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~~*~~tiVe . A Rural Developer’s Guide l3@Qice fwport 54 To Forming Cooperatives
Preface Bill Patrie has been in the trenches assisting the development of new cooperative business organizations in North Dakota and other Midwestern States. He began his career

as an economic development specialist for a regional commission, later joined the

North Dakota Economic Development Agency, and subsequently has been with the

North Dakota Association of Rural Electric and Telephone Cooperatives.

He shares his wealth of experiences and observations gained from guiding many newgeneration cooperatives that have given North Dakota the reputation of being a focus

of “Co-op Fever.” Mr. Patrie has been in demand as a speaker and provider of development services beyond the region of his employment, but has had to curtail appearances to concentrate on his duties with the statewide association of rural electric and

telephone cooperatives.

This manual not only makes his views available to the public, but also adds topics,

detail, and illustrations. By design, this manual is based on his experience with agricultural value-added cooperatives. Many of the principles, practices, and policies he

espouses and has found effective may be applicable to other cooperatives. He shares

his insight and wisdom in the hope that others not only can apply his experience in

their work but also advance the art of cooperative formation.

The preparation of this report was funded partly by a cooperative research agreement

between the Cooperative Services program of USDA’s Rural Business-Cooperative

Service (RBS) and the North Dakota State University (NDSU) Agricultural Experiment

Station. Professor David Cobia served as the principal investigator for NDSU and Dr.

Randall Torgerson, RBS deputy administrator, served as RBS liaison. The report also

contributes to NDSU Experimentation Station Project 1394, titled “Strategies for Rural

Cooperative Development.”

Appreciation is expressed to Dennis Hill, executive vice president, North Dakota

Association of Rural Electric and Telephone Cooperatives, for allowing Mr. Patrie to

work on this project.

Randall E. Torgerson

Deputy Administrator

RBS-Cooperative Services

David W. Cobia, Professor Emeritus

Department of Agricultural Economics

North Dakota State University

RBS Service Report 54

July 1998

Price: Domestic-$6; foreign-$7
Contents Cooperative Fever in the Northern Plains .................................. .l

New Generation Cooperatives ......................................I

Failures ........................................................ .

Successful Process Established .....................................2

TheOrganizers ...................................................

‘Co-op Fever’? ...................................................

New N D Cooperatives ............................................5

Why ‘Co-op Fever’? ...............................................5

Mechanics of Cooperative Development ..................................lO

Madison Principles ...............................................11

Finding the Project Champion .....................................l 1

LitmusTests .................................................. ..ll

Steering Committee ..............................................12

Surveying the Producers ..........................................13

Feasibility ................................................... ..14

BusinessPlanning ............................................. ..15

Hiring the CEO ..................................................16

Equity Drive ................................................. ..17

Launching the Cooperative ........................................19

TimingandBudgets ............................................ ..19

The Organizational Philosophy .........................................21

New Theory, New Tactics? .........................................22

Spirituality? .................................................. ..2 2

Truth? ....................................................... ..2 3

. . . 111
Creating ‘Co-op Fever’: A Rural Developer’s

GuideTo Forming Cooperatives

Rural Development growth strategies in North Dakota: A discussion about the

principles and practices of starting new value-added cooperatives

William Patrie, Rural Development Director

North Dakota Association of Rural Electric

and Telephone Cooperatives

Cooperative Fever in the Northern Plains

As it is we live experimentally, moodily, in the dark,

each generation breaks its eggshell with the same haste and

assurance as the last, pecks at the same indigestible pebbles,

dreams the same dreams, or others just as absurd. And ifit

hears anything of what former men have learned by experience, it corrects their maxims by itsfirst impressions, and

rushes down any untrodden path which itfinds alluring, to

die in its own way, or become wise too late and to no purpose.

This cryptic caution from the philosopher

Santayana frames my view about the origin of “Co-op

Fever” in the Northern Plains. The people and the

actions referred to in this account are not adequate to

establish a cause and effect relationship. More likely, it

has been a convergence of circumstances, personalities,

economic conditions, political culture, and governmental actions that generated this phenomenon.

Cooperative development is an organized

response to a need or an opportunity perceived by at

least several people, so it is foolish to link their individual motivations to that of some grand strategy.

People come to invest and commit themselves to cooperative formation for personal reasons and I do not

profess to entirely understand why this phenomenon

has resurfaced in the 1990s.

It is also unwise to compare motivational factors

from today’s generation as paralleling those of historical cooperative movements. With the exception of a

few persons, the thinking process that has created this

current resurgence of cooperatives lacks direct ties to

past development efforts.

Many writers have defined these as “new” or

“next generation” cooperatives (Harris et al.). The traditional terms used to describe cooperative operating

principles-estate retirements, open membership and

competitive yardstick-seem strange to the new practitioners. Frequently, potential new cooperative

investors asked, “Is this like our oil or grain co-op? Do

I have to die to get my money?”

New-Generation Cooperatives

The models most often used to design new-generation cooperatives come from American Crystal

Sugar Company and Minnesota Corn Processors. The

sugar cooperative was formed by beet growers in the

Red River Valley of North Dakota and Minnesota. The

original company sought to sell its sugar processing

operation. Beet growers faced the prospect of losing

their only access to a market. George Sinner from

Casselton, N.D., and Pat Benedict, Sabin, Minn., were

two early producers who organized efforts by the beet

growers to purchase American Crystal.

They used a California model of cooperatives

that required grower or producer agreements as well

as an up-front equity investment. This same pattern

also was simultaneously adopted by three other startup sugarbeet processing cooperatives-Minn-Dak

Farmers Cooperative, Southern Minnesota Sugarbeet

Processors and Red River Cooperative (later merged

with American Crystal Sugar Company).

Minnesota Corn Processors at Marshall, Mix-m.,

used a similar model to create a corn wet milling plant.

The plants generated delivery rights for farmers and

also required them to deliver the agreed-upon amount

of beets or corn. Farmers who chose not to deliver
risked the loss of their equity investments. The processing facilities were assured of a dedicated supply of

raw product.

The producers who joined the corn processing

cooperative also agreed to deliver, and if necessary, at

prices below the market rate. This was necessary to

assure adequate operating margins at the processing

facility. This provided a way to limit operating losses

and encourage lenders to finance the project.

When American Crystal Sugar cooperative was

created, there were no other outlets for sugar beets in

the Red River Valley. To ensure successful cash flow,

the new cooperative spread out payments to growers

during the course of a processing and marketing year.

The final payment reflected the actual operating margins achieved. The volume required for an efficient

processing operation was assured. This created a

strategic advantage over other competing processing

plants that lacked captive supplies.

The characteristics of new-generation cooperatives have emerged over time and distinguish them

from the traditional open cooperatives, at least in the

Great Plains States. Several attributes of these newgeneration cooperatives are:

l Equity investment is required prior to establishing delivery rights.

l Producer agreements between the cooperative

and the producer link delivery of products to

equity units purchased. Total delivery rights

make equal processing capacity available for

sale.

l Purchase of commodities is authorized by the

cooperative for undelivered contracts.

l The transferability of equity feature means that

shares can be sold to other eligible producers at

prices agreed to by the buyers and sellers.

Equity shares appreciate or depreciate in value

based on the earnings potential they represent.

Although the cooperative’s board of directors

doesn’t set prices, they must approve all stock

transfers so that shares do not get into the

hands of ineligible persons.

l High levels of cash patronage refunds are

issued annually to the producer. Since equity is

achieved in advance of business startup, a

majority of the net can be returned annually to

producers in cash.

Failures

Even though there were four examples of successful new-generation cooperatives at work in North

Dakota and Minnesota since the early 198Os, the idea

was not duplicated until the Dakota Growers Pasta

Company’s successful equity drive in 1991.

Resistance to the idea of contributing equity had

been built up after several unfortunate failures. The

International Potato Cooperative at Grand Forks, N.D.,

was forced to sell its potato processing plant to J.R.

Simplot. This failure suggested that cooperatives

lacked market discipline. Another aggravation was

growers’ refusal to change from the variety of potato

they felt yielded best in Red River Valley soil to the

variety that made the best french fries. The cooperative

processor could not compete and eventually lost its

operating line of credit with the St. Paul Bank for

Cooperatives.

The formation of alcohol or ethanol cooperatives

also failed. The most spectacular was the American

Energy Cooperative. After extensive feasibility studies

and large commitments of equity (pledges to deliver

barley), the cooperative declared bankruptcy. The

efforts of lenders to collect on the barley pledges from

individual producers frightened other would-be

investors in new cooperative ventures. Producerinvestors feared the individual liability associated with

pledges and were reluctant to trust organizers.

A cooperative feedlot was started by North

Dakota Farmers Union at Sawyer. It was also subsequently sold to a private entrepreneur. Most agree that

the cooperative failed because it paid too much for

members’ cattle when they entered the lot and was

unable to make money finishing the cattle to slaughter

weights.

Successful Process Established

What has now become a systematic process was

developed to accommodate the needs of durum grower-members of the Dakota Growers Pasta Company,

the cooperative that emerged in 1991.

The North Dakota Economic Development

Commission had attempted to recruit a large pasta

cooperative to the State. Although unsuccessful, the

idea of converting durum wheat into pasta was firmly

implanted in our minds. The North Dakota Planning

Council helped bring the “Noodles by Leonardo”

plant to Condo, N.D. Soon after I joined the State association of electric and telephone cooperatives, we convened a meeting with others interested in discussing
formation of a pasta cooperative. Joining me at that

first meeting on Aug. 9, 1990, at the city hall in

Maddock, N.D., were Bob Spencer and John Rice, Jr.

The Organizers

Bob Spencer managed Baker Electric which served the

“Noodles by Leonardo” plant. Spencer was chairman

of the Durum Triangle Industrial Park Corporation

that had recruited and helped finance Leonard

Gasparre’s pasta plant in 1980. John Rice, Jr., was a

young farmer from Maddock and president of the U.S.

Durum Growers. He was intensely involved in trying

to get a better price for durum wheat producers.

After that first meeting, the three of us quickly

brought in Eugene Nicholas, a member of the North

Dakota House of Representatives and an area farmer

from Cando. He was an alumnus of the State university and a director of the Durum Triangle Industrial Park

Corporation. He had played a key role in acquiring

funding from the Bank of North Dakota for the

Leonardo plant.

