A co-op for knifemakers...please read

[Matt Shade]

Ok guys, I need some help with some homework, and maybe this will be helpful for us in the long run anyway.

I am currently taking a class on agricultural cooperatives, and have to write a term paper. Due to some talk about forming a cooperative for knifemakers in the past, I decided to write a paper exploring the possibility.
Part of the paper involves a potential membership survey.If you could take a minute or two to answer these questions I would really appreciate it. If you would rather not post your answers here on the forum, feel free to email me. My address is listed in my profile.
The paper is due monday and I didn't get my topic approved until yesterday, so unfortunately we are working on short notice. I will probably go over the results from this on friday, so if you could find time to post some answers before then, I would really appreciate it.

To start with, I should explain the basic principles of a cooperative.

Basically we form a group to either serve supply, or marketing purposes. It will be similar to a Limitid Liability Company in the sense that you only assume the risk of the amount you invest in the cooperative.
The difference is that members own and operate this company which works on a non profit basis to serve its members best interest. That does not mean that the business operates at cost, or at a loss. It operates as a normal business, and at the end of each year profit is allocated back to the member/owners.
The cooperative would either be in the form of a supply coop, which would sell knifemaking materials and equipment to members, or a marketing coop in which we use a group marketing effort to sell our work.

Supply Cooperative
The supply coop would charge prevailing market prices for materials and sell them to its members. At the end of the year,all profit that is earned, is allocated back to members. Part of this is allocated as cash, and part of it is in the form of common stock or a written notice of allocation (to be redeemed later). The amount allocated to each member is based on the amount of business they did with the coop during the year. If you account for 10% of their business, you will receive 10% of the funds allocated back. This allows the coop to build equity in order to pay off loans and cover unexpected expenses, while saving the membership money on materials in the long run.

Marketing Cooperative
A marketing cooperative would be used to sell knives. It would follow the same principles of an agricultural coop selling grain. You would sell your knife to the cooperative, which would then turn around and market it to the public. You would not be paid as much for your knife as you might selling it directly to the public. The coop would then sell it at market value, earning a profit. At the end of the year, a portion of the profit is allocated back to the members, and would once again be based on the amount of business you did with them during the year. If they bought 10% of their product from you, you would recieve 10% of the profits being allocated. When properly managed, the risk is shared by all members, and an average price is earned, rather than extreme lows (or highs:grumpy: ) This also provides a guaranteed market for your work.

OK.....now for the survey

1) Would you be intersted in joining a knifemakers cooperative
Yes/No

2)If yes, would you be interested in a:
Supply Coop/Marketing Coop/Both

3)Where do you currently buy most of your knifemaking materials?

4) Do you prefer to
a) buy materials bulk or wholesale from different suppliers
b) buy materials all from the same supplier

5) Approximately how much do you spend on materials each year?

6) What currently accounts for most of your sales?
Internet/Knifeshows/Word of Mouth

7)How many knives do you sell in a year, on average?

8)How much would you be willing to invest in the coop to become a member?
$50/$100/$500 or more

9) Would a garaunteed market for your work, be incentive enough to sell it at a price below market value?

10)Would you be willing to take an active role operating the cooperative?

11) Would you be willing to sign a membership agreement outlining the amount of business you plan to do with the cooperative?

12? What State do you live in?

13)Comments/Concerns or Questions

I promise to keep answers confidential if you choose to email them to me, rather than post them publically and I appreciate your participation.

I realize that my descriptions are very basic and there are alot of legalities and technicalities that would have to be figured out. This is merely an exercise to determine if a cooperative might be feasible. In order for a cooperative to be successful, it has to be able to fulfill a need that is not being met elsewhere, there has be a big enough membership base, and there has to be enough capital to get it going. Your participation in the survey, will hopefully let me put some rough numbers on all this and form some ideas.

Thanks

 

[Matt Shade]

Could still use more replies. Thanks to anyone who has done so already
If you're not interested in a cooperative please let me know with a survey, that way I get both sides of the issue in the results.

Dollar amounts are just so I can put some estimates in, rough numbers are fine. Basically need to figure out how much equity the coop would gain through membership, and the amount of business it could possibly do. Everythign will be averaged out, so it doesn't matter if your numbers are a little high or low.

