined and once since we've joined. [edit JA: Co-operativesUK checks all members are bona-fide co-ops. As the LLP model is/was a new model, we took special interest in this case.]
• LLP co-ops seem to be generally uncommunicative about their cooperative rules and most LLP co-ops that I know are not members of any larger body. I feel that this is a consequence of the initial hostility from advisers. An LLP could lose a lot by describing how it implements cooperative principles and gain little, particularly because most seem to trade more with non-cooperatives than with other cooperatives. This leaves LLP co-ops "semi-detached" from the wider movement and fails to demonstrate the cooperative difference to them.

2amase LLP are probably the best-documented example: a group of MA Social Enterprise students who are probably more sure about their ability to assert their co-op status against hostile experts. Yet the 2006 case study of 2amase LLP (available from [1]) also reports poor support from banks and advisers.

While being asked to explain LLP co-ops so many times means that cooperative status has probably been a slight net cost for TTLLP so far, we believe in the long-term benefits. The pros are very compelling and long-term, while the drawbacks seem to be mostly short-term: banks are becoming friendlier, Companies House and HMRC should catch up eventually, which just leaves raising awareness with advisers and the wider movement.

How can we persuade them to treat LLP co-ops fairly?

The Process for Setting One Up
In essence, you find at least two partners, complete form LLP2 and send it to the Registrar of Companies with the appropriate fee (£20 as of 14/10/2009). It's generally a good idea to write a partnership agreement at the same time, but it's not actually required. If you want to be really thorough, read the first LLP Act and Regulations (they're fairly short and clear as legislation goes). The Companies House guides about LLPs are also worth reading.

However, like any incorporation, it comes with responsibilities and risks of fines for maladministration, so I feel that this is not to be taken lightly.

Practical Things - Tax, NI and so on

• Tax and NI behave as if the workers are self-employed, so each member needs to:
  
  1. register with their tax office as self-employed,
  2. pay self-employed National Insurance quarterly and
  3. complete a tax return each year that includes partnership pages.
     
• In addition to the personal tax returns, a Partnership Tax Return will need to be completed. It is worth getting the LLP's tax reference number from HMRC as soon as you can because of the previously-mentioned poor support for LLPs by HMRC. In seven years, I haven't had a trouble-free partnership tax return yet.
  
• Other than that, you'll need to send a membership return (on the anniversary of the incorporation date or previous membership return) and financial accounts to Companies House each year (within 9 months of the accounting reference date). These are usually at different times.
  

Further Resources

• [1] http://www.opencapital.net/articles.htm has copies of both "The Partnership is Dead! Long Live the Limited Liability Partnership" (Chris Cook, British Journal of General Practice, Dec 2004) and the 2amase LLP case study.
  
• http://www.companies-house.gov.uk/about/guidance.shtml contains the LLP guides.
  
• Limited Liability Partnerships Act 2000 (see the explanatory notes and check http://www.statutelaw.gov.uk for updates).
  
• Limited Liability Partnerships Regulations 2001 are the main implementation.
  
• Partnership Act 1890 in general does not apply, but may be informative.
• Article on LLP as ideal structure for open co-operative enterprises.
  

Business Referral Network

I attended a Co-operativesNW event yesterday and had a revelation. 30 or so co-operatives in the room stood, and told me about their business. What they want, who they want to talk to, and that dream contract they would like to land.

Although we talk to each other about values, promoting the movement and improving society, how often as co-operatives do we actually talk about what our business needs are and what business opportunities we could help each other with?

Not as much as we should, and not as much as many other businesses. Whether through the local chamber of commerce, sharing a round of golf, or as a member of a select club or Network, businesses with less history of co-operation are co-operating with each other to increase their business opportunities.

One of the priorities of the worker co-operative council is to improve trading between worker co-operatives. So we asked Co-operativesNW if we could hold our meeting on the same day and run a session at their event. Sion Whellens from Calverts a long standing member of the BNI ran a session on this topic.