The fifth team member was Jack Dalrymple, a

farmer from Casselton like former Gov. George Sinner.

Dalrymple chaired the State House of Representatives

Committee on Appropriations. Then-Gov. Sinner had

earlier worked with him to recruit a Borden pasta

plant to Casselton. Dalrymple’s family farm was started in 1876, 13 years before statehood, by Oliver

Dalrymple, Jack’s great grandfather. It was one of the

first bonanza farms in the State. Jack was a Yale alumnus and later became chairman of the cooperative.

Feasibility Study-The scope of work for a new

feasibility study was written and the new budget was

prepared. Spencer, Nicholas, Dalrymple, and Rice

helped raise the funds from the ND Wheat

Commission, Central Power Cooperative, and Baker

Electric to match a research grant from the ND

Agricultural Products Utilization Commission

(AgPUC). Senechal, Jorgenson and Hale, a consulting

firm from Danvers, Mass., was awarded that contract.

Don Senechal, a principal of the firm, was a native of

North Dakota, a State university graduate, and a

research associate. His firm specialized in the food system and cooperatives.

Steering Committee-Members were selected to

represent contributors to the study and representatives

of U.S. Durum Growers, the ND Wheat Commission,

AgPUC, Baker Electric, Central Power, the ND

Department of Economic Development and Finance,

and the ND Farmers Union. While previous studies

had indicated that a pasta plant could be economically

viable in North Dakota, no consultant had ever

explained the advantages of a farmer-owned processing cooperative. Once the substantial advantages were

understood by the steering committee, enthusiasm

built. Rice chaired the steering committee and I served

as the principal advisor.

kterim Board-Once the steering committee

decided to form a cooperative, it was dissolved and

replaced with an interim board. Dalrymple was elected

chairman and subsequently was named interim chief

executive officer. Requests were prepared for proposed

legal and accounting services. A Minot-based legal

firm (Pringle and Herigstad) and a Fargo-based

accounting and business planning firm (Eide Helmeke)

were hired.

A grant proposal to AgPUC requested $150,000 in

organizational funds to be matched by contributions on

a nickel-per-bushel basis from durum farmers. Armed

with a $300,000 organizational budget, the board authorized recruitment of a chief executive officer.

The Search Committee-Nicholas, Spencer, and

Dalrymple contacted Tim Dodd who was operating a

pasta plant in Missouri. He had been the head miller

for the “Noodles by Leonardo” plant in Cando. Dodd

accepted their offer and brought along his sales manager and engineer.

The Campaign -As the legal requirements were

met and the business plan finished, the board made

plans to launch the equity campaign. The plant was

designed to use 3 million bushels of durum annually.

The equity share price was set at $3.85 per bushel. The

price per share was determined by dividing the total

equity needed (35 percent) by the number of shares.

The board felt that the cost per share appeared

too high, so a deal was struck with the Bank of North

Dakota to provide some of the financing on a subordinated basis to the St. Paul Bank for Cooperatives. The

Bank of North Dakota required a personal commitment from producers (on a per-bushel basis) to cover

any default. The bank also stipulated that all investors

must have a minimum net worth of $50,000 to join the

cooperative. On that basis, the bank advanced the

loan. The cooperative rented office space in Fargo and

staffed it with Dodd and others who designed a campaign.

Once the meeting dates were announced, the

statewide media began to interview individuals about

their attitudes on the project. Leonard Gasparre and

3
other pasta producers expressed considerable doubt

about the project. He was quoted as saying, “Farmers

are too dumb to run a pasta plant, and besides, they

have to take the winter off to go to Arizona.” His remark

enraged farmers who had been selling him durum at

low prices. Although Gasparre later printed a full-page

apology in the newspaper, the fire had been lit.

Chairman Dalrymple led the discussion and was

backed up by Dodd and other key personnel as technical resources. It took 33 meetings with interested producers, sometimes three per day, before the drive

reached striking range of the $12.5 million equity

needed to capitalize the plant. The board extended the

deadline to accommodate the drive.

Communities competed to be named the site for

the new plant. Many Carrington area farmers responded to a request by the local bank to increase their subscription agreements. The equity goal was met and

Carrington was chosen for the plant site. More than

1,000 farmers invested $12.5 million and agreed to be

individually liable for the additional loan of several

million dollars from the Bank of North Dakota. The

loans were closed and the design and construction of

the plant began.

Nearly 2 years after the initial exploratory meeting, ground was broken at Carrington on July 9,1992.

The first dividends were paid to durum growers in

November 1995.

Since then, the cooperative has sold an additional

3 million shares at $5 each to finance doubling the

commercial milling capacity. Another pasta line was

added. The extra bank loan has been retired from earnings, and shares originally purchased at $3.85 after a

two-for-one split are selling at $14 to $15 per share.

Dakota Growers recently purchased two pasta plants

in Minnesota, making this cooperative the second

largest pasta operation in the United States.

‘Co-op Fever?’

Word of the Dakota Growers’ success spread like

wildfire across North Dakota. The idea of new-generation cooperatives with their “closed” membership and

equity requirements made sense to farmers. Even

though grower contracts required members to deliver

products, interest grew.

Bison producers were the next cooperative out of

the box. They followed the same organizational steps

as the durum growers. Although disorganized at first,

they formed an association to discuss how they could

work together. A new feasibility study was designed.

A previous study proposed processing other specialty

animals in the same facility to provide the needed

economy of size to pay for the plant.

The steering committee meetings were often

highly charged. These were rugged men and women

who had become proficient in handling dangerous animals. Once the feasibility study was completed, the

committee was dissolved and an interim board was

organized. The cooperative selected Attorney Larry

Baer of Cando as its legal advisor. He and the bison

producers led the equity drive.

Ken Throlson, president of the cooperative, was

hesitant about being the main speaker during the

grower meetings. He asked other directors to present

the business plan. Using a series of overhead projections, the directors explained their plan to build a

slaughter plant and market bison meat.

At one point during the discussion, director Mark

Ivesdal of New Rockford pretended to have a fever,

mopped his brow with a red kerchief, and asked,

“Have you got buffalo fever?” The “fever” he referred

to was driven by the bison growers’ own little secret.

There was money to be made in raising and selling

these animals.

Don Senechal was again used as a consultant. He

projected that bison growers, who invested in the

cooperative, would receive a 47-percent return on their

equity, the highest he had ever seen. Senechal felt the

real return would be much higher.

In 28 days, the bison growers raised $1 million in

equity subscriptions. The Bank of North Dakota began

making AgPACE loans to farmers wanting to buy

bison. This program provided a subsidized interest

rate to farmers who would start an “on-farm, non-farm

enterprise” or “non-traditional agriculture.” This

included exotic animals, specialty crops, and others.

The bank at New Rockford was aggressively originating these loans. The bison cooperative was so successful in attracting new producers that bison lost the

designation as non-traditional.

Meanwhile, Sarah Vogel, former North Dakota

agriculture commissioner, joined U.S. Sen. Kent

Conrad at an annual event in January called the

“Marketplace of Ideas.” Vogel noted the emerging

cooperatives and the vibrant interest in forming new

ones and began referring to the phenomenon as “Coop Fever.” The media picked up the phrase and in

1993, the Associated Press listed “Co-op Fever” as one

of the top 10 stories of the year. Vogel and Conrad subsequently added “Co-op Night” to the marketplace

conference agenda.
Jack Dalrymple received the Republican nomination for the U.S. Senate seat held by Conrad.

Dalrymple’s television ads noted his involvement in

the formation of Dakota Growers Pasta. He was also

featured in an article in Forbes magazine called

“Getting the Middle Man’s Share.” Both candidates for

the U.S. Senate were overtly supporters of cooperative

development of value-added agriculture. Conrad was

subsequently re-elected.

The city of Renville, Minn., was becoming a

hotbed of new value-added cooperatives with the creation of Val-Ad-Co, United Mills, and Midwest

Investors of Renville. Print media continued to give

good exposure to cooperatives.

Minnesota Corn Processors made news by

expanding to Columbus, Nebr. In 1994, Lee

Egerstrom, a writer for the St. Paul Pioneer Press, produced a book titled “Make No Small Plans: A

Cooperative Revival for Rural America.” Egerstrom

listed 50 new or emerging cooperatives, 20 of them

from North Dakota.

The Fargo Forum produced a six-page special

report in June 1995 called “Processing on the Prairie.”

It sought to identify the causes of “Co-op Fever. That

November, The Indianapolis Star carried a two-page

story on “Farmers Helping Farmers” which advocated

value-added cooperatives and featured comments by

George Sinner, former North Dakota governor who

was then the government relations director for

American Crystal Sugar.

USDA’s bimonthly magazine, Rural Cooperatives,

carried a cover story in August 1995 titled

“Expounding the Co-op Gospel in North Dakota.” The

cover photo featured Ken Throlson of the bison producers. In September, Rural Electrification magazine

published by the National Rural Electric Cooperative

Association promoted our development work in a

cover story titled “Brainstorming for Co-ops.”

New ND Cooperatives

The North Dakota secretary of state’s office listed

474 active cooperatives and mutual aid associations in

the State as of December 1997. The earliest recorded

date of a cooperative filing that is still active was in

1911. Based on the 86-year period, an average of 5.5

cooperatives were filed each year. (The 5.5 average

understates cooperative formation because the total of

474 in 1997 does not include those that have merged or

liquidated.)

From 1990 through 1997, a total of 67 cooperatives were formed, or an average of 8.3 per year. More

important, however, was the type being formed. The

term “Co-op Fever” applies moreso to the value-added

or processing cooperatives than to traditional marketing or supply cooperatives. Of the 67 new cooperatives

in the past 5 years, 26 added value to agricultural

products (table 1).

These cooperatives ranged in size from 15 members to more than 2,000 and in dollar value from several hundred thousand to $261 million, the cost of a corn

wet milling plant built by Golden Growers

Cooperative in association with Pro-Gold, a limited

liability company. These cooperatives serve geographical areas that range in size from as small as several

counties to as large as the massive region of Northern

Plains Premium Beef whose equity drive covered six

U.S. States and two Canadian provinces.

Pharmacists in North Dakota considered forming

a cooperative to buy directly from pharmaceutical

companies. Electronic and machine parts manufacturers wanted to form a cooperative to build airplanes.

Why ‘Co-op Fever?’