Thanks again

 

[Matt Shade]

Gonna bump this before I leave for work

 

[jhiggins]

Hi Matt, I'll answer here, seeing how I got nothing to hide.

1) Would you be intersted in joining a knifemakers cooperative
Yes

2)If yes, would you be interested in a:
Supply Coop/Marketing Coop/

Both

3)Where do you currently buy most of your knifemaking materials?

4) Do you prefer to
a) buy materials bulk or wholesale from different suppliers


5) Approximately how much do you spend on materials each year?
$4-5k

6) What currently accounts for most of your sales?
Internet/Word of Mouth

7)How many knives do you sell in a year, on average?
Still only a year into f/t, but about 40 so far.

8)How much would you be willing to invest in the coop to become a member?
$500 or more Would I get a free t-shirt maybe?

9) Would a garaunteed market for your work, be incentive enough to sell it at a price below market value?
Of course.

10)Would you be willing to take an active role operating the cooperative?
Certainly

11) Would you be willing to sign a membership agreement outlining the amount of business you plan to do with the cooperative?
Yes, that should be a stipulation for every member.

12? What State do you live in?
I live in a state of confusion, or New Hampshire, whichever comes first.

13)Comments/Concerns or Questions
Matt, this was fun. I have to say that although you and I have never met, I am rather proud to know you. I've watched you grow from a snot-nosed punk on these forums to a fine young man in college now. All this business talk is doing us proud here at BF, and I am happy to have you represent us out there in the real world.

 

[Matt Shade]

Thanks Jeff

 

[Matt Shade]

Gonna bump this one last time. Have to start writing the paper pretty soon, and would appreciate a few more replies.
If there are question you don't want to answer, feel free to leave those blank and fill in the others.
Thanks alot

 

[Nowicki]

This has been thrown arround a couple of times and I thought is was a good idea but it never took off. Maybe this time it will go.
I'd be in for both with maybe another catagory. PM sent. Being part time I don't know how much time I could designate but it would be some.
Keep this going....I could work.

Larry

 

[deker]

1) Would you be intersted in joining a knifemakers cooperative
Yes

2)If yes, would you be interested in a:
Both (Though I have to say, I'd need to start selling anything to make the second half worthwhile)

3)Where do you currently buy most of your knifemaking materials?

a) buy materials bulk or wholesale from different suppliers


5) Approximately how much do you spend on materials each year?
Just starting out, can't much answer that yet.

6) What currently accounts for most of your sales?
See #5

7)How many knives do you sell in a year, on average?
Man...I'm feeling like a one trick pony here.. See #5

8)How much would you be willing to invest in the coop to become a member?
$100 give or take

9) Would a garaunteed market for your work, be incentive enough to sell it at a price below market value?
Probably. Certainly as I was getting started to get my name out there. Assuming again that I manage to make anything of quality

10)Would you be willing to take an active role operating the cooperative?
A small amount of time wouldn't kill me.

11) Would you be willing to sign a membership agreement outlining the amount of business you plan to do with the cooperative?
Not unless I was really rolling on sales. I hate turning hobbies into "work".

12? What State do you live in?
PA

13)Comments/Concerns or Questions
I think that it's a good idea, if only for the supply bit. I like the idea of being a member in a group where the members could help influence the product line supplied.

Hope the paper goes well!

-d

 

[butcher_block]

1) Would you be intersted in joining a knifemakers cooperative
yes

2)If yes, would you be interested in a:
Supply Coop/Marketing Coop/Both
sure

3)Where do you currently buy most of your knifemaking materials?

a) buy materials bulk or wholesale from different suppliers

5) Approximately how much do you spend on materials each year?
not sure i know its somewhere over 500 least thats how much steel i just ordered
6) What currently accounts for most of your sales?

Internet/Word of Mouth

7)How many knives do you sell in a year, on average?
just a few but with more to come

8)How much would you be willing to invest in the coop to become a member?
$50/$100/$500 or more
right now 100 but when i have more time to be a maker then more is ok

9) Would a garaunteed market for your work, be incentive enough to sell it at a price below market value?
yes

10)Would you be willing to take an active role operating the cooperative?

