Have a startup idea but traditional business isn’t for you? Co-ops offer an alternative

For entrepreneurs who don’t want to start and run a company on their own, community-focused co-ops may be the path forward. 

In the traditional style of business, employees don’t have as much say in their jobs or the decisions the company makes, meaning they have less “buy-in” in the company’s success. It’s a strong option for many entrepreneurs because it’s easy to garner support from traditional resources. 

But 2025 is the year of the co-op — at least according to the United Nations and the City of Philadelphia — and it’s bringing a notable spotlight on ways into entrepreneurship for underrepresented groups, as well as creative tactics to weather economic headwinds. Despite the hurdles that come along with going against the mainstream, Terrell Cannon, who started following the worker-owner model two decades ago, said it’s also been beneficial because she’s been able to make her voice heard and gain professional skills. 

“When I came to a co-op, it was so easy to be able to advocate for folks,” Cannon, a training coordinator at co-op Home Care Associates, told Technical.ly. “People really listened and then implemented the things that [were] needed to help folks thrive, not just in the care that they receive, but as employees, providing care.” 

A traditional small business is owned by a few people who make decisions about the company and its employees. Worker cooperatives (aka co-ops) are businesses owned by multiple people and run democratically, meaning the workers own the company, vote to make decisions and share the profits. 

Co-ops are still a very small subsect of how entrepreneurs pursue their ideas. The 2023 Economic Census identified 751 worker co-ops and democratic workplaces, but the total number could be closer to 1,300 according to the Democracy at Work Institute and United States Federation of Worker Cooperatives’ 2023 State of the Sector report. These businesses grew 20% between 2021 and 2023, according to the survey of ​​172 firms.

In Philadelphia, there are about 60 co-ops, including housing co-ops, and it’s trending upward, said Corey Reidy, cooperative development director at the Philadelphia Area Cooperative Alliance (PACA). From her experience, working in a co-op environment can motivate employees to work harder because they feel a sense of ownership — and get a cut of the earnings.

“Oftentimes, the workers don’t even know how profitable a company is because those profits just go to whoever the business owner is,” she said. “When they’re actually seeing how much profit a business can make, they are seeing it, and they’re splitting it amongst each other … it’s also incentive to do really well.” 

Still, going the co-op route involves relearning a lot of what entrepreneurs already know about running a business, from how to file taxes to where to get support.

Jump to a section:

• How does a co-op work?
• What exactly does that look like in practice?
• What happens when a co-op hits financial turmoil?
• Why do entrepreneurs pursue co-ops over traditional businesses?
• How easy is it to get funding as a co-op?
• Where should co-ops go for cash, then?

How does a co-op work?

Like finding a cofounder, co-ops start with seeking out a group of likeminded members that want to work together on a business idea. It still needs to be incorporated and obtain any relevant licenses or permits, like any other business. 

The tax structure for cooperatives is different, though. Co-ops do not pay federal income taxes as a business. Instead, the company’s members pay when they file personal income taxes. 

Beyond just the community-centered ethos of a co-op, there are also other tangible business benefits and room for growth.

At a traditionally structured business, employees can work up into leadership positions, but unless they’re investing in the company, there’s less incentive for company success. For example, stock options allow employees to buy stock at a fixed rate, giving them a financial stake in the company, but they are considered a form of compensation rather than giving employees decisionmaking power. 

The culture of co-ops encourages employees to contribute their thoughts and ideas, even if they haven’t bought in as an owner. 

What exactly does that look like in practice?

At Home Care Associates, where Cannon works, the buy-in to join the company as a worker-owner is $500, meaning they work for the company and have decisionmaking power, she said. 

However, the company will offer a payment plan to help workers become an owner. If they put $35 down, the company will loan them the rest and they can slowly pay off the loan, contributing as little as $3 a week to do so, she said. 

During that time, workers are considered owners and are able to participate in votes, join committees and join the board, she said. 

Employees are eligible to become an owner after working at the company for at least three months, but the team talks to them about the option of ownership from the beginning, she said.

“We tell them, you can do this at any time,” Cannon said. “It doesn’t have to be at their three months. It’s when you’re able to afford it. But we still want to include you in those meetings.”

Not every worker needs to buy in, though. 

About 60 of Home Care Associates’ 100 employees are worker-owners, Cannon said. Nonowners can still attend company meetings and voice their opinions, they just can’t participate in voting. They all make $15 per hour and get benefits like a traditional workplace. 

What happens when a co-op hits financial turmoil?

As far as managing the company’s finances, after the bills are paid, employees are paid and business costs are taken care of, the worker-owners vote on how to use any remaining funds, whether that be bonuses or put it towards a training or community program, Cannon said. 

During times of economic downturn, like the impending recession, traditional businesses can make decisions about layoffs or cut hours for employees without consulting them. Co-op owners, however, have to come up with a plan together to avoid layoffs or closing the business, often preparing for tough times before they actually hit, Reidy from PACA said.  

