It was a scene that is all too familiar for rural communities. In 2005, the local school division threatened to close Sangudo’s high school. The move “really ticked people off,” says Dan Ohler, who lives in the area, and a “huge roomful” of people met to figure out what to do.
Ohler is a certified coach who works with everyone from business teams to couples. Talking to him, a sense quickly emerges of what he must be like as a coach: lots of enthusiasm, matched with a focus on what needs to be done, what’s realistic.
Even so, Ohler and his neighbours at that meeting soon realized that fighting the school division was futile. And in the end, Sangudo did lose its high school, although students still attend the community school through Grade 9.
But that doesn’t mean the meeting was a wasted of effort. Instead, about a dozen people committed to rebuilding this little community about 100 km northwest of Edmonton and, as a next step, they went through a leadership and community development program sponsored by Alberta Recreation and Parks Association.
It was an experience that solidified the group, Ohler says, and it led to their building a $250,000 playground in Sangudo, which included a skate park and beach volleyball court.
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They also fixed the ball diamonds, unleashing a torrent of volunteer support. “We had 300 community volunteers that came out on one day to do this major project,” says Ohler.
Ohler and his neighbours didn’t stop there. After the playground project, a smaller group emerged. They wanted to find a way to revive their local economy.
“That,” says Ohler, “is when the idea of the co-op came up.”
A different kind of co-op
In many parts of Canada, rural residents buy everything from groceries to fuel and fertilizer at their local co-ops. But Sangudo residents had something different in mind.
For them, the Sangudo Opportunity Development Co-op would provide capital and expertise to local entrepreneurs.
Here’s how it works: People buy a membership share to join the co-op. They elect board members who vet businesses for the co-op to invest in. Once the board has approved a proposal, individual members can invest, if they want, by buying shares or lending money.
The co-op doesn’t run the business; that’s left to the business owners. It’s sort of a small-town version of “Dragon’s Den.” Instead of Kevin O’Leary and Arlene Dickinson, though, it’s farmers, ranchers, carpenters, and trucking business owners — which gives you a pretty good idea of what the Sangudo crew looks like.
In May 2010, the Sangudo Opportunity Development Co-op incorporated. The next month the co-op invested in its first business — Sangudo Custom Meat Packers. The co-op bought the real estate and leased it to entrepreneurs Kevin Meier and Jeff Senger, in an arrangement that also sees Senger and Meier pay the co-op a set percentage of their gross sales.
Senger and Meier had the option to buy the real estate at a reasonable rate after three years. Once the lease expired, they completed the deal, and the co-op paid out the original loans.
But Meier and Senger weren’t sure about accessing capital from the bank to buy the real estate, so the co-op sold shares to members who wanted to buy back into the business, so while Sangudo Custom Meats now owns the real estate, the co-op holds the mortgage.
The co-op also bought the Legion Hall and leased it to the entrepreneurs who started Connections Coffee House. One of those entrepreneurs is Carol Ohler, Dan’s wife, who is also a business coach. When the lease expired after three years, she bought the real estate and now runs the coffee shop.
After that, co-op members bought three residential lots in Sangudo to build and sell houses. They broke ground on the first house last spring, and it’s now nearly complete.
Since 2010, the co-op has invested around $800,000 in projects in Sangudo, a hamlet of about 300 people. The co-op itself has grown from 21 members to 39, with investments ranging from $3,000 per person up to $50,000.
The accounting is a bit complicated since securities commissions require the board to report revenue and expenses for each project separately, but on the plus side, investors can see exactly where their money is going.
The land project hasn’t paid a return yet because they’re just finishing the first house. But the other returns have ranged from a low of two per cent one year (the co-op had to restructure, and the resulting legal bills ate into returns), up to 13 per cent, Ohler says.
In part, the higher returns are because the board members are volunteers.
Nuts and bolts
“This is not for the faint of heart. It’s not easy. It takes courage,” says Ohler of starting an opportunity development co-op. Most importantly, it takes a huge level of trust within a small group of people, he adds.
Those people need a collective vision of what they want their community to look like in the future, and they must be willing to move it forward. “I think we all look at this as something that’s much bigger than ourselves,” says Ohler.