Why, at this point in history, are value-added

cooperatives so popular in North Dakota? Author M.

Scott Peck in his book, “In Search of Stones,” claims

that all causes are over-determined. The causes listed

here are also likely to be over-determined, but here are

some guesses:

Programs and Supporting Institutions-Without

the commitment of the rural electric and telephone

cooperatives to economic growth, I could not have

served as a facilitator or catalyst. The Ag Products

Utilization Commission (AgPUC) was critical in

financing new feasibility studies and cooperative startups. The Bank of North Dakota‘s willingness to make

loans to farmers interested in investing in value-added

cooperatives was also important. The St. Paul Bank for

Cooperatives was the first choice for financing by

many of the new cooperatives because of the expertise

of its loan officers, especially Lee Estenson, and its

president, Dennis Johnson. The bank’s leadership was

a major factor in “Co-op Fever.”

The Senechal, Jorgenson, and Hale firm of

Danvers, Mass., was the major player among numerous consultants involved in studying opportunities.

Their understanding of the marketplace and cooperatives made it possible to spot narrow opportunities

and exploit them for farmers’ benefit. They are

unabashed believers in the economic viability of producer-owned cooperatives. They frequently served as

a bridge between new and existing cooperatives.
Table l-New-generation cooperative formation with headquarters in ND, 1990-1997.

Name/Year

Farmers Union Feedlot Assn.-1997

North Dakota Pigs Co-op-I 997

Superior Pork Producers -1996

United Spring/Wheat Proc. -1996

Bloomfield Produce -1996

Dakota Prairie Beef -1996

Western Dakota Pork --I 995

Iso-Straw Cooperative --I 995

Northern Produce -1995

Great Northern Garlic Grow. -1995

Northern Plains Prem. -1995

Central Dakota Cattle -1994

Farmers Choice Pasta -1994

Golden Growers Co-op -1994

Dak.Aquaculture Hatchery -1994

North Amer. Fish Farmers -1994

Imperial Organic Processing -1994

Dakota Dairy Specialties -1994

Walton Bean Growers -1994

Clifco New Energy -1994

Heart of the Valley -1994

No. Plains Organic Grains -1993

Quality Pork -1991

North Central Cattle Feeders -1993

Dakota Rabbit Co-op -1993

Central Dakota Growers -1993

North American Bison -1992

Dakota Growers Pasta -1991

City

Jamestown

Fargo

Elgin

Fargo

Hillsboro

Gascoyne

Scranton

Finley

Hatton

Minot

Mandan

Maddock

Leeds

Fargo

Carrington

Binford

Napoleon

Hebron

Englevale

Clifford

Mayville

Steele

Crosby

New Town

Center

Jamestown

New Rockford

Carrington

Status

planning

construction

inactive

launching

inactive

equity

operating

planning

reorganizing

planning

equity formation

operating

operating

operating

dissolved

operational

inactive

operating

reorganizing

inactive

operating

inactive

operating

operating

dissolved

planning

expanding

expanding

Product

fed cattle

hogs

hogs

frozen bread

carrots

fed cattle

slaughter hogs

particle board

carrots

garlic

beef

feeder calves

pasta

corn syrup

fingerlings

fish

flour

cheese

edible beans

ethanol

bean products

organic

feeder pigs

feeder calves

broiler rabbit

potato storage

bison meat

pasta
Legal firms have also risen to the task of understanding new-generation cooperatives. Initially, only

three firms in North Dakota had expertise in this area.

Now, perhaps a dozen firms are qualified to provide

legal counsel.

Until this point, the Eide Helmeke accounting

firm has dominated business planning work due to its

familiarity with cooperative accounting and tax issues.

However, other firms and business planners are

attempting to enter the business as service providers.

The learning experience from the startup of one cooperative is valuable in starting a second. Joe Talley, a

principal with Helmeke, provided business planning

services to both Dakota Growers Pasta and Golden

Growers. He was later hired as Pro-Gold’s chief financial officer.

State Strategic P&-The State spent 4 years

developing a strategic plan for economic growth. In

1986, the Greater North Dakota Association contracted

with David Birch, small business expert with the

Massachusetts Institute of Technology (MIT), to analyze the North Dakota economy and make recommendations. Later, an effort was launched to create a common economic direction for North Dakota called

“Vision 2000.”

Numerous public discussion sessions were held.

Interviews were conducted by consultants from SRI

International (formerly Stanford Research Institute).

SRI distributed reports that described how the State’s

economy could be improved. Its report called for a

four-sector economy made up of advanced agriculture

and food processing, energy byproduct development,

export services and tourism, and advanced manufacturing.

In late 1989, North Dakota received a grant from

several foundations to put structure to the economic

development process. In 1990, the State used these dollars to participate in what was known as an “Ag

Academy,” led by the Council of State Policy and

Planning Agencies.

Dennis Hill, executive vice president of the North

Dakota Association of Rural Electric and Telephone

Cooperatives, had been a member of the “Vision 2000”

committee while I was the State’s economic development director. We were joined by several legislative

and farm group leaders, as well as the director of

North Dakota State University Extension Service and

the president of the Bank of North Dakota as the

State’s team at the academy. Two week-long planning

sessions were conducted and resulted in a legislative

strategy for economic growth.

‘Growing North Dakota’-Charles Fleming,

then-Gov. Sinner’s chief of staff, chaired the delegation

and later the legislative campaign. After leaving the

State government in 1990, I contracted with the governor’s office to prepare the legislative draft that went to

the legislative council and subsequently became

Senate Bill No. 2058.

Then-Gov. Sinner appointed a committee of 34 to

carry the bill through the 1991 legislature. This broadbased committee of development officials, administrators, and users of development services were successful in getting the State legislature in 1991 to pass

“Growing North Dakota” legislation which dedicated

$22 million from the profits of the Bank of North

Dakota to economic development.

The legislation created an equity capital corporation and a science and technology corporation, provided additional monies to AgPUC, and funded AgPACE

(the interest buydown program for farm-based enterprises or non-traditional products) and PACE

(Partnership for Assisting Community Expansion),

which provided matching funds to buy down interest

rates for primary sector businesses. Expectations were

high that summer that North Dakota would become an

economic development power. Many developers felt

the State had generated tools to encourage economic

growth.

The greatest contribution of this legislation to

“Co-op Fever” may have been the creation of

expectancy-some projects on the drawing boards

could now be moved forward. The additional funds

made available to AgPUC were immediately used by

Dakota Growers Pasta. Other programs played less

well-defined roles. The PACE program became popular with manufacturing enterprises because of the

immediate savings associated with interest subsidies.

Also, the equity corporation (known as the Future

Fund) participated in several of the new cooperative

processing facilities by providing debt capital.

David Birch from MIT returned to North Dakota

11 years later in November of 1997 and did a status

report on the State’s economy. At the Greater North

Dakota Association’s annual business conference, he

lauded the State and said, “you have succeeded

beyond anyone‘s imagination.” Statewide unemployment in November 1997 was 1.8 percent, manufacturing jobs were growing, and personal incomes were rising. In general, the State’s economy was solidly

headed in the right direction.

That day‘s issue of the Faygo Forum announced

that Dakota Growers Pasta had declared a dividend of

$1.53 per share on those original $3.85 shares and that
$1 would be paid in cash. Many reasons account for

economic growth, but cooperative development and

“Growing North Dakota” are major factors.

Zero Interest Loans-Even before “Growing

North Dakota” legislation was passed, the telephone

and electric cooperatives were given the authority to

make lo-year, interest-free loans to rural enterprises.

The cooperative was the initial borrower and reloaned

the money to sub-recipients. North Dakota cooperatives aggressively used these programs. While not all

of the approved projects actually drew down funds, it

is still useful to understand the sweep of the activity

that occurred between September 1989 and April 1997

(table 2).

This program also stimulated enthusiasm for new

projects. While limited to $400,000 per project and

rarely the sole source of financing, the availability of

the program encouraged farmers to talk about opportunities cooperatively. (See listing of these projects at

the end of this report.)

Economic Conditions - When discussion began

on a cooperative pasta plant, durum was selling for

$2.20 per bushel. At this price, farmers believed they

were not even returning their cost of production.

Adding value to durum by making it into pasta was

simply a way to improve net farm earnings. Necessity

became the mother of invention.

Milk prices and market security drove dairy

farmers in the Hebron area to dissolve their existing

dairy cooperative and form a new “closed” one to

build a cheese plant. By adding value to milk, producers increased net earnings on the farm.

The corn wet-milling plant was organized to help

sugar beet cooperatives broaden their product mix

sold through United Sugars, their marketing cooperative. Corn sweeteners were intended to help them

become even more competitive in the sucrose market.

Corn growers, on the other hand, were receiving the

lowest price per bushel for corn at Wahpeton, N.D., as

any location in the country.

Through a wet-milling plant, growers believed

they could add up to 90 cents per bushel to the value

of corn grown in the region. Corn prices reached an

all-time high of $5 per bushel while the plant was

under construction and corn sweetener prices plummeted with the entry of new processing capacity. The

cooperatively owned plant at Wahpeton, along with

two operated by Minnesota Corn Processors, are still

in operation while other industry plants have closed.

Low cattle prices encouraged ranchers to consider a cooperative slaughter plant in the Northern Plains.

Trying to link directly with the retail market, ranchers

believed they could reduce the dramatic peaks and

valleys in the fat cattle market, provide a more

dependable marketplace, and generate a more reliable

supply of quality product.

The economic conditions of the 1980s and the

early 1900s are perhaps the most parallel of reasons for

the Progressive Movement in American politics and

the development of “Co-op Fever.” North Dakota State

Sen. Frank Wenstrom observed, “I can remember when

I was a little guy and dad went up to Fessenden, N.D.,

and borrowed some money from one of the banks. He

borrowed $100 and they charged him $20 for making

the loan and they charged him 12 percent interest.

These people were so tired of getting that kind of treatment. That’s one of the reasons that we have a Bank of

North Dakota. Just because the bankers of that

day....gouged them...So he went out of there with

$68...things like that brought on the Non-Partisan

League (NPL) (Junker).

New Generation of Farmers-The organizing

members of many of these new “value-added” cooperatives are college educated, aggressive, and young.

They are not intimidated by sophisticated marketing

and processing plans. Many of these farmer-investors

already operate profitable farms. To them, investing in

a processing cooperative is simply an extension of

their current enterprise.

