How Credit Unions Can Use the Cooperative Model to Win: Adam Schwartz, Owner of The Cooperative Way

Adam Schwartz, owner of The Cooperative Way, joins us to talk about why he thinks cooperatives are the best business model on the planet, what their competitive advantages are, and how to use the 7 cooperatives principles in your credit union.

Cameron’s Key Takeaways:

1. The core advantage of the cooperative business model is the alignment of interests; the core disadvantage is a lack of understanding of what the business model is.
2. To truly create change, we have to engage the employees inside the credit union first so that they can make the model real for your members.
3. It’s not the easy things in life we value and remember, it’s the hard things, and the cooperative model offers the best chance to create purpose in the lives of our employees.

Read the full transcript below: 

Cameron Madill: Hello, and welcome to another episode of the Remarkable Credit Union podcast. We created our podcast to help credit union leaders and marketers think outside of the box about, marketing, technology, and community impact. Each episode we bring on guests from inside and outside of the industry for conversations about innovation. Our goal is to challenge your preconceptions about business as usual, and provide you with actual take-aways that you can use to grow your membership, increase your share of wallet, and magnify the positive impact in your community. Today’s big question, how can credit unions use the cooperative business model as competitive advantage.

Cameron Madill: Today I’m very excited to welcome Adam Schwartz. Adam is the founder and principal at the Cooperative Way. He was formally the VP of public affairs and member service of the national Cooperation Business Association. And among other accolades, he won a cooperative leader award from the national Cooperation Business Association. And he is a fellow CUDE, or development educator from the national Credit Union foundation.

Cameron Madill: Adam, thank you for joining us today.

Adam Schwartz: Thank you so much Cameron for having me.

Cameron Madill: So, I’d love to start with a little bit about your passion. I originally was connected to you through a few people, but one of them I remember, Blake Jones has said, “Man, that guys even more fired up about cooperatives than I am.” So, I’d love to hear, why are you so passionate about the cooperative business model?

Adam Schwartz: I often say that the cooperatives are the best business model on earth. And I say that because I truly believe it, because it’s more in sync with the way we are as human beings. It’s a business model that serves both the economic interests of people, and demonstrates social responsibility to our fellow citizens. There are three different ways that we can do business. We can have industrial businesses, primary goal is to make money. You can have nonprofit businesses, charitable organizations who work based on the philanthropy of others. And then you can have cooperatives that operate somewhere in the middle, they have to be a viable business. But, they have a social mission to them to serve their members, and they can do so in a sustainable way. We operate in all different aspects of the economy. I’ve seen co-ops operate in every kind of business, with the only exception being the military.

Adam Schwartz: I think it’s just more in tune with how we are as human beings. And I have a very stated goal of helping as many people as possible understand the benefits of this business model, and can make the cooperators from different sectors to come too together to create a more cooperative economy.

Cameron Madill: So, one of the things that I found really interesting when I met you … I think we probably had four or five conversations at this point. And they’ve all been great learning experiences for me. But, I was mostly familiar with … in the cooperative sector, with credit unions and a little bit with power Co-ops. And there’s a bunch of different types of Co-ops. And I’m curious if you could explain, what are the core different types of cooperatives out there, and maybe how common each type is?

Adam Schwartz: Certainly. So, there are four overall different types of co-ops. Consumer co-ops, of which credit unions, electrical ops, housing co-ops, retail food co-ops, are all part of that sector. And that’s where the consumer of the good or service owns the business. There’s also a producer co-ops, these are some of the most iconic brands that we can think of from agriculture. Companies like, [inaudible 00:03:34] cheese, Organic Valley, Land O’ Lakes, Welch’s, Sun Made, Sun Kist, all of these are producer co-ops where the farmers own the business for the purpose of helping to bring their product to market at a price that allows the farmer to stay in business.

Adam Schwartz: The third type of cooperative is, the purchasing or shared services of co-op. These are where small business people come together for the purpose of buying goods at a lower price. Ace Hardware, would probably be the most notable brand name in the purchasing and shared service sector. So, each of those individual businesses’ comes together so that they can get their products at [inaudible 00:04:17] prices to some of the big box doors, and be competitive. In addition to my business, The Cooperative Way, I’m also part owner of this CDS consulting co-op. And we’re a co-op of about forty people who have come together as consultants to serve other co-ops. So, the purchasing sector works in a variety of different scales.