Co-ops often cut back hours or reduce wages for everyone to avoid layoffs, with the plan to reverse course once things pick back up financially, she said. 

“We see the workers being able to care for one another and make decisions together and actually know what’s going to serve them best,” Reidy said. “That’s a huge part of why co-ops are so resilient.”  

During the pandemic, worker cooperatives only saw a 9% drop in hours worked between fiscal year 2018 and 2020, despite a 44% drop in business revenue, according to the Democracy at Work Institute and United States Federation of Worker Cooperatives’ 2021 State of the Sector report. The data is based on 180 surveyed cooperatives. 

Twenty percent of worker cooperatives lost more than 50% of their revenue during the pandemic, compared to 28% of traditional small businesses, according to the report. Roughly half of the 180 surveyed co-ops implemented reduced hours and furloughs to avoid layoffs during this time. 

For traditional businesses, there isn’t that same motivation for owners or leadership to make those decisions with workers in mind, but there is more freedom to make the tough financial decisions.

Why do entrepreneurs pursue co-ops over traditional businesses?

More co-ops have been launched over the last few years, especially as the model receives recognition on a global stage. Some entrepreneurs see it as a way to ease some of the challenges of going into business alone.

For minority groups that face systemic disadvantages on this career path and face more barriers to wealth-building, it’s been especially useful. People of color make up about 46% of cooperative workers and women make up almost 74% of co-op workers, according to Democracy at Work Institute’s 2023 report. 

From the get-go, it’s difficult to start a business without a lot of capital up front, but combining resources with other people increases economic power, Reidy said. 

Co-ops also have a bigger leadership pool to figure out the business logistics, especially for immigrant entrepreneurs that are even less familiar with how it works in the US, Layla El Tannir, director of entrepreneurship at the Welcoming Center, said. 

“Joining a cooperative and having that structure and that established presence is a good place to start,” she said.”It’s also a good place to learn and then to potentially even grow off into doing something else.” 

Other benefits of co-ops include collective buying power and increased work flexibility, El Tannir said. The pressure to keep the business afloat doesn’t just fall on one or two people. 

For example, the Welcoming Center supports a cooperative of local crafters called the Global Craft Market, which showcases homemade art, clothing and other products. Most of the workers in that group started their business individually at first but slowly came together first as a collective and now as a cooperative, El Tannir said. 

“When you’re part of a cooperative, a portion of the money that you make goes back into the cooperative, and collectively, you have to decide how to invest that money,” she said. “It becomes less about just driving one cause and more about the whole group and what they might need.” 

How easy is it to get funding as a co-op?

One of the biggest knocks against co-ops is that while traditional businesses have recognition from government and resource programs, co-ops largely don’t. 

The core issue is mostly a lack of awareness, according to Councilmember Nicolas O’Rourke.

“There’s not enough awareness that that is a viable path towards the kind of business that we need to see more of here in the city of Philadelphia,” O’Rourke told Technical.ly. “It empowers consumers by giving them control of their workplaces, making it actually democratic, giving them control of their housing, giving them more control in their local economy.”

The key to helping more cooperatives secure funding and continue to grow is to see more inclusion and recognition of the business model, especially from government entities and business support organizations, Reidy said. 

Traditional banks and the Small Business Administration, for example, don’t always understand the co-op business model, Reidy said, and there are not a lot of programs or resources tailored specifically toward cooperative businesses. 

Where should co-ops go for cash, then?

For many, municipal governments and local orgs have been the first way in. 

Nonprofits PACA and the Welcoming Center, which both support co-ops, work with national community development financial institutions to provide loans to cooperatives, but they’re also working with city governments to help secure more support. 

Both organizations have contracts with the city’s Department of Commerce to provide business support. The Commerce Department provided a $100,000 grant to PACA and a $150,000 grant to the Welcoming Center through the Business Training and Assistance Program, said Liam Kelly Fleming, senior director of small business resources for the city’s commerce department. 

PACA’s grant allows it to provide technical assistance pro bono, instead of its $125 hourly rate, which includes individualized help figuring out business plans, budgets, financial models and decisionmaking systems. 

Fleming emphasized that co-ops are eligible for assistance and programs from the city the same way that other small business owners are and encouraged co-op owners to reach out to the Mayor’s Business Action team for assistance. 

Generally, having government support helps to spread the word and get more recognition and resources, Reidy said, and ultimately opens the door to more entrepreneurs choosing the co-op path for its collaborative environment and potential to build wealth.

“I’ve excelled more in a co-op space than I have in traditional workplaces,” Cannon from Home Care Associates said. “Not only does it provide employees with the opportunity of some ownership of their business and the work that they’re doing, … we’re supported in building our careers.”