In response to Gasparre’s comment about farmers being too dumb to run a pasta plant, Dalrymple

replied that “Farmers are smarter than you think!”

Watching Pat Benedict, chairman of Golden Growers,

explain the economic opportunity to mill corn into

high- fructose corn syrup reinforced Dalrymple’s statement.

A second parallel between the progressive movement and “Co-op Fever” is the reaction by farmers to

men like Gasparre and Treadway Twitchell. Twitchell

allegedly told farmers in the 1915 legislative session

that the running of the State was none of their business. He jocularly advised them to “Go home and slop

the hogs!“(Junker, p. 333)

Even though Twitchell later denied having said

the remark and Gasparre printed a full-page retraction

in the State’s major newspapers, their insinuation that

farmers lacked the drive or the intelligence to manage

their own affairs served as a catalyst for action in both

1915 and 1990. In other times and in other generations,

farmers may have agreed with them both.

8
Table z-Zero-interest loan awards made by North Dakota Rural Electric

and Rural Telephone Cooperatives, 1989-97

Date Cooperative Purpose/town Amount

1989

September

1990

February

June

September

December

1991

April

April

April

April

August

October

October

October

October

1992

July

July

September

September

October

October

October

November

1993

January

April

July

July

July

1994

September

December

December

1995

March

March

West Plains Electric Research on heat pumps, Dickinson 50,000

Oliver-Mercer Electric Clay target mfg. co., Hazen 100,000

Capital Electric U.S. Health Care bldg., Bismarck 100,000

Cass County Electric business incubator, Fargo 100,000

Nodak Electric Cabinetmaker expansion, Fordville 14,000

Mor-Gran-Sou Electric Interstate Western Works, Mandan 20,000

Williams Electric Tomato greenhouse, Williston 100,000

North Central Electric Uniband data entry, Belcourt 100,000

Mor-Gran-Sou Electric Prairie Learning Ctr., Raleigh 100,000

Cavalier Electric Frost Fire Ski Resort, Walhalla 100,000

R.S.R. Electric Minn-Dak Yeast, Wahpeton 100,000

McLean Electric Rural water syst. McLean Co. 100,000

James Valley Electric Super 8 Motel, Edgeley 100,000

McKenzie Electric Killdeer Mountain Mfg., Kildeer 100,000

Cavalier Rural Electric PMU Ranch, Sarles 100,000

Consolidated Telephone ADE, Regent 50,000

Tri-County Electric Westward Products, Cprstown 100,000

Sheyenne Valley Electric Westward Products 100,000

West Plains Electric Baker Boy, Dickinson 100,000

Tri-County Electric Dakota Growers Pasta Co., Carrington 100,000

Dak. Central Telephone Dakota Growers Pasta Co. 100,000

North Central Electric City of Bottineau 100,000

KEM Electric Wishek Steel & Mfg., Wishek 50,000

North Central Electric Turtle Mtn.Corp., Dunseith 300,000

Capital Electric McClusky Kirschman Mfg. McClusky 240,000

Dak. Central Telephone N. Amer. Bison Co-op, New Rockford 100,000

Tri-County Electric N.Amer. Bison Co-op 100,000

KEM Electric Potato Warehouse, Dawson 250,000

West Plains Electric Waste company, Dickinson 100,000

Baker Electric Leeds Seed House, Leeds 100,000

West Plains Electric Steffes ETS, Dickinson 50,000

Baker Electric lntegra Castings, Cando 400,000

Baker Electric Towner County Med. Ctr.,Cando 400,000

Dollars

9
Table 2 (continued)- Zero-interest loan awards made by North Dakota Rural Electric

and Rural Telephone Cooperatives, 1989-97

Date Cooperative Purpose/town Amount

Dollars

March

March

June

September

North Central Electric

Cavalier Electric

West Plains Electric

Verendrye Electric Co-op

Tire recycling, Belcourt

Rural water system, Edinbrg

Steffes and Sons, Dickinson

Northwest Molding, Minot

400,000

400,000

400,000

100,000

1996

July

July

Oliver-Mercer Electric Noble Games, Hazen 400,000

KEM Strasburg Farmers Elev., Strasburg 350,000

1997

January

January

January

April

Total

Northern Plains Electric

West Plains Electric

Mountrail-Williams Elec

North Central Electric

43 Projects

AgGrow Oils, LLC, Carrington

Baker Boy Bake Shop, Dickinson

New Products Mktg Corp., Williston

Salmonson Resid. Care, Bottineau

400,000

400,000

200,000

400,000

7,474,ooo

People-Those with the right experience and

skills appeared in the right place and time. Benedict,

later the chairman of Golden Growers, was featured in

the cover story of Tinze magazine in 1972 for adapting

the computer to his farm operation. He was an early

organizer of American Crystal Sugar Company and

served for 12 years as its first chairman of the board.

He also serves on the boards of banks, medical institutions, and other organizations. He chaired the steering

committee of corn growers looking at the feasibility of

building a corn wet-milling plant.

Several other farmers like Dalrymple, Nicholas,

and Warner had similar leadership experiences. Many

of us knew each other and understood the opportunities. During the 199Os, North Dakota has had a crop of

bright farmers who have learned to seize economic

opportunity through cooperative action. The causes of

“Co-op Fever” are multiple, but the courage, intelligence, and willingness of farmers in the Upper Plains

to take a risk for reasonable returns is perhaps the single greatest reason for this phenomenon.

Mechanics of Cooperative Development

Cooperative development as defined here is not an

end in itself, but rather a rural development strategy

that seeks to achieve local ownership of enterprises,

especially value-added agricultural processing facilities. These goals of rural development (new income for

rural residents, new jobs in rural areas, expanded markets, and new and diversified agricultural products)

are achieved because of the ability of cooperatives to

create economies of size and raise equity to capitalize

the business.

The process of cooperative development, apart

from its unique features, is similar to developing other

new businesses. The simplified steps involve:

1. identifying a common interest held by individuals

willing to champion the project,

2. studying the feasibility of the idea,

3. converting the feasibility study to a business plan,

4. conducting the equity drive, and

5. launching the business.

The tasks involved in each of these steps are

described in some detail so that the professional developer will have some idea of what to expect. Remember

that this process is sequential. Taking these steps out of

order often creates serious problems. The pressure to

skip steps or take easier or faster routes to the successful completion of the project is intense.

A professional developer must begin each project

with the end in mind. The process will not only severely challenge your skills, but also your commitment to

professional standards. Here are some standards or

principles that have been adopted by professional

cooperative development practitioners. They should

be shared with steering committee members, interim

10
directors, and the producer groups to keep the development process within the bounds of ethical and professional behavior.

Madison Principles

In 1994, cooperative developers meeting in

Madison, Wis., adopted these principles as guides to

professional behavior:

1. Individuals providing technical assistance should

subscribe to the highest level of ethics and declare

any conflict of interest, real or perceived, so that

they can be a credible source of objective feedback

and an articulate advocate of the project as needed

2. Cooperatives are development tools and should

promote both social empowerment and economic

goals.

3. Applied appropriately, cooperatives have value to

all population groups and for all businesses and

services in the public and private sectors.

4. Each cooperative responds to its unique economic,

social and cultural context. Consequently, each

cooperative is different.

5. There are essential steps that must be taken in a

critical path to succeed.

6. An enthusiastic group of local, trustworthy leaders

is a prerequisite for providing technical assistance.

The effective cooperative development practitioner

nurtures that leadership by helping them shape a

vision that will unite members and provide ongoing training.

7. Cooperatives only work when they are market driven. The development practitioner seeks to ensure

that accurate market projections precede other

development steps.

8. Member control through a democratic process is

essential for success.

9. Success also depends on the commitment of the

member’s time and financial resources.

10. There must be tangible economic benefits for

members.

11. The cooperative’s products and services must generate sufficient revenue so that the effort can be

financially self-sustaining. Provisions must be

made to share any surplus equitably.

12. Market opportunities exist throughout the world.

Cooperatives and market development should

transcend national boundaries.

13. Successful, established cooperatives should help

emerging ones to develop. New and emerging

cooperatives should be encouraged to communicate with and learn from successful ones.

These principles should be used to guide behavior in succeeding steps. They are meant to guide both

the steering committee and the professional developer.

Finding the Project Champion

The need for professional principles is easily

illustrated in this first task of cooperative development. Much has been said already about the importance of project champions or cooperative leaders. The

sixth principle highlights quality leadership as a prerequisite for success. Making the judgement about the

quality of that champion is extremely difficult for the

cooperative development practitioner.

In two cases, the originator of the idea and the

early stage project champion was replaced as the

leader by someone else. In one case, the early organizer and president of the interim board was asked to

leave the board and was barred from joining the cooperative.

The development practitioner may need to

inform the interim board of observed problems in

leadership but must allow the board to take appropriate action to fix them. This task is difficult and requires

great sensitivity, yet toughness. Many interim boards

don’t like to police themselves or appear judgmental.

In the early stages of cooperative development, it is

often difficult to recruit directors. It is painful to

replace or demote members who have been willing to

serve but because of personality or reputation hurt

future efforts.

It may be tempting to let the democratic process

take care of the problem in the election of permanent

directors. But, if the leadership problem is too great,

there may never be a permanent board because the

equity drive failed.

Litmus Tests

Project champions come to lead the organizational efforts in a variety of ways. Sometimes they emerge

from the beginning as individuals knowledgeable and

willing to lead (Ken Throlson of the North American

Bison Cooperative). Others are recruited, such as Pat

Benedict of the Golden Growers Cooperative. As a

professional developer, I use several criteria in evaluating if an individual is acceptable as the project leader:

1. Credibility-Is the individual personally credible in

his/her neighborhood? They need not be the

biggest farmer or the most active in commodity

associations, but they must be respected for their

judgement. Avoid individuals who have tried every

11
new idea that has come around and are suckers for

anything new. I look for people who finish what

they start and can take a long-term view.

2. Financial Stability-Is the individual capable of

keeping his/her house in order? Producers who have

failed before (especially if they have gone through

personal bankruptcy) usually lack the credibility

with other producers and lenders to lead the project.

They must be able to devote time away from their

personal business to help develop the cooperative.

This criterion is extremely limiting because many

producers lack the time it takes to do the work

without jeopardizing their individual operations.