Adam Schwartz: The final sector would be worker co-ops, where the workers own the business. This is the smallest of the four the sectors but the fastest growing. Some of the names that may be known to some folks are, Equal Exchange, which ports coffee, tea, sugar, from developing countries and pays the farmer a fair trade price, and then sells it through the internet, through faith based organizations, and food co-ops, and 120 workers own the business.

Adam Schwartz: So, those are the four basic types, and really they exist in every different sector of our economy.

Cameron Madill: And, I’m curious, you’ve mention … you already mentioned it, and I know it’s on your website proudly at the top, that you think cooperatives are the best business model on earth. And what do you think are the competitive advantages of the cooperative model? As well as what are some of the different disadvantages?

Adam Schwartz: Well, I think that one of the prime advantages is that the owners are the users of the service. So, for instance, I could be a stock holder in Wells Fargo, or Citi Bank, and not be an account holder. I wouldn’t really care what kind of service they provide to their customers. What I care about is that they’re paying me a dividend on a quarterly basis. And you can see what happens to those companies when the excesses of profit maximization takes over a good customer service. With credit unions, and other consumer co-ops, we’re not gonna see that happen, because they are owned by the members. So, there’s no reason to gouge the members, because at the end of the day, they’re gonna be getting returns.

Adam Schwartz: The analogy that I would draw is that, we’re all in the row boat, rowing in the same direction, whereas with investor companies, you have some people rowing in the opposite direction, because their motivations for owning the company are different than the people who are using the service. I see that as the core advantage. It also brings people together as co owners, depending on the size and regional location of the co-op it can be a great community builder, as well as helping to connect people, so that we can see the benefits of working with our neighbors.

Adam Schwartz: One thing I could say, is that, Yogi bear never said it, but we all live locally, and if we’re gonna live locally then it makes sense to connect with other people locally. Now, this is not to say that co-ops and credit unions do not have the challenges, they certainly do. One of the challenges for a lot of the co-ops is raising capital. Credit unions and [inaudible 00:07:10] said many AG co-ops have done a good job of being able to answer that question. But that continues to be a little bit of a struggle for some co-ops. Probably the biggest issue with [inaudible 00:07:19] is just a lack of understanding of the business model. It’s not taught in schools for the most part. I am an AGjunct professor at the University of Mary Washington in Fredericksburg, Virginia, where I teach a course on co-ops. There’s maybe a couple dozen schools around the country where co-op courses are often. So, we need to do a much better job at educating people about co-ops, so that when they get out of school and they’re thinking about starting a business, that co-op is one of the options that they would strongly consider.

Cameron Madill: And, you’ve mentioned that consumer cooperatives, which includes credit unions, and you also said that power cooperatives are often the weakest in their understanding of the cooperative principals, so those four types, consumer co-ops, producer co-ops, purchasing co-ops, and worker co-ops. Why is it that consumer cooperatives tend to be the least connected to the core cooperative principals?

Adam Schwartz: I would think even within the consumer, it depends on the type. With electric co-ops … basically, if you live in the service territory, that is the key determinant of who your power provider is. So, there’s not a whole lot of choice in that … at this point, I think, ’cause we’ve continued to see distributed generation, and there’s going to be more opportunities out there for people to have more choice, which is gonna make it even more important cooperatives to showcase the fact that they are owned by the members, as a way of keeping those members as loyal members to the co-op. And with credit unions, as well, I have found that many people will join credit union, maybe because their parents were members of the credit union, or based on location of the branches, that there’s a convenience, there’s not a lot of folks who are joining because it’s a cooperative. And then their [inaudible 00:09:03] is on us, is that we’re not doing a good enough job of talking about the strategic difference.