Before incorporating, Sangudo received a $50,000 award from the Alberta Community and Co-operative Association to study the feasibility of starting a co-op. They hired Paul Cabaj to look into it. Cabaj was familiar with Community Economic Development Investment Funds, which are used to raise money to invest in local businesses within Nova Scotia.
The Sangudo group adapted that concept to fit into Alberta’s Security Commission regulations, Ohler says. “So we learned by fire. It was extremely expensive. There were a ton of legal bills.”
The work load was also huge in the beginning. “I don’t think any of us understood what was going to be involved.”
Fortunately, they had a solid group used to working together. When one person started to feel overloaded or had “their feet kicked out from underneath them by some naysayer,” the rest were able to keep the energy up.
Under national security commission regulations, there is a co-op exemption that allows members to loan up to $10,000 to the co-op. The Sangudo Opportunity Development Co-op used this exemption to fund their first projects.
However, a much larger investment was required for buying lots and building houses, and there are strict limitations on how much a member can loan to the co-op. The Sangudo co-op decided to sell shares. Regulations also require the co-op to use one or the other fundraising method for a project, not a combination of shares and loans.
The Sangudo Opportunity Development Co-op also underwent structural changes that allowed them to use RRSPs and TFSAs in their investments. Those investments are handled by Concentra Bank and the Canadian Worker Co-op Federation, explains Seth Leon, co-operative services manager of ACCA. Leon says the cost of transferring investments is about $50.
So far that cost has kept many Sangudo co-op members from transferring investments. “Unless a member is willing to invest — let’s say $10,000 — it may not be worth using the RRSP method,” says Ohler.
Can it work for you?
Due diligence on such a board’s part is vital to the co-op’s success, say Leon and Victoria Morris, executive director of the Saskatchewan Co-operative Association.
People, they say, need to see success, especially for the first project, and they need to get their money back.
Ohler agrees. Board members want to make sure entrepreneurs succeed, and that the investments are good for the community, he says. And they want to provide a return to members.
Sangudo Opportunity Development Co-op invites local entrepreneurs to come to them for help, and members keep an eye out for opportunities. Entrepreneurs submit a concept, the board looks at its viability, and then entrepreneurs create a formal plan, to which the board gives a much harder look.
One of the keys is that entrepreneurs who are applying need to have skin in the game, too, says Ohler. “This is not a charity.”
The board has said no to pitches they don’t feel good about for one reason or another. But even then, they send the applicants away with options, which might include other funding sources, or things to do before coming back to the co-op with another application.
“So it’s not a just a shut-down no. It’s a ‘not yet,’” says Ohler.
The Alberta opportunity development co-op model, called Unleashing Local Capital, hasn’t moved east yet, but it’s worth looking into, because the terms may be similar if not exactly the same.
In Alberta, for instance, the co-op’s directors must live in the same rural municipality as the investment, while in Saskatchewan, say Leon and Morris, the province’s Financial and Consumer Affairs Authority “likes” that the co-op’s directors would be in the same area as the investment. That lowers the risk of fraud and creates more support for the business the co-op is investing in.
Knowledge can also be shared across provincial boundaries. For instance, administration is usually done by volunteers, and Leon says it is a source of burnout. If possible, try to build it into the business plan, he suggests.
Ohler says they’ve tried to deal with burnout through succession planning. They support succession planning for businesses, so it only makes sense the volunteer board would do the same. They had a new board member join at the last AGM. They have a new secretary, and Ohler has moved out of the chair into the treasurer’s post.
But the co-op is still at an early stage, and not many of their members understand what’s going on behind the scenes, although board members have created a policies and procedures manual to help with the transition.
There are other challenges, too. Borrowing money from other community members puts pressure on the entrepreneurs. It puts pressure on the board, too.
And fundraising also has its challenges. It was easy and fun to ask people to invest in the first project when everyone was excited, says Ohler. Plus it was a small enough project.
And in fact, some excitement from the co-op’s first investment in Sangudo Meats did carry into the next projects. But while Ohler thought that once they got the first couple of projects done “everyone would be phoning us” to invest, “it’s just not that way.”
As the investments have grown more ambitious, the co-op members have had to venture further beyond their core group. “It seems to be much harder each time we go into a new project for some weird reason.”
There are easier ways to earn a return on investment, Ohler says, “but this is a vehicle for hope.”