I once worked with a cooperative whose interim

board chair wanted to use organizational funds to

buy clothes. Her argument was that she would

make a better impression on investors if she could

afford to dress well.

3. Basic Knowledge of the Industry-Is the individual

familiar with the industry in a comprehensive way?

Most value-added cooperatives are also vertically

integrated. The project champion must have a basic

understanding of the entire industry-from the first

steps of production through processing to marketing to the final consumer. This is a tall order and

can’t be easily filled. The “Madison Principles” are

critical at this stage of leadership selection.

Often, producers become enamored of a manufacturing technology or an available building and

want to quickly close the deal to own the facility or

the equipment. A true project champion must lead

the group through a market analysis prior to analyzing processing facility and equipment needs. If

an individual can’t be found who has this basic

understanding of the industry, then I look for a person who is willing to learn.

4. Willingness To Accept the Servant Leadership RoleThe project champion is often uncompensated. They

will frequently be criticized, often unfairly, and

sometimes insulted. Thin-skinned or quick-tempered people often do not last in the pressure-cooker environment of creating a new cooperative enterprise. I look for a project champion who has balance

in her/his life. They must have patience, people

skills, a good sense of humor, and a sense of what is

ridiculous.

5. A Developer, Not a Promoter -This is development

work, not promotion. Promotion may get column

inches in the local paper and a 30-second spot on

the 6 o’clock news, but it won’t build a financially

viable company. While enthusiasm is important, it

can’t replace critical common sense and solid business judgement.

While this task of accessing leadership skills falls

initially to the professional development practitioner, a

word of caution is advised. Don’t operate behind the

back of the board member or leader. Direct conversation with honest expression of concern is the best policy. Seeking advice from other cooperatives in the area

is also helpful. In some cases, these individuals have

been so dedicated to making the emerging cooperative

successful that once they have been made aware of the

problems, they resign for the good of the cause and

continue to be supportive.

Steering Committee

Once identified, the project champion and the professional developer usually work together to fill in the

initial project steering committee. It will work with the

professional developer in identifying critical questions

to be answered. They will build a budget and a schedule of tasks necessary to answer these questions.

The steering committee will handle the following

tasks:

1. Identify critical questions to be answered before the

project can proceed.

2. Design a feasibility study that answers those questions.

3. Communicate with other interested producers and

potential members.

4. Raise money to pay for the feasibility study.

5. Recruit or provide for financial accounting and

legal services.

6. Issue requests for proposals and select appropriate

consultants.

7. Participate in the feasibility study process and give

direction to consultants.

8. Depending on the outcome of the feasibility study,

wrap up the study and communicate negative findings or convert the steering committee to an interim

board to begin developing a business plan.

The steering committee is an informal organization that usually consists of a majority of producers

but includes representatives of funding organizations

and commodity associations. Dakota Growers Pasta

Cooperative’s interim board of directors evolved from

a steering committee that included representatives

12
from AgPUC, ND Farmers Union, rural electric cooperatives, the State economic development office, and

the ND Wheat Commission.

The development professional and the steering

committee chairperson usually draft a proposed budget and timeframe and set meeting and task completion dates. The budget for this phase is driven by the

expected cost of the feasibility consultant and meeting

room, plus per diem and travel expenses of the committee members.

To get an estimate of the probable cost of a feasibility study, I fax a copy of the proposed call for proposals to two or three consultants, average their estimates, and prepare a formal request for proposals.

If a particular industry has been studied extensively in the past, only updates may be necessary.

Getting access to previous studies may require some

cash payment or at least diplomacy by the steering

committee chair or the professional developer.

Sometimes a pre-feasibility study may determine if

there is a need for a new study.

These preliminary studies are simply scans of the

information already published. A consultant determines if a significant market may exist. Sometimes

these studies are called environmental scans or a quick

look at the industry to determine if further study is

needed.

These studies can also redirect the original plans

of the steering committee to more promising study targets. Pre-feasibility studies or scans should cost

between $1,000 and $3,000 and take only two or three

weeks to complete. This is usually ample time because

the information is already published and simply needs

to be organized.

Hiring the wrong consultant to do a pre-feasibility study can be costly and produce poor advice. If the

consultant is new to the industry, it will take an inordinate amount of time to accumulate data. The firm

will lack internal knowledge necessary to render good

judgements.

The steering committee will frequently hear common complaints about its proposals to study the feasibility of an idea:

We know it’s feasible. An existing company is

already doing it.

Why do another feasibility study when one was

done just a few years ago?

The market analysis has already been done by the

equipment manufacturer.

Why should we hire a professional consultant when

we have access to a graduate student who is doing a

thesis on the subject?

Why not just hire a general manager who can do

the study?

I suppose we have to do a feasibility study to convince the lenders, but I already know what we will

find out!

Feasibility studies are a waste of time. We need to

acquire the building, tie up the site, and bid on the

equipment next week.

The steering committee often struggles to raise

money for the feasibility study because of these complaints and the general misunderstanding about a

study. It is critical that agricultural producers make the

first contributions to support costs of the study. A formal agreement may not be necessary, but it should be

apparent that there is enough interest in the outcome

of the study to warrant its completion.

Surveying the Producers

The steering committee needs to know how many

potential members would support a project and if it’s

feasible. A random sample survey of eligible producers prior to completing a feasibility study can determine if that potential support exists. The most difficult

task associated with polling producers is to draw a statistically valid sample.

Rural electric and telephone cooperatives, commodity groups, producer associations, and other organizations are sources for names and phone numbers.

Building the master list of eligible producers takes

time and costs money, but is a critical piece of planning. The track record of the professional polling company is equally important. Like the feasibility study

consultant, the lowest-cost survey may not necessarily

be the best buy.

Timing is important because producer opinion

can have wide swings. Simply knowing that producers

are serious about investing at the time of the study will

not ensure that investment during the equity drive.

This may especially be true if the equity drive is conducted 2 years after the study or was conducted during distractions such as blizzards, floods, or other natural or political events that would affect the producers

of the products to be processed.

The steering committee designs the survey with

the polling company. The company mails a letter to

each person selected for the survey. The letter explains

the exploratory effort to determine the feasibility of the

proposed project and related details on the proposed

cooperative. Those surveyed are told that someone

13
will call for a phone interview. The interview will

determine the extent to which producers will need to

invest and patronize the cooperative if the project is to

be economically feasible.

Here are some sample questions used in the survey of durum wheat producers to determine their level

of interest in an international pasta processing cooperative.

Q2 . . ..we are interested in getting your ideas

about a proposed grain processing cooperative in your

region. First, as stated in the letter, the project...is a

farmer-owned processing cooperative owned by

durum producers. In general, do you think the idea of

value-added cooperative, as you understand them is...

(1) A great idea,

(2) A good idea,

(3) A bad idea, or

(4) A terrible idea?

(91) Not sure/No response

Q 13. Again, your answers will be kept confidential. We are not going to ask you to buy anything or

make any commitment to purchase shares. However, if

an independent feasibility study produces positive

projections for a plant located in this region, how likely do you feel you would be to invest in a value-added

processing plant...?

1 Very likely,

2 Somewhat likely,

3 Not very likely, or

4 Not at all likely?

Q 18a. For each share of equity stock you buy,

you would be obligated to supply one bushel of

durum per year. If one share of equity stock sold for $4

(U.S.), how many shares . ..would (you) be willing and

able to buy?

Number of shares:

Q 18b. At $4 (U.S.) per share, would you be willing and able to buy...

Yes No Not sure

a. Less than 1,000 shares 1 0 0

Skip to 420

b. 1,000 to 2,999 shares 2. x X

c. 3,000 to 4,999 shares 3 x X

Go to Q 19a

d. 5,000 to 6,999 shares 4 X X

e. 7,000 to 9,999 shares, or 5 x X

f. More than 10,000 shares? 6 x X

Q 20. As the letter stated, the proposed cooperative and processing plant will be owned by durum

producers such as yourself who invest in adding value

to the grain they grow. What questions would you

need answered before you invested and encouraged

others to invest in equity stock in the cooperative?

What other questions would you want answered

before investing?

1.

2.

3.

Respondents were also asked how they felt about

unique aspects of the project and characteristics of

their business that related to the proposed cooperative.

Feasibility

The need for the Madison professional practices

emanated from the experiences of the cooperative

development practitioner. Frequently, consultants will

be required to study the feasibility of an idea.

Remaining objective while serving as an advocate for

the project is always difficult. The Non Partisan League

in North Dakota selected a goat as its mascot because it

was the only animal that fights with its head.

The developer must help select the best consultants available, raise money to pay them, and often

must police their work to ensure compliance with contractual agreements. In the past, feasibility studies

were something needed to get financing. Now, feasibility studies are critical if members of the cooperative’s

interim board are to understand the opportunity.

The tasks of writing the scope of the study,

recruiting competitive proposals, and assisting in the

selection process often fall to the development professional. The lowest-cost consultant, friends of directors,

or a study someone gives the cooperative are no substitute for quality work.

Successful cooperative development depends initially on a thorough study of the opportunity. A common mistake is to hire either an engineering firm or an

equipment manufacturer to conduct a market feasibility study. Some large engineering firms have completely separated functions within one company and are

capable of independent analysis. Others, more commonly, try to use their feasibility consulting practice as

14
a feeder for engineering work. Some may bid low on

the feasibility study (even below cost) in hopes of

making it up with a design and construction contract.

Equipment manufacturers are well known for

their low-cost, quick-turnaround feasibility studies. In

some cases, they have completed “one size fits all”

studies that say using their equipment will result in a

positive venture.

I don’t recommend using either engineering

firms or equipment manufacturers as feasibility consultants. Although it’s often necessary to understand

construction and equipment costs in determining if a

project is feasible, engineers and equipment manufacturers should provide data on costs, but not on market

analysis. In most cases, the cooperative development

practitioner enforces this discipline. While using the

necessary emotions to create change, the developer

must still teach cooperatives to fight with their heads

and balance emotion with reason.

A simple scoring sheet can be developed for the

steering committee to determine which consultants to

interview and how to rank the finalists. Here’s an

example:

Firm Name:

Evaluation criteria

1. Previous experience in

directly related work

2. Qualification of principal

researchers

3. Reasonableness of costs

4. Proposed interaction with

steering committee

5. Verbal presentation /

communication skills

6. Miscellaneous/intangible

Points

awarded

(O-30)

(O-20)

(O-15)

(O-10)

(O-15)

(O-10)

7. Total score 100

Business Planning

A second task of the developer is to help the interim

board complete its business plan. The professional

principles are never more challenging. Many new

directors are unfamiliar with operating principles of

cooperatives.