Adam Schwartz: Now we did see some movement back during the financial crisis in 2008, with the move your money campaign. And it was a significant movement of people away from big banks into credit unions, it was great. And we need to continue that kind of effort. It shouldn’t be just when there’s a financial crisis. We know, based on the marketing of some very large companies that local sells, that is a big thing with a lot of folks, and I think we need to be touting that, and touting the fact that we have these seven co-op principals, and that people are eligible to have a real stake in the say of their financial institution.

Adam Schwartz: With food co-ops, I would say that many of the members of food co-ops do understand that they are a member of a co-op, and that is a consumer co-op, because they have to assertively pay, maybe 100, or 200 dollars to become a member. So, there’s probably a little bit more understanding there. But, even there, we still have a ways to go.

Cameron Madill: And one of the other cooperative principals is cooperation among cooperatives. I’d love to hear- I’ve heard a bunch of anecdotes from you in the past. What are some of the best examples of cooperatives working together?

Adam Schwartz: Well, I used to work for and organization called the Nation Cooperative Business Association, which is a membership association of all different types of co-ops, and there were credit unions that are members of that organization, including [inaudible 00:10:32]. There are AG co-op, and electrical co-ops, and housing co-ops are all part of, and it becomes a nice melting pot of all those different types of co-ops. And the real estate associations [inaudible 00:10:47] that do the same. I also work to create partnerships at a very local level, as well. And, one of the things that I have tried to make a marriage is between credit unions, and electric co-ops. And there’s one-

Adam Schwartz: Between credit unions and electric co-ops, and there’s one in Virginia between Prince George Electric and Fort Lee Credit Union where they now share a logo, two dogs working together to help their local community. The credit union can bring things like financial counseling and budgeting into the fold so that people will have a better understanding of how to manage their finances which is helpful if you’re a member of an electric call house so that you can pay your bill on time. So there’s business reasons for co-ops to come together as well as the reason of helping your local community and being good player. And really what it takes is just a willingness of people who exist within the co-ops, whether it’s the at the CEO level or at the board level, for people just to come together and look for ways to work together.

Adam Schwartz: We’re seeing that in some rural areas now on Broadband, which is obviously a requirement in the modern era, so we are seeing telephones and telecommunication co-ops and electric co-ops come together. So I’m a big fan of people working to partner and leverage their strengths to make their communities a better place to live.

Cameron Madill: Now a lot of the work that you do is, well I think the core as I understand it, you’ll go in and you’ll work with a cooperative of any type and you’ll help them to be, to more deeply live the cooperative principles and to not just have the cooperative model be the model that they’re on, but really hone that into a competitive advantage. So it’s really alive every day, and I’m curious, what are some easy ways that you think credit unions can bring the cooperative model to life to a greater extent internally and externally?

Adam Schwartz: It probably doesn’t surprise you that I’m a member of several credit unions and so when I travel I will go shared branches and one of the things I’ll do is I’ll ask the teller, “How long have you been working at the cooperative?” And see what kind of response I get. Most often I get a response with a very quizzical look.

Cameron Madill: A blank stare?

Adam Schwartz: A blank stare, yes. “What are you talking about?” So I think, as I mentioned, because we don’t teach about co-ops in schools it’s accumbent upon the co-ops themselves to teach their employees about this business model. Now Cameron, both you and I have that CUDE designation after our name, credit union developed educator, which is just a marvelous program because it really does go into detail in a week long setting about this cooperative different and I think having more employees have that kind of training, that kind of understanding, what the credit union different is, will be extremely helpful.

Adam Schwartz: We cannot just jump into it and start talking about it to the members because then I think it will just have a flavor of the month club. It really starts with the employees and the board members making sure that they really understand what these cooperative principles and values are all about and looking for ways that they can demonstrate them and live them. Many credit unions are already doing it, it’s not a matter of doing anything new, its just a matter of being a little bit more intentional and purposeful about it, and connecting the dots of why credit unions do certain things. It’s because we are rooted in this cooperative business model and just making sure that people know about it. Then they, the employees, can start talking to the members about it and use as a real advantage.