Sion started by talking about the BNI, the point of it and the amount of business referrals received from these weekly meetings. He then invited attendees to do a 60 second pitch about their business:

• Name
• Where they are based
• What they provide
• Why people should buy from them
• Who you want to talk to:

Although we didn't have time it is also usual to reverse the process, with everyone returning to the stage to tell the room what business referrals they can make, based on what people have asked for. This really would get you paying attention to other peoples pitch!

The session went incredibly well and people hung about at the end far longer than usual, to catch each other and to share contacts. It somehow felt right, and as if we should be doing this more often.

As a way of enabling co-operatives to find each other work, of helping individual co-operative grow and building the co-operative commonwealth as a whole, business referral networking is part of the answer. It’s what Principle 6 – co-operative amongst co-operatives – is all about. So if you are and experianced at business networking get in touch with us or your local Regional Co-operative Council and get organising!

Worker Co-operative Survey Results

This year we asked worker co-operatives to fill in a few more questions in their annual return, to help us better understand the sector. Below is a summary from the 99 who returned their survey, Thank you!

These results only cover co-operatives that are live and trading. Roughly 25% returned the survey and some only partially completed, please view the results in this context. I hope you find this information interesting and reflect on how you are similar (or different) from other co operatives.

This first chart looks at all live worker co-operative records, we have 3 live co operatives dating back before the 70’s but these have not been included in this chart. IPS’s were the traditional legal form for co operatives, and most early worker co operatives registered as IPS’s. However this model was seen as cumbersome (needed 7 members to start) and quite expensive.

During the 80’s, the number of worker co operatives rapidly increased. ICOM and Co operative Development Bodies developed Company models that were predominately limited by guarantee, to reflect the interest in common ownership and to be more flexible (only needed 3 members).

With the introduction of new legal forms worker co-operatives have taken advantage of these; with at least 4 Community Interest Companies and a number of Limited Liability Partnerships being registered in the last few years.

This second chart focuses on the survey results and the different ownership structures; older worker co operatives tended to prefer common ownership (where the assets are held in common and not withdrawable). During the 00’s there has been a growing trend of “jointly” owned co operatives where members have an individual stake in the co-operative.

Others refer to assets held in trusts commonly used by John Lewis Partnership and Scott Bader for example.

Looking at Governance structure; 25 of the 27 “Collectives” (all members are directors) had 20 or less members. For co-operatives with a “representational” structure (directors elected from membership) there was no clear pattern with co-operatives as low as 4 members choosing this option.

Looking at Management structure; co operatives with a flat structure all had 10 or fewer members (with one exception). As co-operatives grow they tend to develop a sector or team based structure with 9 of the 13 co operatives having more than 30 members with the remaining 4 between
6 -11 members. As might be expected conventional management structures could be found at all levels of membership.







This chart looks in more detail at employees within worker co-operatives. As might be expected there is a higher ratio of women than men being employed part-time compared to fulltime and with roughly 4% of the employees from a Black or Minority Ethnic background.








Pay Structure (more than one answer could be chosen) Out of 99 responses
Members start on the same hourly rate irrespective of their role = 48
Members with longer service are paid more = 12
Members with more responsibility paid more = 31
Members pay based in part on individual performance = 9
Members pay based on need (member withdraws what they need) =1
The majority of members on a higher than industry average = 17
Profits are distributed as a bonus or dividend to members = 35
Members have individual investments that can be withdrawn = 10
Maximum differential in pay (highest can’t be paid ?x the lowest paid) = 6

This final chart gives a break down of worker co operatives by sector (where known). Worker co operatives set up in the 70’s tended to be manufacturing or retail based businesses; this has broadened out over the years, with more worker co-operatives starting in the creative and professional services sectors.









Conclusion
Worker co-operatives vary from 2 to 120 members, with a variety of different governance, management and pay structures, operating throughout the economy. They all however share something in common; their values such as: self-help, democracy, equality, honesty, openness and social responsibility.

