5. Begin Operations

With your CMG formally organized and financing in place, your group is ready to put your idea to the most important test- producing a product and marketing it to your customers. For many groups, the transition from formation to operations is relatively smooth. For other groups, this phase brings many new challenges associated with building a facility, hiring employees, working out the details of operations and logistics, and building and maintaining a strong customer base. While each group’s experiences and challenges are unique, some basic recommendations apply to almost every CMG.

Develop sound business practices

Often mundane activities that few enjoy are the key to business success. Your group should already have established an accounting system. As operations begin, it may need to be extended to maintain records and generate reports that will allow members and outside stakeholders, such as lenders, to monitor the financial performance and standing of your business. Particular attention needs to be given to monitoring and managing accounts receivable and payable, since cash flow problems can quickly cause a crisis for a firm that is just getting established. Your group will also need to strengthen and formalize the relations you have already established with your customers. The way you respond to questions and concerns and the way you contact your customers and promote your product during your first months of operation will establish an image of your group’s business that will influence your ability to retain old customers and attract new ones for years to come.

If necessary, hire employees

Many CMGs need to hire employees. While members may initially be willing to perform key tasks on a volunteer basis, it is difficult to spread the work evenly among all members and concerns about "free riders" often emerge. Furthermore, most CMG members are fully employed in their own farming operations and peak activity times for the CMG business may coincide with busy times on the farm. In some cases, it may be possible to meet key human resource needs through contracting. For example, many CMGs contract with a local accountant for accounting services - gaining access to business expertise and expensive accounting software without having to bear the full cost. Similarly, groups that sell products to a large number of retailers may work through a broker, who represents many product lines to retailers in return for a commission on sales.

In other cases, a CMG’s operations may require full or part-time employees. When this is the case, your board should develop job descriptions that clearly define duties and expectations. The board should also establish clear lines of authority for business decision making and employee supervision. Usually, this is accomplished by hiring a general manager, who is responsible for day-to-day decisions and operations, hires and evaluates other employees, and reports to the board. This transition can be a difficult one. On the one hand, board members who have been actively involved in management may have trouble letting go. On the other hand, there can be a tendency for board members to shift all the decision making responsibility to the general manager. Board members need to delegate operating decisions to the manager but they also need to retain responsibility for setting overall direction, developing long-term strategies, monitoring performance, and reporting to the broader membership.

Build learning into your operations

The formation of a CMG is a learning process - those who identify and develop a business idea need to learn about customers, competition, markets, technology, regulations, and financing. But learning becomes still more important as you begin operations. First and foremost, you need to continue learning about your customers and your competitors, since being able to meet your customers’ needs is the only way you will succeed and your success in doing that will attract others. Also, your first months of operation will provide opportunities to learn more about how to manage the raw product collection, processing, packaging, and delivery activities that are the basis for your CMG’s business operation. By carefully monitoring performance measures such as finished product yield per pound of raw product and transportation cost per dollar of sales and by carefully analyzing the processes that affect them, you may be able to significantly lower costs without sacrificing quality or service. Focusing attention on critical success factors and maintaining good communication with customers, members, and employees are keys to successful learning. Make sure these are part of the way your CMG operates.

Prepare for growth

Growth in membership, sales, and value added is generally viewed as a sign of success for a CMG. But growth can also be a source of new challenges and problems. A business that was established for and operated by its members can take on a new character as it expands beyond the size where it can be managed through face-to-face interactions among friends. Authority for important decisions needs to be delegated, and members’ sense of involvement may be diminished as control is turned over to employees. Conflicts may emerge between the group’s founders and new members, who have different objectives and may not be aware of the sacrifices made to organize the CMG. Expansion into larger markets may require becoming part of marketing and distribution systems that were once viewed as part of the problem.

There is no single recipe for dealing with these problems and, of course, many groups will welcome the opportunity to face them. Your CMG may respond to growth by modifying its organizational structure to include mechanisms for member involvement that are better suited for larger groups. Alternatively, you may choose to limit growth by fostering the development of "spin-off" CMGs that can be an outlet for new members and market opportunities. Regardless of your group’s strategy for responding to growth, these are issues your board will need to monitor.

Stay focused on your business idea

Finally, perhaps the most important keys to success are to faithfully execute the basic idea that was the foundation for your group’s formation and to maintain the core values that brought you together. Observations from the most established CMGs we profiled bear this out.

Jack Gerten, manager of the St. Paul Grower’s Asso- ciation that operates the St. Paul Farmers Markets, provides members constant feedback on shifts in consumer preferences so that spring and summer planting decisions can be made accordingly. Gerten identifies consumer demands through periodic surveys, conversations with local community leaders who are in touch with resident populations, and work with the Minnesota Department of Agriculture. "I try to get involved as much as I can to give growers as much insight as possible into who their customers are and what their customers want," says Gerten. At the same time, he works hard to maintain the Market’s reputation for freshness and quality. He visits each new grower and approximately 40 percent of returning grower-members each year to verify that the operation meets membership guidelines. Products also undergo an informal weekly inspection for quality and freshness once they reach the Market.

Looking back on his years of experience with CROPP Cooperative, pool manager and farmer-member Jim Wedeberg notes that the group’s success has been based on its ability to involve consumers and farm members in marketing and management decisions. "We have worked hard to build the link between farmer and consumer," he says. "And, as the Cooperative has grown, we’ve made sure that producers remain active in marketing their products." Consumer feedback is an important part of CROPP’s philosophy. A toll-free number is provided on all product packaging to encourage customer comments and CROPP responds to those comments. The Cooperative has also conducted periodic surveys of its retail buyers to learn more about customer preferences, demand patterns, and product satisfaction. Marketing information obtained from direct customer feedback and retail surveys is always carried back to CROPP Cooperative members. Producer pools meet monthly with marketing staff and executive committee representatives to discuss creation of new products, changes in organic certification standards, prices, and supply needs. "We tried to design CROPP from the beginning as a bottom-up business," says Wedeberg. "We knew that the Cooperative will do well if we stay informed, work together, and make sure that individual members’ needs are being met."

You’re on Your Way

Far-reaching change and the difficult challenges that accompany it often motivate people to work to- gether. Our food system is in the midst of dramatic change and we have seen a resurgence in cooperation and collective action among farmers. These new efforts have grass-roots origins, and they are directed toward solving concrete problems farmers face as they try to strengthen links to customers in a marketplace that is being rapidly transformed.

This publication provides an overview of the processes groups go through in establishing a collective marketing group. It is just an introduction, though, and leaves many important questions unasked and unanswered. As you work toward the formation of a CMG, we encourage you to read the profiles of groups that have faced problems and opportunities most like yours. When possible, meet with people who have been involved in those groups. It’s likely they will be happy to share their experiences and insights with you. We also encourage you to make contact with at least one public or private sector resource organization that can provide further guidance, advice, and assistance. Most important, though, we encourage you to be innovative, attentive, and open to the good ideas of others, since the best solutions to the challenges facing the food system are likely to come from you.

Collaborative Marketing Group Profiles >>