Adam Schwartz: We have an annual meeting. All co-ops do an annual meeting. And many co-ops will treat this as an afterthought or an obligation that they have to do, as a [inaudible 00:14:50] requirement. I encourage co-ops to use this as a real advantage. Make this a community celebration, and bring people together so that they can be connected to their fellow citizens in the community. A lot of it comes down to educating folks about it and creating a culture within our organizations.

Adam Schwartz: A lot of my work is working directly with employees and boards so that they understand the business model and find a way that they can showcase it in a way that’s appropriate for their particular credit union at a particular point in time. One of our principles is autonomy and independence and one of the things I say is if you’ve seen one co-op you’ve seen one co-op because they all have a little bit of beating to their own drum, and that’s good! We want to be responsive to our community but we have the principle of cooperation among cooperatives. We can look to other organizations and see how they are using the principles and admire and acquire some of their ideas.

Cameron Madill: So I think what I heard is that the core thing is you gotta engage and activate the employees, otherwise you never really reach the members. Then the second thing is being to able to look across industries not just looking at financial institutions. Is that fair to say?

Adam Schwartz: Exactly, exactly. Look at other co-ops in your community and see what they’re doing and see if there’re ways that we can partner with each other. We know signs and mental signs, will tell when we make a public demonstration of this is something that we want to do, whether its begin an exercise program or something like that. Tell other people about it, they’re more likely to be committed to it and follow through. So looking to connect with other co-ops in our community, with ways that we can partner with each other to strengthen each other’s connection I think it a very important thing that we can do.

Cameron Madill: So let me share one of my favorite stats, and I got this from your buddy. I’m sure you know this but you introduce me to a guy named Ollie who is at a worker cooperative in Madison and I had a chance to meet up with him after the CUDE training. I’ve actually preferred the “QD” pronunciation to CUDE. I don’t actually know what’s correct. He was fascinated in being in a worker cooperative of I think there’s 75 engineers in the company that are on for a couple decades. He mentioned, as well, what you said, that in most MBA programs in the US almost all of them, there’s not even a paragraph about cooperatives, it’s just not a model that’s shared.

Cameron Madill: He talked about how there’re certain regions of the world where it’s almost the dominant model and gave the example of, sent me an article, Amelia Romonen, Italy, where I think over 30% of the businesses are cooperatives, and that kinda blew me away, the notion that 30% of the business sector could be cooperatives somewhere. So I was curious why you think there’s such variance in the prevalence of cooperatives in different regions of the world?

Adam Schwartz: Well I think it goes with a little bit of the mindset of folks and reducing that in this country, as well. So in western Massachusets, the North Hampton Amherst area, it’s an area called The Happy Valley. There’s a cluster of cooperatives there because there are organizations designed to help support and develop co-ops. Madison, Wisconsin, is another area where we see lots of co-ops. New york city, we’re starting to see a little but of that activity, too, in part because some of the local governments are putting money in to co-op development and to support it. The Italian co-ops have that support as well and that is important that people see this as a very viable way of doing business. Success begets success so when you have people that are making a good living working at co-ops they talk and tell other people about it, and it gets people interested in this.

Adam Schwartz: It really does come back to this idea of training and I know, based on my work with co-ops in all sectors, that lots of co-ops give out scholarships to young people, and I think that’s a great thing. I’ve begun challenging co-ops that do scholarships to ask what is the return on that investment? If you’re gonna give $1000, $2000, $10,000 to a young person to go to college, and then they’re just gonna be studying the investral business model and then go work for one of your competitors, what’s the sense in doing that? Shouldn’t we ask the recipients of those scholarships one, if possible, to study about co-ops and if that’s not possible at the school they’re attending, maybe they can do it in an online version. Or at the very least, come back to the co-op as an intern during the summer months as a paid intern and share with [inaudible 00:19:44] so that the credit union can benefit from the knowledge that they’re helping that young person achieve.

Adam Schwartz: I think we need to look at the things that we’re already doing, we’re already doing a lot of great things, and repurposing them so that they support this business model and create that virtuous cycle, and we can reap the benefits from the investments that we’re making.

