In these software start-ups, employees are owners too
The cooperative start-up structure is still a nascent idea in India. With numerous hoops, legal and otherwise, to jump through, can this radical model work—or even take off?
Every morning, Nirbheek Chauhan, 30, gets ready and heads to his office—another room in his apartment in Bengaluru. There, he connects with the other six members of his team, based out of UK, Greece, France and Australia, and starts work on his current project.
Chauhan works at the software consultancy Centricular, a flat-hierarchy, co-owned start-up, which is collectively managed by all its partners—who are employees as well. For clients, Centricular is a company like any other. It’s the internal set-up that sets it apart from the regular corporate model. “In a cooperative, every member has a single vote, irrespective of how many shares they own in the company,” explains Chris Chroome, administrator for CoTech, the largest online forum for cooperative technologists in the UK, and a member of a software cooperative, WebArchitects.
In other words, it’s a democracy and all employees have an equal say. “Decisions are taken collectively, which means we are both the board of directors and employees of our company,” says Deepa Venkatraman, one of the founding members of Nilenso, a Bengaluru-based software consultancy founded in 2013. Venkatraman’s day-to-day routine is like anyone else’s: You work on a project, together or individually, and then shut down your laptop to spend time with friends and family.
But, rather than founders owning and operating the business, Nilenso, a “corporate cooperative”, as Venkatraman calls it, is owned by everyone. All 16 Nilenso members annually elect two executives who are responsible for making operational decisions, like staffing, facilitating meetings and interacting with external stakeholders.
Centricular’s structure is similar. There are no management, sales, human resources or marketing teams. All the employees are software developers who take on these additional roles. They have complete freedom to choose their project. “Being in a cooperative gives us complete freedom. We decide if we want to take on a project, manage our own time and pay ourselves a fixed hourly rate based on how much we have worked. It’s entirely based on trust within the cooperative,” explains Chauhan. “I don’t feel like I own the business. However, I do feel that I have an equal say in everything that’s done within the company.”
This level of trust brings about a sense of collaboration and cooperation, rather than competition, among the employees. “It’s essentially about social cooperation,” says Sunil Bhat, a member of Gildedsplinters, a 40-member consultancy cooperative based out of the UK. “The success is shared, profits are distributed, everyone is sensitive to each other, and there’s emotional attachment.”
Working in a cooperative is also more productive. A 2016 study conducted by Leeds University Business School, which looked at two decades worth of international data on worker-owned cooperatives, found that they are more productive than regular companies as the staff works in a smarter and more efficient pattern. “It’s a new structure, a growing trend. I feel it’s perfect for those who want to enjoy the flexibility in work and don’t want to follow a structure, methodology, or a 9-to-5 job,” says Bhat.
That’s exactly what Gen Z, the generation that’s beginning to graduate and find jobs, is looking for. An extensive 2017 survey of college students conducted by Door of Clubs, a support company for college clubs in the US, found that Gen Z wants an empowering work culture and a sense of equality with flat-hierarchies within a company—all qualities that are mainstays of cooperative start-ups.
However, since the structure is still new, especially with cooperatives that are based across countries, there are many challenges in functioning. The first one, like in most start-ups, is capital-related. “Raising capital is hard unless you find a cooperative related organization with money to lend,” says Chroome about the UK, which does have a few venture capitalists (VCs) in the cooperative start-up space.
In India, however, most venture capitalists tend to steer clear of anything cooperative. “It’s tricky to invest in cooperatives as, by their legal definition, they have to remain under control of their members and not their investors,” says Apurva Chamaria, a Delhi-based angel investor. Chamaria is open to investing in such start-ups, but only if other factors like a valid business model, product-market fit and quality of the founding team make sense.
Scalability and innovation is important too, adds Will Poole, co-founder and managing partner, Unitus Ventures, a venture capital firm based out of Seattle. Poole invested in GoCoop, an India-based e-commerce platform that works with cooperatives and producer organizations in the handloom and handicrafts space in India in 2016 because it offered a scalable solution to a gap in the sector. However, he adds categorically, his company would be unlikely to invest in a stand-alone cooperative start-up.
Another constant challenge is hiring new people, as the culture of the company is about going beyond “just another job” and all members have to vote to get new people on board. “We tend to hire people we already know and who have an interest in joining us,” says Chauhan. Since Centricular has only seven employee-owners, this works. As the structure grows larger, the process gets more complicated.
A key issue is the legality of the structure itself. Nilenso’s members spent months with their lawyers discussing how they could form a start-up collective legally in India. “Indian cooperative laws are archaic and largely geared towards worker cooperatives in dairy, agriculture and construction areas and not for corporate ones,” says Akshay Gupta, member, Nilenso.
After months of figuring out a process, they founded an LLP (Limited Liability Partnership) where all employees were partners and co-owners. Though Centricular too is a cooperative at heart, the company, like Nilenso, is registered as an LLC in the UK and owned by the directors. All the other co-owners, who are not UK citizens, are on a six-month renewing contract, and trying to figure out how to float an international cooperative which is legally viable.
Nilenso members get a few queries from companies and start-ups on the cooperative model every month. As soon as people learn of the complicated process, however, they abandon the idea and instead start a “normal” company. To help out others, Nilenso has uploaded the process of incorporating a cooperative company on its Github page (Github.com/nilenso/cooperative-agreement) for anyone who wishes to understand it.
Chauhan, meanwhile, reiterates that it’s the high level of trust that keeps all of them together, rather than a signed agreement. And for all the drawbacks of this model, it is, as Bhat puts it, a democratic structure that leads to a sense of ownership, involvement and positivity for all.
Pitfalls of the cooperative start-up model
Uncommon, a Bengaluru-based digital design start-up, began life as a cooperative in 2013 with six co-owners. It pivoted to a “normal” start-up model in November when the cooperative model proved too cumbersome. “We deliberately moved away from distributed ownership as we found that the number of open questions a cooperative model posed were far too many for us to grapple with,” says 32-year old Rahul Gonsalves, founder, Uncommon. It wasn’t the legality that stumped them, but the constant variables of running it on a day-to-day basis. “We didn’t set up with a clear set of future goals that we articulated across the team. That led to us going back to the traditional model,” he says. However, Gonsalves remains hopeful that they can go back to the cooperative model once they find more clarity. “We want to incorporate the openness, transparency and culture of ownership as we grow and mature.”