Co-ops and blockchain can change how startups do business

Co-ops and blockchain can change how startups do business

At a stately home in South Yorkshire, a newly-affiliated group of tech firms are meeting for the first time. They’re a 25-minute drive from Sheffield, skirting the borders of the Peak District, inside a grand house surrounded by a well-manicured estate. Bulbous topiary hedges guard the house’s entrance.

Gathered in one of its smart function rooms, the first topic of discussion is a hypothetical one. Divided into tables of ten, they entrepreneurs get a challenge: In the future, if this collaboration succeeds, should every one of our employees – cleaners and managers alike – be paid exactly the same? The general response, which comes as a pleasant surprise to many of those in the room, could be parsed as: “In principle, yes. There’s just a few kinks we’d need to iron out first.”

This was November 2016, at the inaugural meeting of Cooperative Technologists, the UK’s first network of cooperatively-owned tech firms. Harry Robbins, co-founder of one of the member companies, Outlandish, and one of the people who’d helped to broker this first meet, recalled his shock at the external facilitator’s opening salvo. “I thought, ‘People are gonna think this is some sort of radical communist revolution thing.’”

“Which it is,” he added, dryly. “But I didn’t want them to think that in the warm-up phase”.

CoTech is just one example of how cooperatively-owned tech businesses look poised to proliferate in the UK. Their network boasts 32 member-businesses across the country. They’re boosted, too, by the recent launch of startup accelerator Unfound, the UK’s first accelerator for tech co-ops, which announced its first successful candidates last week. If they succeed, they will be following the lead of countries like Spain and Italy, where cooperative enterprise has flourished for decades. Their proponents see business structures as driving radical change: getting the fruits of innovation shared more fairly and providing better social responsibility. Funding troubles have often stunted co-ops’ growth though – but, with tentative links to blockchain technology and a newfound spirit of collaboration, that’s something that could now change.

What is a co-op?

In basic terms, a co-op is a business owned by its workers, users or a combination of both, and which makes its decisions democratically. Or, as in the case of Robbins’ Outlandish, sociocratically: a type of voting invented by Quakers, where agreement is reached by consensus rather than majority. John Lewis is an oft-cited example of a big UK business guided by cooperative principles. All of its staff are “employee-partners,” meaning they can vote for members of the board and are entitled to dividends. (Whether John Lewis is technically classed as a co-op or not is a point of contention, which makes a sizeable impact on the valuation of the UK’s cooperative sector). The Co-Op, as you may have suspected, is a co-op too – but in their case, a consumer co-op, where shoppers can vote on key issues and for certain elected representatives.

The roots of the co-op are most commonly traced back to Rochdale, near Manchester, where in 1844 skilled workers established a co-op to sell their wares. More recently, Spain’s Mondragon Corporation has become one of the more impressive success stories: a federation of workers’ co-ops founded in 1956, their business includes supermarkets, industrial manufacturing and banking. They most recently posted profits of more than €100 million, earned by the co-operative’s nearly 75,000 workers. The Emilia-Romagna region of Italy, too, has a strong cooperative culture, but with a different structure, based on an expansive network of different, interconnected co-ops, rather than a centralised organisation.

CoTech’s 32 member-businesses have around 300 workers between them, with trades that range from web development to broadband infrastructure and augmented reality. The three biggest, among them Outlandish, boast turnovers of between £1 and £2 million. They’re yet to implement the equal pay suggested at their first meet-up, but they have made progress in efforts at collaboration. They now hold inter-coop training, monthly meet-ups to hold discussions and share skills, and run internal crowdfunding using the Cobudget tool (developed by New Zealand social enterprise network Enspiral).

Larger member companies have founded a collective marketing group, too, to pitch collected services to big businesses, like John Lewis and Nationwide, also founded with cooperative values. The idea is that their shared foundations could smooth business relations. Those bigger companies would typically hire big agencies to work on projects for them, but – along with offering competitive prices and a solid track record – CoTech’s hope is that both being co-ops could be a deal-clincher.

The Rochdale Pioneers – founders of the first retail Cooperative movement

Hulton Archive/Getty Images

Robbins from Outlandish, who’s in his mid-thirties, plummy-voiced and good natured, happily sets out what he believes makes co-ops superior to a privately-owned business: “We run our organisations to run good services. Other organisations make money by providing good services. We’re genuinely trying to solve the problems and make things better.”

Outlandish operates what he terms a ‘Robin Hood’ model. The firm won’t work with petrochemical companies, arms manufacturers or the sex trade, but collaborates with government agencies and financial services firms. The surplus it accrues after paying out salaries is either donated directly to charity or – as more commonly happens – allocated to time spent developing pro bono projects. A recent example is the Schools Cuts website, which allowed people to see how government cuts to the education budget would affect their local school. Outlandish also developed analytical tools for the International State Crime Initiative.

