Last Wednesday I went to visit Microrobotics as part of my research into co-operative businesses. This one being particularly relevant to me as it is high tech. Their website describes it as “employee-owned”, which is accurate, although there is lots of interesting history to this. Karl kindly explained it to me, and there are some much more gritty lessons than I got from the CCDA the week before.

A summary and some interesting things:

• The business first took on a co-operative structure about 7 years ago, when it was in dept to the tune of �50,000. The events which give companies the opportunity to become co-operatives are important to me. There aren’t very many co-operatively owned companies, so the process of becoming one is too hard at the moment. In this case there was a political culture inside the company supportive of the change, and the existing owner had nothing financial to lose by giving it away.
• They chose to incorporate as a Friendly Society. The CCDA had advised me that these are no good, as proved to be the case (see below). So some learning is going on in the co-op movement.
• It took about a year of paperwork and decisions to carry out, and shortly after the Managing Director (MD; for young people and Americans, that’s the old British word for CEO) left. It’s not clear how much this was a deliberate get-out plan, how much he found he didn’t like losing overall control, and how much it was for other reasons.
• At this point they lost two software engineers, most likely because everyone in the company was being paid the same. IT was really picking up in Cambridge at this time, so they would easily have found better paid jobs.
• After a while, it was clear that the new structure was no good. There were three main reasons:
  
  1. They needed a differential pay structure. Otherwise they couldn’t hire and retain staff, and they didn’t make enough money to pay everyone the highest rates. This seems plain as a pikestaff to me; they were being a little idealistic to think that they could pay everyone the same.
     
  2. Sales had an unusual difficulty. Friendly societies appear in a different section on the Companies House register. This meant that other companies didn’t trust Microrobotics. They would search for them as they would search for another company, and wouldn’t find them.
     
  3. There’s no sense of ownership in a friendly society (I think nobody owns anything). There was also a feeling that new people shouldn’t have as much say as longer serving staff. Personally, I don’t see that as a problem, however it does depend very much on the size of a company.

• So they reformed the structure again! This took two years and was costly in time and legal fees. Microrobotics is now a normal private company with an unusual ownership structure. Everyone gets given shares proportionate to the number of years they’ve worked there. To my surprise, when you leave you still own your shares, and you are forced to sell them to the company. This is why “employee-owned” is a better description than “co-operative”. Needless to say, this structure doesn’t quite work, as it is almost an incentive to leave in order to claim value from your shares.

Apart from the ownership, the company is run with a fairly conventional management structure.

• Conflict resolution occurs within this management structure. It really is not much different from shareholder owned companies, in both cases the technocracy runs things.
• They had an MD who left recently, so top level decisions are made by the 3 directors while they find a new one.
• The best aspect is that they have no finance, no external ownership, so they are totally independent. This means they are free to make decisions.
• Over the last 16 years, the company has varied in size from about 3 people to about 15.
• Up to 6 people you all work closely together. Above that number there is a phase change, and you need management meetings. There seems to be another phase change at about 30 people, when everyone doesn’t know everything that is going on. I’ve seen either side of this at Creature Labs, and it is also the size that St Lukes, the advertising agencies which is a co-op, uses for its autonomous subdivisions.
• The ownership structure is still quite new, and the power of ownership hasn’t been used much. My thoughts are that it doesn’t necessarily ever need to be – very rarely do shareholders actually exert any power. Just the fact that employees own a company will change it.
• Customers like the quality of Microrobotics work.

The key lesson seems to be that you can waste a lot of time with this stuff when you should be trying to run your business. Trying to invent novel new structures is difficult, and error prone, even with lots of care and attention. Mistakes are costly.

The lesson is to get a standard structure from ICOM.