11) Would you be willing to sign a membership agreement outlining the amount of business you plan to do with the cooperative?
yes

12? What State do you live in?
PA

13)Comments/Concerns or Questions


Thanks

maybe i can get in on this also thanks
Lloyd Richard Harner III (butch)

 

[Nowicki]

OK.....now for the survey

1) Would you be intersted in joining a knifemakers cooperative
Yes

2)If yes, would you be interested in a:
Both

3)Where do you currently buy most of your knifemaking materials?
Sirect from source

4) Do you prefer to
a) buy materials bulk or wholesale from different suppliers


5) Approximately how much do you spend on materials each year?
Not sure
6) What currently accounts for most of your sales?
Internet/Knifeshows/Word of Mouth

7)How many knives do you sell in a year, on average?
under100

8)How much would you be willing to invest in the coop to become a member?
$50/$100/$500 or more
If this is a 1 time shot...$100....If yearly?
9) Would a garaunteed market for your work, be incentive enough to sell it at a price below market value?
Yes

10)Would you be willing to take an active role operating the cooperative?
Since I'm part time limited but yes.

11) Would you be willing to sign a membership agreement outlining the amount of business you plan to do with the cooperative?
yes

12? What State do you live in?
Maryland

13)Comments/Concerns or Questions
Can we get copies of the paper when finished?
Good luck with the paper

Larry

 

[Matt Shade]

Thanks a lot everybody
Gonna start the paper tonight, so I'll quit bugging you all. Its not due until monday though so if anyone still feels like chiming in there is still time

 

[Nowicki]

SOOOOO.......How did the paper turn out????

 

[Matt Shade]

I turned it in on monday, and when I talked to the professor wednesday he hadn't started grading them yet. He did think it was an interesting topic, and said he might be interested in a custom knife too after looking my pocket knife over I think overall I had a decent paper, but didn't get to go as deep into some ideas as I would have liked to. If I can get through this take home final I ought to do ok in the class.

As far as any conclusions I could draw from it all....unfortuntely I think we are a long way away from seeing anything viable for a coop. There are a lot of issues wrapped up in it.

First is that the majority of us do this as a hobby and treat it that way rather than giving it the attention they would a business. It has nothing to do with how serious they are about making knives, they just don't do the book keeping and track all that kind of stuff(and I have to admit, I don't really keep too much of a record of things myself). So of course that makes it difficult to get the necessary information to really put any concrete numbers on anything, and the fact that a coop is really a "business" kind of thing, puts a lot of people off of the idea. They want knifemaking to be more of an informal thing, whether its a source of income or not.
And I'm not trying to knock this approach to knifemaking. I pretty much subscribe to it myself. Just saying that a trend like this is hard to buck, and doesn't really do much for developing something like a cooperative.

Other issues are just the nature of the markets we deal in. When you look at the issues we have with suppliers right now, the shortcomings would be just as difficult for a cooperative to overcome as they are for the private owners(and we seem to be fairly happy with how those guys are treating us most of time anyway). If all the right conditions came together it could be a very good thing for all of us. But those conditions are pretty tight. The amount of money it would take to get it going would probably be insurmountable right now. At this point its a catch 22 situation. You need a membership base to get things rolling. Your not going to get enough interest to have a membership base until the cooperative is running and the benefits are more apparent.

When it comes to a marketing cooperative you deal with a lot of issues also. The first is that custom knives are not the type of product cooperatives generally deal in. A normal marketing cooperative deals in products that are all identical and the price is set. Think of a coop that runs a grain elevator. Everyone is selling corn, and corn is worth about $1.90 a bushel when harvest is on. The individual farmer can't do much other than sell his corn for $1.90 a bushel, if he tries to sit on it and wait for the price to improve, he doesn't have any income, and if he waits too long he loses it all.

The cooperative on the other hand pays everyone a set price for their corn when they bring it in. Then the cooperative pools it all together and sells it in lots over time trying to avoid extremes(they don't avoid the highs, but you can't alway hit them) in prices. In the end, they should have averaged out to a fairly good price. At years end, they allocate the profit back the farmers. Now the farmers have gotten more money than they would have just selling it all outright at harvest. Basically, as a group you have the power to speculate much better. And the risk is shared so that nobody is sitting on their years work trying to hit the big one before the market drops out from underneath them.

Custom knife sales don't follow any of these principles. They're a highly differentiated product. Different materials and styles add up to different prices. The fact that higgy turned some knobs on his mill and it spit the thing out, or larry smashed it a few times with a hammer makes a knife more desirable than if I cobbled it together in my shop It has a name or brand behind it, it isn't just yellow corn.