Because these are closed cooperatives that require

equity investment much like a corporation, directors

can easily lose sight of their fiduciary responsibility to

other members who may invest. Steering the board

away from sweetheart deals with each other or from

using knowledge gained through work on the cooperative board for private gain is sometimes difficult. The

interim board may often feel that it has sacrificed

enough just to build this cooperative and therefore is

entitled to some benefits not available to members

who join later.

How the cooperative will operate regarding conflict of interests and prohibitions against directors

using cooperative opportunities for personal gain can

be addressed in operating policies or bylaws. If the

facilitator can keep the professional business planners

on task, the director decisions and a good plan of

action agreed to and recorded, the bylaws and operating procedures are not difficult to develop.

It is generally a mistake to develop operating

procedures and bylaws in the absence of a business

plan. In some cases, interim boards may be tempted to

copy another cooperative’s operating documents.

However, the developer will hold the interim board’s

“feet to the fire” to write its own business plan. It will

save the cooperative time and legal fees in the long run

by exercising this discipline.

In the business planning process, directors actually confront each other about their expectations of this

cooperative and the allowable and expected behavior

of directors. It helps to have a director who has served

on another new-generation cooperative board explain

how it handled these issues.

The business planning effort includes a search for

information on the size of the market, prices, processes, deciding about strategy, and estimating returns on

investment. The developer and interim board often

will encounter a perplexing problem. Who should you

believe? Consulting firms, existing cooperatives, and

competing firms, and other development consultants

may offer conflicting advice. The cooperative development practitioner seldom has a captive client group.

Advice and coaching are often ignored or disregarded, even from the longest tenured and most successful cooperative development advisors. I often ask

the steering committee to formally accept me as their

“official” advisor and coach in this effort. I seldom

agree to share my advisory role with another because

multiple advisors create and destroy accountability.

Sometimes the development practitioner may be

asked to serve on the steering committee as a voting

member or play a role other than advisor. It may be

useful to do so even if your views are in the minority.

Just listening is important, but when it comes to very

bad projects, I recommend just running away.

The developer must realize there is no shortage

of advisors available to suggest alternative approaches

15
or less painful commitment levels. It is up to the directors to learn the difference between bad and good

advice.

It’s easy to confuse the roles of the advisor or consultant with those of the cooperative’s directors and

employees. While advisors and consultants teach and

coach, all the players must learn together. An uneven

or out-of-balance learning environment often occurs

when completing the business plan. Directors may

become individually smart but corporately stupid.

This phenomenon is discussed in depth in Peter

Senge’s The Fifth Discipline. In my experience, the

uneven learning occurs because of natural specialization and focus by directors. Some may want to understand the market and marketing strategy while others

are more focused on process technology.

As the pressure to “get it right” develops, these

individuals will learn quickly a particular segment of

the business plan. The problem arises when advocacy

for a business plan segment, as all-important, begins to

blur the entire vision of the cooperative and the main

objective goes out of focus. Team learning with systems thinking is required. Team learning on a board is

much like a basketball team. Individuals have different

talents, but play better as a team than just as individuals. Team learning occurs when inquiry replaces advocacy-asking rather than defending allows other directors and staff to learn and accept and eventually

depend on someone else’s thinking. This leads to a

more effective use of talent in building the business

plan.

An accounting firm can often help write the business plan. But finding qualified firms can be a challenge. The Helmeke firm worked for both the Dakota

Growers Pasta Company and North Plains Premium

Beef Cooperative (NPPB). Even though the accountant’s expertise may not be in planning, both the cooperative and accounting firm learn together.

Selecting an accounting firm is much like picking

a feasibility study consultant. Some of the same criteria

apply. Here’s a score sheet example for evaluating an

accountant:

Selection Criteria Points

Previous experience in the industry 30

Qualifications of the personnel assigned 15

Billing structure (delayed billing, etc.) 15

Hourly rate 20

Availability to attend board meetings 10

Experience with co-op law and tax 15

Ability to work with engineers/attorneys 20

Experience with equity offerings 15

Even if a CEO is hired, an accounting firm is

often necessary to provide the computing ability to

analyze alternatives and write the plan. In the case of

NPPB, Steve Noack was both the cooperative’s attorney and chief financial officer. He held both law and

accounting degrees. An accounting firm was hired to

provide technical backup and the computing services

the cooperative could not afford to purchase.

Hiring the CEO

There is no set pattern on when to hire a manager / CEO. If the contribution drive has been completed

successfully and the cooperative has several hundred

thousand dollars available, it works well to hire a CEO

to help complete the business plan. United Spring

Wheat Processors used this strategy. Prior to completing a business plan, the cooperative hired an executive-search firm.

The cooperative eventually hired Gary Lee who

had broad industry experience, especially in strategic

planning. He led the planning effort, brought focus to

the cooperative, and was a major presenter during the

equity drive.

Dakota Growers Pasta Company hired Tim Dodd

after the business plan had been completed, but before

the equity drive. Dodd helped the cooperative finetune its plan, assisted in decisions, and answered technical questions during the equity drive. He also

brought with him engineering and marketing personnel.

Hiring the CEO before completing the business

plan, however, can be difficult. Numerous questions

are unanswered, such as where to locate the office,

where the CEO will live (if the office site hasn’t been

selected, so the CEO can avoid a double move), and

the type of business the cooperative wants to conduct.

What critical skills are needed-technical and processing, leadership and communication, or marketing and

public relations?

Using an executive search firm is also expensive-about one-third of the employee’s annual salary

plus direct expenses. It is also difficult to find experienced candidates who will leave well-paying jobs on

the bet that this new company will be successful.

NPPB hired me to serve as their interim CEO to

pull together a team that could complete the business

plan and the equity offering documents, and plan and

execute the investment drive. At the same time, the

board hired an executive search firm to find the permanent CEO. This process worked well. The new CEO

was subsequently hired. However, the equity drive fell

short of the necessary minimums and the permanent

16
CEO couldn’t be continued. Dakota Growers Pasta

conducted its own search and found Tim Dodd while

United Spring Wheat Processors used a search firm

and hired Gary Lee. Both techniques work.

Often overlooked in the search for a

manager/CEO is the role of the board chair. The most

important evaluation in CEO selection is not the qualities of the candidates, but rather the candidate’s analysis of the board and particularly the chairperson. That

chemistry between employer and employee must be

right or the relationship won’t be sustained.

The chair must have complete authority in

supervising and directing the CEO. The chair must

also be the single point of contact with the board. This

can be extremely difficult to achieve in a new or

emerging cooperative because until a CEO is hired, the

directors must make administrative decisions.

The type of CEO hired is usually an accurate

reflection of the board’s management philosophy. It is

often the first public display of that philosophy so the

decision has public relations implications. It can be a

confidence builder or a negative to potential investors.

It demonstrates the cooperative’s ability to attract

high-quality talent and, therefore, the likelihood of a

successful venture. In fact, the CEO’s resume often

becomes part of the disclosure document filed with

security commissioners.

Equity Drive

The equity drive provides the focus for the business planning effort. Will other farmers/ranchers

invest scarce dollars in this venture? Do we have it

right? In traditional business development, business

plans were written by consultants for bankers. In cooperative development, the business plan is written by

the interim board and the CEO (if already employed)

for the member-investors.

Lenders can help develop the business plan

(especially those from the St. Paul Bank or other cooperative-lending institutions), but they are not the final

target. Decisions on minimum number of shares, delivery schedules, transportation allowances (to make all

members equal to the processing plant), quality standards, marketing strategies, professional management,

and many other issues are of critical importance to the

farmer-investor.

It is extremely difficult to have the business plan

perfect by the time an equity drive starts. Markets,

interest rates, and commodity prices can all fluctuate.

The cooperative development practitioner is a caretaker of the truth but must also realize that from time to

time, businesses must take unmitigated risks. The risk

must be explained during the equity drive but not

allowed to overwhelm the cause.

Ken Throlson, North American Bison

Cooperative chairman, was asked by an Ohio economist how he could ask bison growers to invest in the

cooperative when, during the equity drive, the anticipated return on investment was constantly changing

as the planned equity level was surpassed. Throlson

replied, “I learned long ago never to say whoa during

a heavy pull.”

Throlson’s point is easily understood. After the

best analysis has been done, farmers must decide-do

they believe in the business plan concept and the credibility of the interim board or do they think it won’t

work and isn’t worth the risk? Those conducting the

equity drive must put that question squarely in front

of the member-investors. The cooperative’s board

must clearly communicate the vision.

Peter Senge said, “A shared vision is not an idea.

It is not even an important idea, such as freedom.

Rather, it is a force in people’s hearts, a force of

impressive power. It may be inspired by an idea, but

once it goes farther, if it is compelling enough to

acquire the support of more then one person, then it is

no longer an abstraction. It is palpable. People begin to

see it as if it exists. Few, if any, forces in human affairs

are as powerful as shared vision.”

Holding, communicating, and nurturing the

vision is the key task of the business planning process.

It goes public in the equity drive.

Timing-As a general rule, with lots of exceptions, equity drives work best between the months of

November and March. There are two reasons for this

in agricultural communities. First, farmers are generally through with harvest and are not in the fields. This

allows time to attend meetings, read about new ideas,

and talk to each other. Second, they have some understanding of their own financial situation.

This time period allows farmers to include the

cost of cooperative equity shares in their financial

planning with agriculture lenders. In most cases, separate briefings will be held by cooperative organizers

with ag lenders, prior to grower meetings. As in the

case of Dakota Growers Pasta Company, some agricultural lenders actively encourage their borrowers to

consider such investments.

Lenders also prefer to loan the funds quickly

once an investment decision has been made to start the

meter running on the interest rates. This puts pressure

on the cooperative organizers to move the project

17
along quickly, because farmers and ranchers don’t

appreciate paying in dollars that are not immediately

needed.

