How To Use the Ownership Model Canvas v1.1
We live in an era, where winner-takes-all business ownership continues to perpetuate economic inequality, further widening the racial wealth gap. One bright spot is the rapidly growing number of entrepreneurs exploring more equitable alternatives, such as cooperatives — businesses owned and controlled by their members.
In the last year, we have received hundreds of inquiries from entrepreneurs looking to start cooperatives and over 850 people registered for our free, self-paced Lean Co-op course. There’s no doubt that interest in building cooperatively-owned businesses is growing, and growing quickly.
We work with early-stage entrepreneurs to help them build both a robust business model and a robust ownership model. While there are hundreds of tools and templates to help entrepreneurs design and build their business model, there are relatively few that help entrepreneurs really think through their ownership model and what it means for their business and its stakeholders. Often ownership’s’ relationship to the business is purely commercial, without regard to how designing wider, more inclusive ownership might create longer term benefits for all.
To help entrepreneurs think through this opportunity, we created the Ownership Model Canvas, a freestanding, publicly accessible resource for entrepreneurs building traditionally-owned businesses and cooperatively-owned businesses alike. Just as the business model canvas helps you visually map out the core elements of your business plan, The Ownership Model Canvas (or OMC) does the same for your ownership model, helping entrepreneurs visually map the elements of ownership and to think more strategically about designing equitable ownership. Designing an OMC is now one of the very first activities we suggest to entrepreneurs thinking about starting a cooperative. Entrepreneurs can now build their first canvas in less than an hour, on their own schedule.
Entrepreneurs who spend time upfront to design their OMC gain a deeper understanding of their proposed ownership model, a roadmap for the sections that need more work, and, critically important, they save on legal fees down the road because they have a strong foundation already in place.
Step by step directions to using the OMC
So how do you design better ownership using the OMC? Start by copying the existing template to your own google doc. The template includes basic instructions, but here’s a more in-depth guide to help you get the most out of building your OMC. Let’s start at the top left:
- Cooperative purpose: As Start.coop mentor William Azaroff has observed “No one ever started a coop who wasn’t a bit pissed off at something.” Cooperative businesses typically exist to fulfill a common purpose or to solve an unmet market need. This is really the guiding light in your work, so it feels important to keep that front and center as you design your ownership model. Because of this, we’ve made Cooperative Purpose the very first step of the Ownership Model Canvas.
2. Stakeholders: Second, define your member-owners and non-owner stakeholders. You likely have multiple stakeholder groups, and while it is initially tempting to make everyone an owner, remember that groups more tangential to your community likely should not be owners! Quick side note: the co-op community uses the terms owners and members interchangeably, and sometimes even member-owners.
Tip: Fill out each section for every member-owner class you create. If you only have a single class, you can skip this tip. However if you aspire to launch a more complicated coop with multiple ownership classes, then remember to fill in each section for each class. For instance if you are considering both a consumer class and a worker class, what are the benefits and expectations for each class? And under financial rights, what might be the different profit sharing (patronage) formulas for those two different classes?
3. Benefits: Now let’s turn to your member benefits. What are the most compelling 2–3 benefits you plan to provide to a member of your co-op?? These benefits might be inclusive of your financial benefits, and governance benefits. (And if your owners are the same group as your customers, it may include some customer benefits). Bottom line: what are the top 3 benefits your members are entitled to that would make someone want to sign-up?
4. Expectations: Next, let’s talk about membership expectations. What are the financial and non-financial requirements for becoming a member if any? Specifically, think about what will membership in your co-op cost? $10? $1000? And are there any other requirements beyond an annual membership fee or stock purchase your members will need to fulfill in order to obtain or sustain membership in the co-op? For a consumer co-op, membership might be wide open to anyone. However for a worker co-op, you might require a number of hours worked before a new employee can join as an owner. For a purchasing co-op, or producer co-op, there might be a certain volume you may be looking for members to commit to your group.
Tip: Consider Benefits & Expectations together. What specific benefits might someone receive by becoming an owner in your cooperative? And how do those benefits compare to member expectations? For example, if you plan for members to purchase a share, or pay an annual fee, are the member benefits worth it?
