Tuesday, November 4, 2014

Cooperative Economics


Traditional businesses use a relatively straightforward formula for evaluating success. Profit means a job well done while loss spells trouble.

The equation is fuzzier for a cooperative which, by definition, exists to benefit its members. Profit is anything left over after subtracting operating expenses from incoming revenue, but wages and salaries weigh in as operating expenses. The more a coop pays its members, the less it has left over in profit.

Earlier this year I bought the building where Patty Pan Cooperative now operates. The business pays rent to me and this rent goes to pay down my mortgage and increase my equity in the property. The rent benefits me personally, yet it comes out of Patty Pan's bottom line.

We've been grappling with these equations all summer as we've earned our livelihoods and set aside funds to pay for the expensive build-out we completed last spring. We need profit to pay back our loans, and we need profit to create a cushion because it's good to save for emergencies and a seasonal business tends to be short of cash half the year.

We recently launched a Kickstarter campaign to raise money to buy equipment to make our own tortillas out of local, organic, whole grains. Naturally we evaluated whether the tortilla project would make our business more profitable, and concluded that these tortillas will probably cost the same as the ones we currently use. However, some of the costs will switch from the material expense of buying a finished product to the labor expense of making it ourselves.

In other words, the tortillas will cost the same according to traditional calculations, but the process will give back more to our members. There are other benefits as well. By buying grain from local growers, we'll cycle funds back into the closely knit farmers' market economy. Our quesadillas will be tastier and healthier. And we'll stay interesting. When you've been around a lot longer than any of your competitors, staying interesting can be an uphill battle.

Speaking of interesting, the research and development process for our tortilla project has been fascinating. It's challenging to create a light, flexible tortilla using 100 percent whole grain flour. We're open to harmless add-ins like lecithin or baking powder, but we'd really rather study the behavior of the dough and learn how to achieve the results we want using just flour, olive oil, salt, and water.

We've made appealing prototypes using a small electric tortilla press designed for home use, but the real work will start once we buy and install the professional equipment that can press tortillas to a consistent thickness, and cook them at a consistent heat.

We're curious, we're engaged, and our morale is high. We're looking forward to getting started.

1 comment:

Unknown said...
This comment has been removed by a blog administrator.