Small businesses struggle with the costs of goods they need to do business, making it hard to compete with larger companies. Find out how purchasing co-ops can help small businesses save money and get tips on how to start a purchasing co-op.
Howard Brodsky set out to conquer the carpet world. Dan Bleier just wanted to save his family-owned business. But both cherished their independent status in a retail chain, “big box” business world. Now, each realizes success through a purchasing cooperative.
The pair spent almost eight months reviewing different business models, disqualifying one after another. Then they looked at cooperatives. Brodsky and Bleier are founders of two of the estimated 300 purchasing cooperatives in the United States–a sector which serves roughly 50,000 independent business owner-members.
“The co-op was the ultimate choice to bring (buying) scale to local ownership while honoring their differences and valuing their independence. It also allowed us to leverage our efforts to serve their best interests,” says Brodsky, chairman and co-CEO of CCA Global Partners. “By comparison, other business structures didn’t endure.”
Entrepreneurs across the American business landscape–from furniture dealers to funeral service providers–are using co-op power to level the playing field between family-owned enterprises and mega-retailers.
Purchasing co-op owner-members are joining together to increase the competitiveness of their independently owned businesses. By pooling their buying power to acquire inventory and services, they lower operating costs, better respond to competition, and improve their businesses’ overall performance.
Conquering the world
By virtually every business standard, CCA has more than endured. It has exploded. Starting with 13 members, the cooperative has grown to 650 owners who operate 3,600 independent stores around the world. The company reported sales exceeding $10 billion last year and has never experienced an unprofitable quarter in its 24 years of existence.
Sales have jumped 325 percent in the past eight years.
“If you give a smart entrepreneur the best tools, he can outplay the big guys. He needs to buy better, brand better, have the best training, best hiring and best marketing,” he adds. Today’s CCA members engage in the flooring, mortgage banking, lighting and bicycling industries. Considered together, CCA’s flooring affiliates represent the largest group of retailers in the world.
Reading about the success of co-ops like CCA inspired Bleier, who needed to find a way for his family-owned Able Distributors to effectively compete with “the big boys like Home Depot.” He reversed the negative trend by becoming a founding member of Blue Hawk Cooperative in 2005, a Phoenix, Ariz.-based co-op with 200 members–mostly family-owned companies–that own 871 distribution locations in 50 states.
Like typical purchasing co-ops, Blue Hawk offers its members centralized, cost-saving buying plus warehousing, marketing, merchandising and financial reporting–services that give members like Bleier the ability to compete in the marketplace. But competing is not enough, says Lance Rantala, the co-op’s chief executive officer.
“Our plan is to have each Blue Hawk member-owner grow their combined market share by 10 percent,” he says, explaining how partnerships with manufacturers and contractors help build a healthy and profitable business environment for all participants.
Blue Hawk members like the control they enjoy as owners. The co-op business model provides a welcome contrast to buying groups–a common inventory procurement option for independent HVACR distributors–which the members neither own nor govern.
Furniture First’s membership is by invitation only. Prospective members of the Harrisburg, Pa. headquartered co-op undergo an intense evaluation process, complete a 16-page application that includes a detailed credit history. Hartman believes the rigorous process is necessary to determine which retailers will make the best members.
Though collective buying of goods and services is at the core of every Purchasing cooperative, today’s member-owners want–and need–more to succeed. Their co-ops are obliging by offering industry-specific support to enhance almost every facet of business management.
From the beginning, CCA has provided its member-owners with “a better level” of services, marketing, training and merchandising. The co-op offers an extensive selection of online training courses for the employees of member stores. To date, employees have completed almost 300,000 courses.
Blue Hawk members benefit from “extras” such as improved marketing channels, public relations, lobbying efforts, educational and training programs, networking opportunities, sharing business best practices and technology support.
Across the purchasing co-op universe, many consider peer-to-peer networking a bonus of membership. Most co-ops hold membership conferences annually, giving members opportunities for face-to-face discussions, and provide online networking tools to help members share ideas and information.
Surviving Tough Times
Small business is risky business these days. A distressed national economy is not favorable for smaller enterprises, which account for about 99 percent of the country’s business. “It’s the worst I’ve ever seen it,” Furniture First’s Hartman says about the rising costs and shrinking profits for independent businesses.
Though they can’t deliver miracles, purchasing cooperatives can provide relief to beleaguered small businesses–sometimes in unexpected ways. For instance, a new movement that brings together retailers by common location rather than business sector is gaining steam.
Knowing firsthand the power of purchasing cooperatives, CCA’s Brodsky believes these independent business owners are learning one of the most important realities of co-op life: There is strength in numbers. “In troubled times, you don’t want to be alone. That’s the worst,” he says. “Join a co-op because it gives you all the support and tools to compete.”
How to Start a Purchasing Coop
Whether they sell homebuilding supplies or hamburgers, savvy independent business owners are finding that working cooperatively is the key to surviving and thriving. Rosemary Mahoney, chief executive officer and cooperative developer for Lovingston, Va.-based MainStreet Cooperative Group, offers these start-up tips to entrepreneurs interested in cooperative development:
1. Find friends. Every cooperative begins with a group of like-minded people. Determine if the perceived threat or opportunity you have identified is shared by other independents. Work to form a core of organizers who are respected by other independent business owners as well as vendors. Not getting the right members at the start is a mistake that can lead to failure.
2. Explore the options. Before making plans to organize your own purchasing cooperative, determine whether any other cooperatives are already serving your sector. If so, can you join that cooperative?
3. Crunch the numbers. Estimate the total amount of your sector’s business volume that is handled by independents. Is this amount of volume significant to your suppliers? Do your suppliers need independent businesses in the sector? The ability to convince vendors to support a start-up cooperative is essential to its success. You must be able to prove that your co-op can deliver a significant amount of volume and bring value to the vendor.
4. Do your homework. Find one or two cooperatives in similar industries and talk with their management and some members to learn more about how cooperatives work. You’ll be surprised at how many cooperators are willing to talk to those seeking more information.
5. Lay a strong foundation. If you decide to go forward in establishing a purchasing cooperative, be sure to work with an attorney who understands this business model. Also, raise enough capital to hire a chief executive officer who is both an industry expert and well respected by vendors and potential members. Trying to self-manage a co-op is a mistake. Most entrepreneurs are too busy running their own business to successfully and simultaneously manage the day-to-day operations of a co-op.
Donna Abernathy writes for the National Cooperative Business Association (NCBA). NCBA is the only cross-sector member that helps develop, advance and promote cooperative businesses across the United States. NCBA helps develop new cooperatives through partnerships with CooperationWorks!–a network of rural co-op development centers–and the Urban Cooperative Development Initiative. For more information, contact Jim Jenkins, director of Communications at 202-383-5447 or email@example.com