Collections-The technique for collecting equity

dollars may take a variety of forms. A common way at

grower meetings is to ask for some minimum contribution to indicate interest in purchasing shares. The fact

that it is a contribution, not an investment, must be

emphasized. Interim boards are required to prepare a

prospectus and comply with Federal and State security

laws if selling equity shares. The contribution is usually tied to the amount of money necessary to finish the

business plan, write the prospectus, pay the organizational costs and finish the financing work.

The Dakota Growers asked for and received $0.05

per share. Each share was roughly equal to one bushel

of durum wheat. The bison growers asked for $50 per

animal and final equity shares sold at $250 per animal.

Golden Growers asked for $0.10 per bushel of corn.

These contributions, as an indicator of interest,

are dedicated to specific budgets. If minimum levels of

producer commitment are not achieved, the project is

frequently stopped and unused contributions are

returned on a pro-rata basis. This ensures that there

are no unsatisfied liabilities or additional payments in

case the project does not go forward. Even though contributions may indicate an interest in purchasing

shares, the interim board is under no obligation to

issue shares unless minimum levels are met. A proposed bean processing cooperative determined that

minimum levels were not met and a pro-rata portion

of the contributions was returned.

If the minimum number of shares appear to be

available from producer-investors, the attorneys and

accountants prepare the prospectus and the interim

board issues the shares with a final due date. In many

cases, the board will reserve a special class of shares

for early contributors at a lower price per share than

the general share offering that recognizes their initial

commitment.

Normally, the contributor may only buy the number of shares relative to the contribution unless additional shares are available. The option to purchase

shares above the minimum in the business plan is

often offered to contributors first and then to the general public comprised of eligible investors. These decisions involve security regulations and must be made

only after consulting legal advice.

Interim boards are wise to keep the dates of the

contribution, expression of interest, and final equity

sale close together. Although there is not enough history to build a general rule in this regard, it is commonly

believed that the number of contributors who choose

not to invest increases over time.

On smaller projects with a limited number of

investors and much lower issuance cost, it may be better to issue the equity shares on an initial offering and

skip the first step. This direct approach also works

well when a cooperative is expanding and needs additional equity. In those cases, the membership can be

surveyed. No contribution phase, with its related cost

is needed to determine member interest or pay organizing costs.

Simplicity is important in a successful equity

drive. While it is tempting to create numerous classes

for various types of investors, complicated formulas

make sales more difficult. It also complicates the issues

if numerous alternatives are provided based on the

number of shares sold.

The beef cooperative planned to build two plants

if a higher number of shares were sold and one plant if

sales were low. It tended to complicate the issue

because it created the question of where the plants

would be built and in what order.

Creating a low minimum with a strategy to just

sell enough shares to get started often becomes a selffulfilling prophecy. Expectations are lowered and

excitement fritters away. The minimum number of

shares sold should cover what’s needed to operate a

well-capitalized cooperative profitably. If that number

is not achieved, North Dakota law requires the

escrowed funds be returned.

A bean cooperative issued shares and sold more

than half of the anticipated amount. The investment

was returned and a new plan was drafted. The same

strategy is being used by the NPPB. To some extent, it

is like working on a highwire without a net. And if the

equity drive fails, the cooperative may face dissolution. But safety net landings in tepid business plans

rarely inspire courageous investment.

Equity shares in a cooperative may be exempt

from both Federal and State security registration

requirements, but the exemptions must be applied for

well in advance of the equity drive. Competent legal

help is required. The preparation of the prospectus

requires communication with security commissioners

and since securities are regulated both at the State and

Federal level (and in Canada at the provincial level),

and each State or province is different, it gets to be a

lot of work.

The greatest fear of an emerging cooperative is to

receive a cease and desist order from a security commission. This takes negotiations and patience while

18
officials decide whether or not the cooperative is a

legitimate business that is worthy of investment. The

more States in which you intend to operate, the more

complicated the legal work. Some States will be very

strict on pre-selling, that is saying anything in public

about the project before a prospectus is in the hand of

the potential investor.

Media Management- While farmers sell the business concept to other farmers, the media must be used

to get the story and the sales events out to them.

In North Dakota, the largest circulation print

media is the Rural Electric Cooperative/Rural

Telephone Cooperative magazine. Advertising and

editorial support in that magazine have been helpful.

In addition, the North Dakota Association of Rural

Electric Cooperatives helped prepare news releases

and press packets and conduct press conferences.

Advertising the grower meetings and encouraging

producer attendance is the principal focus of the media

effort. The hard sales work is conducted in the meetings themselves.

Frequently, the media become excited about equity drives as a major campaign story-with potential

for winning or losing. The cooperative must attempt to

manage media expectations-size of crowds, rate of

investment, and likelihood of success. The meeting

room should always be slightly smaller than the anticipated crowd would require. The interim board should

be used as an investor catalyst at each meeting.

Those cooperatives that are able to acquire communication directors in advance of the equity drive

believe they are important parts of the management

teams. Experienced politicians can provide excellent

media management skills. Non-producer politicians,

however, are not recommended as attractions at grower meetings, because the politician, rather than the

plans of the new cooperative, becomes the story.

The media must be treated fairly and honestly.

There is no room for misrepresentation by cooperative

organizers. As a general rule, farmers appreciate an

understatement more than an overstatement. Common

sense and honest treatment of all media questions are

required. In most cases of cooperative development,

there already is a David versus Goliath story unfolding. Allow the media to tell the story and provide

valid information to help them explain it to their readers, viewers, and listeners.

Launching the Cooperative

This task is rarely the job of the cooperative

developer. As the cooperative emerges from its incubation period, hires management, and begins operating,

the developer may feel lost and abandoned. Successful

cooperatives are formed to solve problems and seize

economic opportunities, not to promote the professional developer.

The cooperative now hires the general manager

and no longer needs the developer. In some cases, the

developer may help recruit CEO or manager candidates or may be available for wrapup consultation to

finish contracts with business planners, consultants,

and the like. A typical concluding act by the developer

is to deliver boxes of records (minutes, financial statement, feasibility studies, and business planning material) to the cooperative’s new office. It’s a nice feeling.

Timing and Budgets

Every task takes longer and costs more than you

think it should! The equity drive controls other schedules and is often awkward to plan effectively. Many

existing cooperatives have annual meetings in either

June or December. From past experience, the months

of January, February, or March work best for equity

drives. There are certainly conflicts among commodity

groups within those months (cattle producers may be

calving and sheep producers may be lambing) and

winter months can be a severe challenge. But, other

times of the year appear to have worse conflicts

(spring planting, haying, or harvesting).

If the equity drive is to begin as soon as possible

in January, for instance, the offering circular must be

prepared and at the printer by the end of December. In

turn, that means the business plan must be completed

by late October. But the business planning process

can’t start until the producers can spend days together.

So, the only time left to plan the business may occur in

split sessions such as late June through the middle of

July and then again after harvest in October.

Working backwards, that means that the feasibility study must be completed in May or June. Studies

take 90 to 120 days to complete, so you will need to

start by March or April. A hypothetical schedule and

budget are provided in table 3.

If the CEO can be hired to help prepare the business plan, there will be extra costs related to salary and

expenses (easily $10,000 per month times 6 months).

An in-house engineer can save hundreds of thousands

of dollars in final construction cost. A marketing director can earn revenue much faster if hired during the

design stage of the cooperative. However, if these

choices are made and paid during the development

stage, costs can escalate. Costs are also based on time

19
Table +Hypothetical tasks, schedule, and budget for the formation of a new-generation cooperative.

Tasks Month Year costs

Dollar

Original idea formation &

discussion October 95 O-500

Forming steering committee &

raising money for feasibility N-D-J 96 500-2,000

Selecting feasibility consultant Feb-Mar 96 200-400

Feasibility study M-A-M 96 25-120,000

Selection of legal & accounting

consultants M-J 96 400-600

Business plan. & incorp. June-Ott 96 80-300,OOOa

Preliminary engineering &

offering circ. Nov-Dee 96 50-I 00,000

Equity drive Jan-March 97 25-45,000b

Launching April-June 97 90-I 20,000”

Ground breaking July 97 Operating

Total $271,000/$688,500

a Much of the difference of these numbers can be attributed to the cost incurred by hiring staff versus using consultants. Typically, 60 percent

is accounting and 40 percent legal.

b Staff, director, room, printing, phone

c Staffing/site, selection/permit

spent. Some tasks, such as developing marketing

alliances, can involve unpredictable and hard-to-control travel and staff costs.

Another important factor in scheduling and budgeting is the geographic area to be served. The larger

the area and more complex the offering, the greater the

time and budget considerations.

The Dakota Pasta Growers Cooperative started as

a discussion on Aug. 9,199O. Ground breaking at

Carrington occurred on July 9,1992. The 2-year

process took place mostly in North Dakota and probably cost less than $500,000. Northern Plains Premium

Beef (NPPB) started as a serious discussion in April

1993. It completed the first (and unsuccessful) equity

drive by June 1,1997. The 4-year process chewed up

more than $1.3 million in development funds. NPPB

sold equity shares in six States and two Canadian

provinces and was forced to reschedule 12 of 17 organizational meetings because of blizzards.

If new technology is proposed, additional costs

will be incurred. NPPB proposed using New Zealandbased technology, bore the cost of hiring both New

Zealand and American-based engineering firms, and

paid travel costs to New Zealand to observe additional

plants.

Alliances are difficult to negotiate and conclude

in time to include the detail in the offering circular.

Publication deadlines for the offering circular put pressure on a relationship-building function. Attorneys are

not always available to prepare documents for both

sides and corporations and partnerships often have

difficulty scheduling meetings that a majority of directors can attend.

Alliances can be important, however, and must

always be considered. Golden Growers raised more

than $50 million in equity from corn growers, in part

because of the involvement of American Crystal Sugar

in the Pro-Gold limited liability company.

Both cooperatives had overlapping production

territories and knew each other well. NPPB and

Dakota Growers Pasta Cooperative could not identify

an alliance partner before their equity drives. One was

successful and the other was not. A qualified CEO

20
and/or experienced marketing director can sometimes

generate investor confidence similar to an alliance

partner.

Finally, it appears that marketing and processing

alliances can be extremely beneficial to the new cooperative. But without the commitment of the cooperative to go it alone without a partner, alliances are nearly impossible to achieve. No existing company wants

to have its name used as a lever to gain investment in

another potential competitor. Once your equity is in

the bank and the product is committed, alliances come

easier.