We are also price makers to a certain extent. We can't get just any price we want to slap on it, but there isn't a ticker at the chicago board of trade telling us what custom knives are selling for. We can put a price on our work, rather than deciding whether to accept the market, or store them hoping for a better price.

So a cooperative marketing knives would be a new ballgame. You would have to do the speculating on what the cooperative bought rather than when it sold. Reversing the whole process I guess. I think it could work, I think we have enough knowledgeable people in the trade to figure out an appraisal process and make it work. When you figure in the marketing/advertising power a cooperative would have selling all of our work instead of each one of us trying to rush to shows and run a website, I think the cooperative may have enough advantage to beat all the little obstacles along the way.

Another issue with a marketing cooperative is that is has to have something to sell. It absolutely has to have guaranteed support from producers. And that is a tough issue with custom knives. There are some among us who have worked very hard, and have the good fortune of being able to sell their work faster than they can make it. Their knives demand a premium. They don't need a cooperative, they're too busy trying to catch up on the orders they already have. It doesnt' really make sense for them to go pushing any amount of their knives through a cooperative. Why sell for an average price, and hope the coop does well so you get a big patronage refund, when you can sell for market value and get the money up front?

And if the market picks up for one reason or another, everyone is more prone to want to sell straight to the public rather than to the cooperative. Thats how all markets are. Thats the reason for the my question about signing a membership agreement. When the market is slow, the cooperative's business will be slow also. It needs to do business when the market is good, not just when we can't sell our work elsewhere. You have to remember that you want the coop to earn a profit. That profit is allocated back to the membership at years end. In the end, you hopefully do better than you would have on your own, but you have to be committed for the long run.

It would be a lot harder to overcome these issues with a custom knife coop than with a grain coop. With the grain coop the big producer doesnt' have more people who want to buy his corn. He just has more corn. So there is a lot to work out.

The marketing cooperative does have the benefit of being able to start out very small and grow though. I don't think you will see a large cooperative of this type anytime soon, but the possibility of a local or regional cooperative isn't too far fetched.



Well this is way too long and most of you probably stopped reading at about the middle of the second paragraph. I'm kind of kicking myself for leaving some of these ideas out of the paper too So I'm going to quit with the academic and business stuff now.
Thanks again to all of you who participated in the survey

 

[Nowicki]

Thanks for the lengthy response. I guess that's why It hasn't realy gotten off the ground before. Maybe someday...

 

[BadKarma05]

interesting idea. but i think it would be too difficult to manage without a reel god set/s of brains behind it. and not to bash communism or anything, but if the knife community opens this "store" of sorts, and people sell their wares only through this store, buolding a name for yourself will be much harder and great personal success would end up ammounting to a little bit of communal success instead. an interesting idea to toy with, take a look at communism, NOT russian socialism, but idological communism because i think this coop idea shares a good deal of qualities with it. "the one for all and all for one" approach. there are very good qualities and there are also inhearent flaws with the plan. but i hope someomeone figures it out, because its a great idea!

 

[Matt Shade]

interesting idea. but i think it would be too difficult to manage without a reel god set/s of brains behind it. and not to bash communism or anything, but if the knife community opens this "store" of sorts, and people sell their wares only through this store, buolding a name for yourself will be much harder and great personal success would end up ammounting to a little bit of communal success instead. an interesting idea to toy with, take a look at communism, NOT russian socialism, but idological communism because i think this coop idea shares a good deal of qualities with it. "the one for all and all for one" approach. there are very good qualities and there are also inhearent flaws with the plan. but i hope someomeone figures it out, because its a great idea!

Actually its got a lot of capitalism too it. The real idea behind it is make your own monopoly. The development of cooperatives over the years has gotten into anti trust laws (look into the capper volstead act, sherman anti trust laws etc. if you're really really bored..... ) and all that good stuff several times. You get enough of your competitors to work with you that you can have the biggest market share, and then you have leverage over the price.
Consequently there are a lot of restrictions on who can form a cooperative, and how they can operate. It gets into taxation and ownership transfer and all kinds of stuff.

 

[BadKarma05]

interesting. i see where you are coming from. kinda fun to toy around with concepts like this isnt it? hehe