Robbins argues that being a co-op creates a different set of incentives: with no shareholders demanding dividends, generating profit isn’t the primary goal. And with it not being a quick or easy way to get rich, they’re more likely to be founded with a purpose that’s socially- or ethically-minded.

He sees big openings for CoTech to grow in both their member businesses and their respective staff – and thinks a lot of the UK’s small businesses are already effectively operating as co-ops. In an overheated market for developers, he believes that a big proportion of them want to work for companies that are socially responsible, but don’t want to do the repetitive web maintenance on offer at many charities.

In terms of the shared values that Robbins hopes will endear them to big businesses, it’s a dynamic that they might soon see reversed. When startup accelerator Unfound announced its launch last week, it introduced a batch of big-thinking tech co-op alumni that will graduate from its programme in six weeks’ time – and will then need resources and support.

What’s wrong with ‘sharing economy’?

Unfound is the UK’s first startup accelerator to focus on platform cooperatives. A concept coined by US academic Trebor Scholz in 2014, it was a response to critics of the ‘sharing’ economy, which often lacks proper workers’ rights while profits aren’t shared equitably. It has become the subject of annual conferences in New York and London and inspired a lot of excited chatter. At its simplest, the term means a co-op whose services are facilitated through a digital interface. The organisers at Unfound believe it could combine the innovation delivered by platforms such as Uber and Deliveroo with a better deal for workers.

The successful teams’ offerings range from transport to the care sector. CabFair is a driver-owned taxi cooperative where users will also be able to take part in decision-making; Land Explorer will work with government agencies, like Ordnance Survey and Land Registry, to create interactive maps to display land resources and planning data; Equal Care is a social care cooperative which hopes to create new possibilities through its digital platform: greater flexibility for both patients and care workers, and a way for volunteers to earn credits.

It marks an effort by the UK’s cooperative sector to try and firm up its ties to the tech world’s newfound collectivist side. The programme is organised in partnership between Co-operatives UK (the UK’s members association for cooperatives) and Stir To Action (a national workshop organiser). The funding comes from The Hive, a £1 million annual fund for emerging cooperative enterprises provided by The Cooperative Bank.

John Lewis is often cited as an example of a big business guided by cooperative principles

Getty Images / Peter Macdiarmid

Accelerators are a common way for nascent startups to receive guidance, initial seed funding and the opportunity to pitch their idea to a roomful of potential investors. Unfound’s structure is similar: startups get paired with mentors from the co-op sector to hone their idea. Stocksy, which sells royalty-free photography, and Fairmondo, a marketplace for ethically-made and traded goods, are examples of successful platform co-ops, whose founders act as mentors. Their aim is to define more clearly who their product is for and how they plan to deliver it. Rather than pitching to investors at the end, however, the plan is to hold a crowdfunding session to raise seed funding.

It’s a difference that reflects the challenge co-ops face in terms of attracting investors, who can’t take equity shares in a co-op like they would if they were a limited company. This way, workers or users stay in control of the business – but it also means that they have to find other approaches to raising capital. Funding is one of the biggest hurdles for platform co-ops, which face sizeable startup costs, but can’t attract investment in the way traditional companies can.

There are a couple of approaches that have been successful elsewhere, though. One is ‘community shares’ that can’t be sold on for profit, are withdrawable and upon which – depending on the enterprise – shareholders are entitled to a fixed amount of interest (but only in profitable years). There’s also ‘sweat equity,’ where volunteering at early stages is recorded so it can be paid back later, when the business becomes profitable.

It’s an issue that Resonate, a music-streaming platform co-op based in Berlin, has grappled with since it launched in 2017. Built using blockchain technology, Resonate offers streaming meant to provide a better deal for artists – a so-called ‘stream to own’ model; rather than a monthly subscription, you pay each time you play a track, until eventually it’s yours to download. They relied on volunteers to get the idea off the ground, and have also issued ‘supporter shares,’ similar to community shares, which have raised around €25,000 to date.

Founder Peter Harris speaks in a steady tone, shaded with a soft American accent, declaring big ambitions very matter-of-factly. He’s certain co-op collaboration will lead to a snowball effect. He knows what other co-ops have been through, he says, and feels confident in the ethical compass guiding their approach.

A prime example is Resonate’s connection to a fellow co-op in blockchain technology firm RChain – and a much-needed $1 million investment from RChain’s venture capital arm Reflective Ventures. RChain will help Resonate implement new RChain-based tools and to launch their own Resonate token (a type of cryptocurrency) later in the year. In return, Resonate will pay $3 million to Reflective, 80 percent of which will then be reinvested back into RChain – safeguarding the future stability of RChain’s finances.

Such co-op collaboration hints at wider machinations that could change the landscape for newly-formed businesses like Harris’s. “Typically, money has gone to where money can grow,” he says. “But a shift is starting to take place: we’ve seen this with the shift from venture capital into crypto, so I think what’s really exciting about RChain is that they’re a co-op and are investing in other co-ops. And the more that expands, it’s gonna create a lot of feedback loops.”

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