Starting a Consulting Firm Worker Cooperative From Scratch • One Year Later

A lot of people have interest in starting a business but are unsure of what it looks like. Every company is different, but this is what it looked like for me!

December 2021 • Mergers and Acquisitions

“The company has been sold” to Joel’s old employer.


January 2022 • Let’s Do It

“Should we just start our own company?”


February 2022 • Incorporated

Worked with Eyedart to figure out a company name and logo. They do excellent work.


Started work on a basic website. Since I have experience with WordPress, I went with that platform and SiteGround for hosting.

Registered the company as an LLC S-Corp in Texas where Eric (the other half of “we”) is located.

Corporate tax status is complicated for any business, and especially a worker cooperative. An S-Corp was fine for the first year, but we’ve since switched to a C-Corp. In some states there are also special corporations for cooperatives. In a Worker Cooperative, most of the profits will be distributed back to workers through payroll as Profit Sharing Bonuses, not as dividends.

Most of the advantages of a cooperative corporation lie in the tax deduction for dividends. Since we don’t have dividends, the complexity of that structure didn’t make sense. Cooperative corporations seem better suited to producer or consumer cooperatives versus worker cooperatives.

The long-term challenge of an S-Corp is the Net Income of the business flows into the personal taxes of the owners. In a Worker Cooperative, the goal is to make everyone a Worker Owner. This makes the S-Corp tax structure overly complicated because ownership is constantly changing.

A C-Corp is generally frowned upon for small businesses because of double taxation – you have to pay corporate plus personal taxes. However, our goal is to pay out 75% of the profits over time. Profit sharing bonus payments are tax deductible. Therefore, on a longer timeline the corporate taxable income should be relatively low – which is why I think C-Corp tax status makes sense.

March 2022 • Put the Fun in Funding

I suffered through some bad anxiety and depression during the transition period out of my old company. I was stuck in a work situation that I had not voted for or consented to, nor was I asked for my opinion. I also couldn’t leave because Terri and I were trying to finalize the sale on a house. Never again will I put my financial future in a situation where I don’t have a vote and transparency. There’s no amount of money worth giving up that amount of power.

Resignation! 🥳

Let’s talk money. We started the business by funding it with $3,000 each. That is the only money we ever directly put into the Cooptimize bank account (as of this writing, the loaned money remains in the business), but the direct funding was a small fraction of funding the business.

For the first couple of months, we had to buy our own healthcare from the marketplace. Not having Medicare for All is a huge hurdle for small businesses and startups in the USA.

At the start we paid ourselves minimum wage salaries. For our household, this meant living off savings to cover the difference. Throughout the year, we gradually went to $48k and $75k salaries. Now in 2023, we are almost to our normal salaries.

Cooptimize grew at about the pace I was expecting. But it took longer than I expected to have enough cash to pay ourselves higher salaries. It’s important to examine your personal financial situation and runway when starting a business. Our household significantly cut discretionary spending for most of 2022 to make starting a business feasible and manage our personal risk.

One of our early financial decisions was to create a standard salary structure and issue the difference between what we were paid and what we’d earned as debt to the company. In a traditional business, usually you get all the profits forever in exchange for starting the business. This concept doesn’t apply to a Worker Cooperative. To make it fair for future employees and founders, we deferred some compensation so we’d get paid once for our work.

April 2022 • Where tf are the Clients

Launch party! 🚀

Hello? Clients? I thought they’d see our posts on LinkedIn and then the line is out the door because we’re awesome…

It takes time for the stars to align sometimes. Clients have to discover us at the same point they need help.

We connected with some kind Microsoft Partners who wanted to help by giving us some subcontracting gigs. While the money would have been nice, we ultimately said “no” to any subcontracting. The fundamental problem is when you’re getting underpaid, those clients will be the first ones that get ditched for more lucrative opportunities. This can leave everyone unhappy and sour business relationships.

We want to establish long term relationships with clients. Since we couldn’t envision a long term path, we didn’t pursue those opportunities.

However, our “core values” of keeping a long-term view could have quickly changed if we hadn’t found our own clients. At some point you gotta survive. Fortunately, we got busy before we had to test these values.

May 2022 • Operating Agreement

Yes, we started the company before having signed agreements. And we didn’t involve a lawyer up front because lawyers are expensive.

Getting something in writing is important. It’s always the exact details that are most important – the valuable part is the process of talking through how you want structure things. And discussing what happens if you fail or someone has to leave the new company.