Cameron Madill: I saw you mention in one of your presentations that three of the big trends in the modern business world are crowdsourcing local and ethical, and you had this great clip that cooperatives were crowdsourcing before crowdsourcing existed. Cooperatives were local before local was a thing. Cooperatives were ethical business before you had certified BCORPS and social enterprise. It does seem like there’s such a fantastic missed opportunity around the messaging of the cooperative model that is just… I’ve often said this to credit unions, that I often feel like a lot of this stuff, it just predates a lot of these modern trends for how you package and explain and connect with consumers. I love that you share that, I just wanted to make sure we got that in there for the audience.

Adam Schwartz: We’re a cool business and we just need to be able to put it in a way that people understand that. The young people, I’m actually at a conference right now with almost 2,000 high school students, and I’ve been training them on this co-op business model. The response I get is amazing! They love it. That’s what we need to continue to do because we could be quite trendy if we position it right.

Cameron Madill: Well put. Let’s see, I wanted a quick chat about the seven cooperative principles and I know there’s nine operating principles for credit unions, which you and I, of course, are familiar with because of our training. But you’re more familiar with the seven cooperative principles, and they’re highly related. They are in order, voluntary and open membership, democratic member control, member economic participation, autonomy and independence, education, training, and information, cooperation among cooperatives, which we already mentioned, and concern for community. I’m curious, I know I’m sure you hate this question. But if you had to pick three of these that you think are the biggest missed opportunities for credit unions, of those seven operating principles-

Cameron Madill: Missed opportunities for credit unions. Of those seven operating principles, if they had to pick three that you could ask the whole industry to work on, to deepen their connection to the cooperative model, and more effectively serve their members and their communities, and be more effective business models, which would they be?

Adam Schwartz: Well, yeah, that is a tough question for me, because I think that there are seven principles on purpose, being kind of serpentined together and blend together. One story I tell about, of democratic member control, is that coops have a real opportunity to help bring real democracy to our society. I don’t know how you grew up, Cameron, or how any of the listeners grew up, but there wasn’t a whole lot of democracy in my household. When I was a youngster growing up, you know, suppertime was at a particular time, bedtime, and you know, we did things by the rules that my Mom and Grandmother kind of set.

Adam Schwartz: And then you go to school, and there’s not really a whole lot of democracy there. You know, school is, the classes you’re taking [inaudible 00:23:01]. Then you go on to work, and you’re in an environment where there’s not really a whole lot of democracy there, either.

Adam Schwartz: So we have this notion of democracy in our country, that it’s voting. Maybe once every four years, or two years, or every year if we go out and vote local elections, and I would love to see the cooperatives embrace the idea of really using our electoral process for people to understand what democracy at the local level means. The participation that is required of citizens to maintain the society that we seek to be in. So I think that’s a real opportunity for us.

Adam Schwartz: I think the cooperation among cooperatives, I think that’s how we’re going to move forward as a society. Because you can be the greatest credit union on earth, in your home town or city, but that in and of itself is not going to make the community wonderful. You’re going to have to have things like a hardware store, like a school, like a health clinic, like a daycare center, like a funeral parlor. And I mention all of those businesses, because every one that I just mentioned can be done as a cooperative.

Adam Schwartz: And so if we can create that cooperative ecosystem like they do have in Italy or in the northern region, the Basque in Spain, I think we can make a real difference in our communities.

Adam Schwartz: And then the idea of the education, training and information which I’ve spoken about. From grade school to graduate school, the idea that we would teach about cooperatives I think is critically important, and if we were able to accomplish some real progress in those three areas, I think we would be making a great contribution to our society as a whole.

Cameron Madill: Well put. You should be a professional speaker. I love it. You’ve got all your … Your messaging is so like thoughtful and well put together. Well Adam, it’s been great having you. I’d love to do a quick final take. Is there anything you’d like to reiterate, or anything you didn’t get to, you’d like to leave our audience with?

Adam Schwartz: Yeah. I would hope that folks would at least begin the exploration. I know that what I’m asking of people to do is more work, right? The easier thing to do is just process transactions and try and get members based on your better rates and things like that. And I get it, and there’s lots of things that we’re called upon to do in our daily work, that this can seem kind of on the outskirts and be a little extraneous and maybe not worth the time that you would put into it.