Moving on to Governance and Financial Rights. It is useful to think about ownership as a bundle of rights, and the main two rights are Governance and Financial.
5. Governance rights: What we mean by governance is having voice and control over what happens in the business: specifically, where it is headed and who runs it. One of the fundamental cooperative ideals is that of one member, one vote, such that all members have equal voting power. We call this democratic governance. But it’s also important to understand this doesn’t mean that every decision is put to a vote. While many smaller co-ops operate as a direct democracy, most larger co-ops operate as a representative democracy, in which an elected Board is charged with decision-making and members can run for a seat on the board and/or vote for the board. So what kind of decisions will your business need to make? And who gets to make those decisions? As a reminder nothing is set in stone here and each co-op will have different membership needs, so just fill in what you can today as a starting point to give your group something to talk about.
Tip: You won’t have room to list every decision your business might make, so here’s a list of major types of decisions to consider: (Or if you are a governance geek and want more room, start a separate document to build out a more detailed decision making matrix.)
•Organizational direction
•Change bylaws
•Budget approval
•Hiring/firing staff
•Product strategy
•Day to day operations
6. Financial rights: The second kind of rights are financial rights. If at the end of the year, after paying all the cooperatives’ expenses and obligations, you have profit left over, cooperatives can choose to distribute those surplus profits to its members in the form of what’s called a patronage dividend. In a co-op, profits are typically allocated according to each member’s proportional contribution. For example, in a consumer co-op like REI, your share of the profit is determined by how much you purchased. In a worker co-op, your share of the profit is often determined by how many hours you worked in the last year, and/or how long you have worked at the co-op. And in a farmer-owned co-op, your share of the profit might be determined by how much product you sold through the coop. Your patronage formula should match your co-op’s unique business model. Remember that behavior follows incentives, so what are the incentives you want to create in your co-op? Bottom line: on what basis, will you distribute profits with owners? (Eg: dollars purchased, hours worked, pounds sold, etc).
Tip: Governance and Financial rights are the two most important rights of ownership. We’ve learned that it is really helpful to think about ownership as a bundle of rights. 1: who controls the business, (what we call the governance rights) and 2: who receives the financial benefits, (what we call the financial rights). Cooperative ownership allows you to decouple those two rights to match your community’s unique needs. For instance, your governance rights might be 1 member= 1 vote, but your members’ financial rights might be based on the proportional contribution of each member, such as hours worked, purchases made or product volume.
7. Guidance: Another thing you’ll need to think about is what guidance your co-op wants from your initial advisory committee or board. Even if you are a small co-op using direct democracy to make decisions, chances are you may eventually want a formal board or at least an advisory council. In the early days, an informal advisory council of potential members can help you filter and think through key decisions, so that you don’t need to go to all members on all decisions. As you grow, later on you will want a formal board to help with decision-making. But for now, how many people might you have on an initial advisory council or board? You can always add layers later, so start small, it’s ok to start small with just 3 to 5 people. Finally, f you have more than one stake-holder group as owners, how will you allocate seats between those different groups?
Tip: Governance and Guidance often go together: Most coops decide that a main governance right of members is to elect their board of directors. If so, under guidance, you can start to fill in what the composition of that board might be, and which kinds of members might be on your coop’s board.
8. Investment: And then for the last element of the ownership canvas, let’s think about the start-up expenses your business might need. What will your biggest expenses be? Staffing? Products? Technology? Start to sketch out a rough ballpark number how much money might you need to raise for your first 12–18 months of operations. Accept that whatever number you put down will not be right, but it is critical to start somewhere!
As you identify gaps in your thinking or sections you are not sure about, remember that working cooperatively means building with your community, to test, validate, and adjust at every stage. Working through OMC questions with your stakeholders is an important opportunity to build a sense of cooperative culture and to continually explore and integrate different perspectives until it feels like your founding team and core stakeholders are on the same page!
Finally a quick caveat, that the Ownership Model Canvas is an ownership planning tool, not a finishing tool. Once you have your ownership model in a pretty good spot (think 80–90% complete), the next thing to do is start working on your draft bylaws using our Bylaw Starter kit, or find an experienced co-op attorney to formalize your full bylaws.
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