The Organizational Philosophy

Much of the process of new wave cooperative

development has already been discussed. Left to be

uncovered in the dynamics were those unseen, yet

real, influences that motivate behaviors and affect outcomes.

The progressive movement in North Dakota was

a reaction to perceptions of negative treatment. A

review of the history of North Dakota (Junker) gives

an excellent look at the Non-Partisan League (NPL)

leaders. Robinson contends that three men, Arthur

Townley, Fred Wood, and William Lemke, were the

principals in forming this political force. Like Jack

Dalrymple, Lemke went on to study at Yale.

Robinson’s colorful description of Lemke carries the

tenor of the day:

Lemke became an intense, bitter, tenaciousfighterfor

the plain people againsf the hated interests; he was a natural

extremist, in Edward C. Blackorby’s phrase a “prairie

rebel.” His hard, tough appearance was unprepossessing; he

had lost an eye in a boyhood accident. His face was rough,

his big jaw determined, and his clothes rumpled. Versatile

and emphatic in speech, the language of the threshing crews

as well as that of the courtroom came naturally to him. He

neither smoked nor drank. When the occasion demanded, he

could drive himself unsparingly with a terrible concenfration. He was brilliant, a good organizer, ambitious and

aggressive, eager for power, a natural promoter and dreamer,

an ultra nationalist, and an Anglophobe.

The movement focused on a natural enemy, the

corporation. Literature produced by the NPL consistently ridiculed the large corporate interests as greedy,

mean-spirited, and controlling organizations. The corporate and big business gouging, as State Sen.

Wenstrom recalled, was organizing powder for the

cannons of the NPL.

While warfare-type confrontation tactics served

the progressive movement well in the early 19OOs, they

became standard fare throughout agriculture through

the 1980s and are still used in the 1990s. The central

premise is that external forces are responsible for agriculture’s miserable conditions. Favorite targets are

Government programs or the lack of them, environmentalists, large corporations, or foreign competition.

In recent years, Canadian imports and the North

American Free Trade Agreement have been political

whipping posts.

In his book, Rules for Radicals, Saul Alinsky provides a “Pragmatic Primer for Realistic Radicals.” His

tactics are worth quoting here to explain conventional

organization theory.

1. Power is not only what you have, but what the

enemy thinks you have.

2. Never go outside the experience of your people.

3. Wherever possible, go outside the experience of

the enemy.

4. Make the enemy live up to its own book of rules.

5. Ridicule is man’s most potent weapon.

6. A good tactic is one your people enjoy.

7. A tactic that drags on too long becomes a drag.

8. Keep the pressure on.

9. The threat is usually more terrifying than the thing

itself.

10. The major premise for tactics is the development of

operations that will maintain a constant pressure

upon the opposition.

11. If you push a negative hard and deep enough it

will break through to its counter side.

12. The price of a successful attack is a constructive

alternative.

13. Pick the target, freeze it, personalize it, and polarize it .

Alinsky had great success organizing unions at

the Chicago stockyards and at the Kodak plant in

Rochester, N.Y. His book is well worth reading today

as an explanation of human motivation during the

quest for power by disenfranchised groups.

Organizers certainly used some of these tactics to put

together many of the 474 cooperatives that exist in

North Dakota today. And many of the new generation

cooperatives also employ similar tactics, perhaps without being aware of it.

21
New Theory, New Tactics?

But there is a new philosophy that has crept into

the mix of strategies. Perhaps new-generation cooperative organizers have used these tactics, but been

unaware of it. The principles adopted by professional

cooperative developers reflect some of this new theory.

This new organizational theory is not simple and

has not been reduced to 13 tactics. It comes from the

writings of M. Scott Peck in three of his books: The

World Waiting to be Born, The Different Drum, and The

Road Less Traveled; Stephen Covey’s book, the Seven

Habits of Highly Effective People; and Peter Senge’s book,

The Fifth Discipline. Bits and pieces can also be found in

Guy Kawasaki’s book, Selling the Dream, and Lee

Egerstrom’s book, Make No Small Plans. The

September /October issue of the 1996 Harvard Business

Review contains an excellent article by James Collins

and Jerry Porras entitled “Building Your Company’s

Vision.”

Most of these writers didn’t set out to create

organizational theory regarding cooperatives. In many

cases, they were writing about other subjects. With the

exception of Lee Egerstrom, they never once mention

forming cooperatives. It is at great risk of oversimplification and distortion of their major points that I apply

them to cooperative development and “Co-op Fever”

in the Northern Plains. Understanding that risk, here

are some tenets:

1.

2.

3.

4.

5.

6.

7.

22

A community of interest (central business proposition) can be found that is not based on an external

enemy, but on an economic opportunity. This community of interest can be so powerful as to engender sacrifice, commitment, and loyalty to the business cooperative, and help it survive.

The only fear needed in organizational efforts is

the fear of missing the opportunity to invest.

The character of leadership counts greatly in evaluating potential for successful cooperative development and equity commitments. The organizing

board must consist of individuals who are also

trusted by colleagues.

Competitors are not enemies and need not be

defeated. Alliances are possible with competitors.

Customers are natural allies and worthy of products that are safe, wholesome, and fairly priced.

Government is neither an enemy nor a friend, but

a tool in the conduct of business that is necessary

to ensure fair play. It is not responsible for “saving

us.”

Personal honesty, objectivity, and decency need not

be sacrificed or compromised in the formation of a

8.

9.

10.

11.

12.

new cooperative or selling equity shares. Nor

should personal irresponsibility be excused on the

basis of the greater good.

People are capable of understanding and making

long-term commitments and accepting delayed

returns on investments.

People make investments for more than economic

reasons-they want to be part of a cause.

The call to action must be in bold enough terms to

“stir mens’ souls.” Incremental or modest changes

often fail to provide sufficient motivation.

The goal line or the definition of success must be

painted in bold lines and commonly accepted by

the project sponsors.

Evangelism is required for cooperation to occur,

and while based on emotions, it is never antiintellectual. It requires objectivity, enthusiasm, and

emotion balanced with wisdom.

These new principles are not naive, simple-minded, or innocent. They require considerable understanding of market realities, tactics by competitors, and a

general acceptance of the fact that people are not

always good.

But these principles recognize that in spite of the

considerable imperfections common to humankind,

cooperatives still provide an opportunity to have faith

in like-minded people. This faith is an essential element in cooperation and adds considerable business

strength and efficiency to the organization. It is the

ultimate corporate culture.

Spirituality?

So important is this notion of faith or spirituality

to cooperative organizers that an expert was asked

during a tour of cooperative business to provide a lecture on the subject. Frederick Kirschenmann is an

organic farmer in North Dakota who also holds a

Ph.D. in historical theology from the University of

Chicago.

Kirschenmann knows and explains what

Kawasaki teaches about businesses. There must be a

cause greater than the individual and without this

greater good, organizers of new cooperatives will

never overcome the layers of cynicism that pervade

modern thinking. According to Kirschenmann:

It is, in fact, the recognition of this spiritual dimension in business that may be one of the greatest contributions that cooperatives can make to our society. The absence

of spirituality in much of our business and social lives has

left us lonely, isolated, and cynical. Apartfrom the spiritual
discipline that leads to cooperation, we are largely isolated

and alone. In the business world, it is all up to the individual.

Role models are individuals who have succeeded

in rising above their colleagues. Business and airline

magazines all feature the successful “tycoon.” Seldom

do we find stories of successful communities that

worked together to solve a problem or successful coalitions that acquired healthy bottom lines by cooperating rather than competing. Rampant individualism

seems to prevail despite the fact that it has left us feeling isolated, stressed, and overburdened, and despite

the fact that there are hundreds of case studies which

demonstrated that cooperation works.

Truth?

In cooperative development, telling the truth

requires a discipline uncommon to political or social

organizational efforts. Truth telling requires understanding reality and avoiding exaggerations. It is not

only humbling but also empowering. It is one of the

defining characteristics of a successful equity drive. If

the truth or reality of the business analysis is ever compromised by management or directors, it is almost

impossible to restore credibility to the organization.

The temptation to exaggerate returns and market

opportunity or to understate risk is great. It is easy for

management and boards to view the equity drive as

sales. Putting a favorable spin on media presentations

can lead to sugar-coating the equity drive presentation. Organizers commonly feel they must have an

answer for every possible question, or have worked

out every detail.

A simple rule of telling the truth to the media

and to investors can be difficult to live by, let alone

enforce. Violation of this rule occurs when either management or directors lack confidence in their proposed

business plan and attempt to modify the message to

what they think will sell.

This dedication to spirituality and truth-telling

can be contagious. It is often an act of courage that

results in others acting courageous. In an age of political correctness, it can have startling impacts on audiences. However, the temptation to personify the competitors, the Government, environmentalists or some

other group or organization as the enemy is very great.

Simply telling the truth is extremely difficult.

My personal dedication to understanding the

competition and appreciating their strengths is often

seen as a weakness by those who wish to vilify them.

Many agricultural producers are bitter and seek to

strike out at processors. They often want the cooperative developer to reflect that bitterness and strike a

blow against the multinational companies they blame

for poor prices. I believe that attacking multi-national

corporations wastes energy and is nonproductive. The

rural developer’s role is to focus on the opportunity,

not instigate class warfare or throw lances at dragons.

Much of this focus on the opportunity is

described by the author Peter Senge in his book The

Fifth Discipline. In chapter 11, “Shared Vision,” he

describes the power of a commonly held view of an

economic opportunity. Reading the entire chapter will

provide a better understanding of this concept as it is

applied to cooperative development.

Gary Williamson, who manages Central Power

Cooperative in Minot, N.D., called me “the preacher.”

In my mind it means spreading the good news that

producers, working together through cooperation, can

increase their net farm income and create a better rural

life for others. Kawasaki called such techniques,

“everyday evangelism.”

It’s not so much that old techniques don’t work,

as it is a different set of circumstances and players.

This new day may call for different cooperative development techniques to create success. It is easy to overintellectualize the process of cooperative formation.

The role these techniques play in creating cooperative

revival may be over-determined. As practitioners of

cooperative development, we are just players in the

drama and not the cause.

As a player, you can influence the outcome, but

you didn’t create the game.

23
References

Alinsky, Saul D. 1971. Rules for Radicals, u Pragmatic

Primer for Realistic Radicals. Random House, Inc.

Alster, Norm. July 4, 1994. “Getting the Middleman’s

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