Adam Schwartz: But I would remind folks that if they look at their own lives, and look at the things that they’re most proud of, the accomplishments that they really feel a sense of pride and achievement in. It’s not the easy things, it’s the harder things. Those are the things that we value and really treasure.

Adam Schwartz: And there are paths. You don’t have to go this alone. You know, one of the things I say in my talks is plagiarism is defined as stealing one person’s idea. If you steal a lot of people’s ideas, it’s research. I feel like I’m in the research business. I’m fortunate enough that I get to pollinate around the country, pick up the best ideas of what coops are doing in all different sectors, and then share that with as many people as possible.

Adam Schwartz: So there are ways to do this, and I think in the end it really can be fun for individual employees, and then be fun to build camaraderie within the coop itself, that gives you a sense of purpose and mission.

Adam Schwartz: You know, when I was younger, I had a job. I worked at McDonald’s. I moved to Washington, I began my career as a lobbyist, and then I started working for coops, and that’s when I found my purpose. And I believe that coops offer our employees the best opportunity to have that sense of engagement and purpose in their work that will make them more productive, more excited, tell more people, friends and family about it, and grow our businesses.

Adam Schwartz: So it’s not just about feeling good, but it’s a good business practice as well. And I hope that more credit unions will embrace it in the future.

Cameron Madill: Well put. Adam, thanks so much for joining us today.

Adam Schwartz: Thank you so much for having me.

Cameron Madill: All right, folks. Another great episode. I love Adam’s passion and enthusiasm for cooperatives. Never met anyone quite like him. I’d like to go through my key takeaways.

Cameron Madill: So the first thing that really stuck out to me was his comment that the core advantage of the cooperative model is alignment of interests, and that that’s connected to the core disadvantage, which is a lack of understanding and awareness of what the business model truly is. And so that to really capitalizes on the model that is built on everyone rowing in the same direction, there’s a whole lot of teaching and training that needs to happen.

Cameron Madill: The second thing that I came away with was Adam’s comment about how does change happen? And even though credit unions are consumer cooperatives, and so obviously the member owners are the consumers, not the employees, to truly create change we have to start with engaging the employees inside the credit union first, so that they can make that model real for your members.

Cameron Madill: I really like Adam’s comment of we have a cool business model. And I think that’s really true. One of the things I’ve talked about on past episodes, Certified B Corps, Pixel Spoke is a Certified B Corp, and I used to think what made us special was that we had this certification we went through. But what I’ve learned over time is that there are dozens and dozens of certifications.

Cameron Madill: What really has been powerful about the Certified B Corp movement is that in fact, they have created a movement, they have connected people, they’ve created a cool brand and messaging around it. And it’s much more than just the core model. And so I think focusing on how do we make cooperatives in general, and credit unions specifically, cool, is the key element to focus on.

Cameron Madill: I loved, also, Adam’s comment about you know, if we’ve got these seven cooperative principles, there’s nine for credit unions that are worth looking up, but they’re largely the same. Where would he focus if he had to pick, and I thought he hit on something really powerful, of democratic member control, which is often really quite weak. Annual meetings tend to be pretty poorly attended for many credit unions. And that there’s a great opportunity, not just to strengthen the model, but to more broadly engage our community in this process of teaching democracy, which I think is something that is, is difficult. And the country seems at times so big, and so spread out, and there’s so much going on, that that chance to do that service for our local community is a big opportunity.

Cameron Madill: And then in second he talked about solving big problems in collaboration with other big cooperatives, and I always think looking across sectors has a lot of power in it, as far as thinking differently.

Cameron Madill: And then finally, the importance of education and training, of going from grade school to grad school, and really making sure that the word is getting out there about what the cooperative model is, and why it’s different and why it matters, is really powerful.

Cameron Madill: And then lastly, I just, I loved his closing comment, that it’s not the easy things in life we value and remember, it’s actually the hard things. And that the cooperative model offers the best chance that we have to create purpose in the lives of our employees.

Cameron Madill: All right. Well, thanks again for listening, and until the next time, I wish you all the best luck in making your credit union remarkable.