At a time when American workers often feel overloaded and stressed on the job, worker-owned cooperatives—businesses owned and governed by their employees where each one has one vote—are viable solutions that can increase employee satisfaction. These worker-owned cooperatives allow for employees to develop their leadership skills and have more control over their working environments, leading to less employee turnover and a far narrower pay ratio between C-suite leaders and employees (a 2 to 1 or lower ratio, as opposed to over 300 to 1), as well as increased profits.

Barriers to scaling worker cooperatives

However, worker-owned cooperatives are not the norm within the small business landscape in the U.S. The 450 worker cooperatives make up just one-thousandth of a percent of the 5 million U.S. small businesses with less than 500 employees, and most worker cooperatives employ only nine workers, according to a 2017 report from the Democracy at Work Institute.

The small scale and the limited number of worker-owned cooperatives results from various barriers, such as the cultural narrative that puts individual against community, minimal policy and impatient capital that values fast returns. The silver lining is that these barriers can also inspire entrepreneurs to innovate and partner with leaders in their communities to develop organizations that create social good through their service.

“I believe that many of the barriers to worker co-op development can be surmounted over time or successfully addressed through a well-designed initiative and through coordinated efforts to bring the movement to scale,” wrote Hilary Abell, the current head of Project Equity, in a 2014 report.

A franchise of worker cooperatives provides a way for cooperatives to scale

One group of cooperatives that has created a well-designed initiative to scale is Brightly, a franchise of worker-owned cooperatives in New York City that offers cleaning services. Brightly is a licensed nonprofit franchise developed with support from the Center for Family Life, which is a community-based organization that has been incubating worker cooperatives for over a decade.

Traditionally, franchise agreements include the purchase of the local franchised business and royalties for training and for using the franchisee’s brand. The Brightly worker cooperative franchise is different. First, the franchise is a nonprofit endeavor. Secondly, there is no upfront franchise fee and a very lenient non-compete clause, according to Phyllis Robinson, who coordinates the project at the Center for Family Life.

The franchise attempts to remove the barriers involved in successfully starting a worker-owned cooperative. By providing access to a strong brand with visibility in the marketplace and shared resources to reduce costs, a franchise of worker-owned cooperatives enables low-income entrepreneurs to grow their businesses.

The process of forming the Brightly franchise agreements was complex since Brightly aimed to mold conventional franchise documents to serve the interests of Brightly workers.

“We met weekly with the members of the cooperatives to go through the 202-page [legal] document and pulled out the clauses that weren’t fair to them,” Robinson explained. “[The workers] pushed us on it and, in the end, we all got to a really positive agreement.”

Not only does Brightly’s position as a licensed nonprofit franchise illustrate an innovative way to overcome lack of access to capital, but the co-op also demonstrates how all entrepreneurs can reinvigorate business-as-usual models to create social good.

The time is right for worker-owned cooperatives to multiply

Brightly is not the only worker-owned cooperative seeking to scale in the U.S. The success of other organizations such as Start.coop—an accelerator that empowers entrepreneurs to build scalable, cooperatively-owned businesses—and Arizmendi Association of Cooperatives, an association of nine member businesses in the San Francisco Bay Area, demonstrates that there is definite interest for creating more worker-owned cooperatives in the U.S.

Another sign that worker-owned cooperatives are gaining traction is that the U.S. federal government passed the first legislation in support of them in August 2019. It’s titled The Main Street Employee Act and directs the Small Business Association to provide more financial assistance to individuals interested in launching worker-owned cooperatives.

The next step to further catalyze the movement in the U.S. is to encourage investment and backing in this underrepresented business model. Worker-owned cooperatives can scale more quickly through different forms of direct and indirect investment, but investors generally see risk instead of reward in the model. To change this sentiment, worker-owned cooperatives and their partner organizations—such as the Center for Family Life—must demonstrate to potential investors that investing in worker-owned cooperatives yields financial in addition to the easily proven social returns.

Image credit: The Creative Exchange/Facebook