Around this time we were getting the basic concepts in place for salaries, profit sharing, benefits, and working structure. In some cases we’d have a discussion and not be able to decide. Even then we made a conscious decision to punt.

We now need to rewrite the operating agreement – great! We didn’t know enough when writing version 1 to get it perfect. It’s an iterative process. There are unfamiliar concepts in a worker cooperative that take time to understand.

A Worker Cooperative needs an Operating Agreement and Bylaws. The Operating Agreement covers the legal aspects of corporate ownership. The Bylaws govern how everyday decisions are made. Version 2 is currently in progress. I hope to open source our agreements as we flush them out.

June 2022 • What is a Worker Cooperative

We were slightly familiar with worker cooperatives – obviously we named the company Coop-timize. But the reality is we didn’t know much.

That’s ok. One of the best answers in life is “I don’t know”.

The important part of a worker cooperative is that it’s based on the collective beliefs of the workers. Every cooperative will have different shared values.

🚩 Be careful when some internet stranger (including me) tells you the “right way” to run a cooperative. Make logical, ethical decisions based on your experience. There is information out there, but there is no template you can copy and paste.

An example of internet strangers telling you what to do is a cooperative concept called “Patronage”. It’s what you “do” in a cooperative. In a worker cooperative this is commonly based on hours worked. However, we don’t track hours worked – our workers are salaried and we don’t do timesheets. Since this model didn’t really resonate, we designed a profit-sharing concept that made sense to us and one we thought would resonate with future employees.

You may get criticized for saying “I don’t know.” I did. Knowing what you don’t know is an excellent first step to learning! Ignore the noise, but do accept the feedback that increases understanding.

July 2022 • Building Business Apps

We picked some software off the shelf – like Xero for accounting and Gusto for Payroll. We also subscribe to a lot of Microsoft services.

However, our operational features are custom built on Microsoft Power Apps. For these workloads, we believe software should work exactly how we want it to. It allows us to automate managerial tasks.

A lot of startup companies build similar things – only with Excel. Power Apps are much easier to manage over time and have 100x the features of Excel.

We save money by not having to buy CRM or more complex accounting software. We also save a ton of time because the software follows the processes we’ve defined, not the other way around.

August 2022 • Who is in Charge Around Here

No one. Everyone. I reject the premise that an organizational hierarchy is required to be successful. There are other ways of organizing and making decisions.

I don’t believe consultants need “managers”. I believe most of these tasks can be simplified and/or automated. For example, our compensation structure has been simplified so no one is negotiating how much each person should make. We’ve made a formula and automated that task.

Even an idea of “who will assign employees to projects” does not need to exist. Every employee has the right to consent and be the owner of their work.

We all need collaboration, feedback, and skill development. We are very conscious about collaborating on the same projects on the same day(s). Our Focus Time™️ allows us to collectively focus and learn.

September 2022 • Nothing

I had headers for all the other months.

October 2022 • Profitable

It took us about six months to be profitable from an accounting perspective. Profitable meaning our revenue was greater than our costs, including deferred salary expense.

We were only cash flow negative the first couple months, but we only got cash positive fast because we took such low salaries and didn’t cover health insurance at first.

November 2022 • Kind of a Huge Deal

We signed a big contract for 2023. Time to grow!

Life is easier when you’re honest. We had a client sign a contract that included a person we hadn’t hired yet. We were transparent about our process, and in return they trusted us to make it happen. Win-win!

December 2022 • Then There Were Three

Eric knew Tanner from previous work collaboration. We got lucky, with our first joiner being someone we already knew.

We also took a couple-week break in December, only billing clients for half a month. The first year was a sprint, but by the end of the year we were getting back to our more normal schedule of a 4-day work week.

We’d also put most monthly company expenses on personal credit cards. In December we were able to pay off these expenses. This is yet another area where our personal financial situation – having access to personal credit – impacted the ability to fund the business.

January 2023 • The Path Forward

It’s hard to believe it’s only been one year!

We are rolling. We have a stable client base and revenue, good cash flow, and the most amazing workers in the history of business intelligence.

We don’t have targets, budgets, forecasts, or growth plans for the future. We cannot control or predict the future, only what’s in front of us.

From this point forward, if we do Quality Work we should have a healthy business.

One Reply to “Starting a Consulting Firm Worker Cooperative From Scratch • One Year Later”

  1. Well done in 2022! And this synopsis was written in a way that was easy to follow and profit from it in many of life’s avenues. Good work should be rewarded.


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