We will start sending out next year’s survey at the end of the year. If you were not one of the 99 who returned your survey; please remember to fill this in when you receive your audited accounts for 2009. This information particularly turnover, member/employee figures helps us shout about the size of the sector and campaign on issues affecting our co-operatives.

If you would like to see us include different questions in next year’s survey or are a research interested in more in-depth information, please get in touch.

Principle 6: Trading together, do we?

When I first learnt about co-operatives, I thought Principle 6: Co-operating with other Co-operatives was the most powerful of all the principles and gave co-operatives a serious competitive advantage against other forms of business and other social enterprises for that matter.

I imagined this to be like being in the Freemasons, or going to the right University. The right handshake, name dropping Horace, George, or the Fenwick Weavers and you would be instantly given all the advice, business contacts and co-operation you required from fellow members of the movement.

Now that I have been "in the movement" for 18 months and talked to a lot of co-operatives, I find that this is not always the case, particularly the trading together aspect of Principle 6. There is interest though: for some a genuine commitment to a stronger movement and helping fellow co-ops, for others its just good business sense.

People do try and are successful, but this is mainly the larger co-operatives or in an informal way. There are some who try to inter-trade, market to fellow co-operatives and don't meet with much success. There has even been a proposal put forward to develop a business referral network called "principle six". So does it work? Can co-operatives trade together?

Some examples of success:

• Fair trade & supporting producers in developing countries - A good example is Palestinian Olive Producers supported by Zaytoun & Olive Co-op are selling under the Equal Exchange label in Co-operative retailers like the Co-operative Group and the many smaller retailers. The wider fair trade work done by the co-operative movement has helped 1000s of farmer co-operatives round the world.
  
• Initial growth in Co-operative Sector - Historically the consumer societies had a strong tradition of co-operating with each other, the formation of the Co-operative Wholesale Society and CRTG.
• The Co-operative - The Renaissance in the Co-operative Brand and the sector as a whole is in part down to the continuing co-operation between the consumer societies.
• The Phone Coop - has been particularly successful at using other co-operatives to promote its services, Co-operatives UK members for example get a 6% discount and we promote this as part of our membership offer.
  

Through formal co-operating (CRTG) , to the less formal (worker co-op wholesaler selling each other products), co-operatives can and do co-operate. What I am interested in, is why small and medium sized co-operatives and in particular worker co-operatives find it difficult to trade together. This is not just about inter-trading but doing joint projects, making business referrals to each other.

Here's one idea for doing using Principle 6 to trade together, (send me more):
Joint marketing is the process of promoting your co-op to the customers of other co-ops. For example, suppose you wholesale ethical products to small ethical retailers, your customers, probably have a website, bank account, phone line, and you would hope accounts.

You could ask co-op providers of these services to offer a benefit to your customers (of course with an extra discount if these customers are co-ops themselves). If your products are relevant to their customers you could mirror the deal and promote to their customers. This could result in a win-win situation for both of you.

Step 1 - Understand your numbers. You'll need these to demonstrate how much money your fellow co-op could make. For instance, work out what your response rate is for a typical direct-mail campaign and the value of each new customer.

Step 2 - List products and services that are complementary or related to your own, and that you would like to offer your customers. Don't leave out products or services that aren't necessarily related but in which your customers might still be interested.

Step 3 - Search for co-ops that sell those products and services. Then contact those people and propose a meeting to explain your strategy further or get in touch with me to make the link.

Step 4 - Get an agreement. When negotiating your deal, always try to get an agreement to extend your relationship and be clear what you both expect from each other.

Step 5 - Contact Co-operatives UK so we can promote what you have achieved, share the learning or even better get us involved in the idea from the start.

Before you go and start looking for opportunities:

How much trade do we already do with each other?
What stops us from doing more?
What things could we do to improve it?

If you are as interested in the answers to these questions as I am please fill in this quick survey and I will publish the results at the end of October. Together we can look at improving our Principle 6 behaviour. Please leave any comments on this blog or start a discussion here.