Rob Kalin on Crafting Etsy's Next Move

Five years after launching handmade-goods marketplace Etsy out of his Brooklyn, N.Y., apartment, co- founder and chief executive officer Rob Kalin wants to expand the 150-person company’s reach overseas while keeping its community feel intact. In August, Etsy hired a former Google executive as chief operating officer and closed a $20 million venture capital round. Now, the company is investing in improving customer support and recruiting more top talent.

With some 5 million members, Etsy’s revenue was $15 million to $20 million in 2009, says Kalin, 30, and he expects around $40 million this year. He spoke recently with Bloomberg.com contributor Meg Shannon about lessons learned, rumors of an IPO, and hiring strategy. Edited excerpts of their conversations follow.

Meg Shannon: Etsy became profitable this year. How would you describe the first five years of its life?

Rob Kalin: It’s been an incredible education. There is only so much you can learn through the MBA. You have to learn how to run a business by running a business. There are a lot of mistakes you have to learn personally before you learn the lessons.

Q: What’s one lesson you’ve learned?

A: Relationships with people are what drive the growth of a business. It’s kind of tempting to put people behind a moniker like “customer.” Keep it human. That’s a rallying cry at Etsy. Let people be true to who they are.

It was a personal pursuit, not building the business for [business] itself. That shows. And that leads into the two most important traits entrepreneurs need to have. The ability to do many things well. And to have really, really good taste. It can’t be something you just slap on. That’s what I love about Etsy, how personal it is.

Another lesson learned is patience. We are one-third of the way where I kind of imagined [we’d be].

Q: You started out as CEO, then Maria Thomas took the helm. You came back on as CEO in December after a 1.5-year stint in which you served as chief creative officer. Now you’re in the corner office again. How does it feel?

A: I was never in the corner office. It is literally a closet. I took the one unused room. It has no windows and it’s about 90 degrees.

Q: Etsy announced the hiring of Adam Freed, former director of international product management at Google, as chief operating officer on August 27, the same day you announced another round of venture funding of $20 million. What led you to him?

A: Caterina Fake [the co-founder of Flickr] had recommended him. We knew within the first two minutes. Going by your gut is important. The reliance upon a résumé is fading. It saddens me to see the importance of the resume -- it’s so easy to make bad hires. Peripherally, it’s getting a sense of who he is as a person. I want a co-pilot. As Myers [the Myers-Briggs personality test] says, I am an “i” for solitude and he’s an “e” for energy. You need both things to make a business run well.

Q: There have been reports that Etsy will do an IPO next year. Will you?

A: To me, I like the idea of community ownership. I think that the company is part of the larger community -- 5 million members. The only reason an IPO interests me at all is to be community owners. I have no interest in having people on Wall Street determining the value of my company. There is no way we are ready for an IPO next year. There’s a lot more to do before I’m comfortable with that. Maybe three to four years. It’s not something we have complete control over, either; the climate -- it needs to be the right climate. We don’t need to do it to raise money.

Q: You acquired ad platform company Adtuitive in December and announced that the five programmers retained would be working on improving Etsy’s search algorithms and expanding Showcase, the company’s on-site ad system. What are your plans for advertising within Etsy?

A: We have no plans for third-party ads. The Showcase is in need of an overhaul. They are working on the underpinnings for our ad system, making sure it is not invasive and is effective and respectful. We are not focused on revenue for this year. There’s a pressing need for the bottom line, but on the other hand we don’t want an inferior product.

Q: Talk about Etsy’s current valuation.

A: It’s $300 million -- with A, B, C, D, and E funding -- as valued by our latest investment from Index Ventures. But that doesn’t really interest me. The value that Etsy provides to its shareholders and community is much, much longer-term. [People involved with] Etsy are on board for the long haul. It will outlive me and everyone working there.

Q: What areas is the company investing in?

A: Where aren’t we investing would be easier to answer. Right now, Etsy sales are about 75 percent in the United States. We are thinking how Etsy can be a global marketplace. EBay segregates by country. It would be different to build one unifying global marketplace. Behind the scenes, that would mean currency conversions, localization, translation, but then the people in Germany would still feel like they are getting something. The community side is more interesting.

The top three things we are investing in: customer support, “internationalization,” recruiting top engineering talent.

Q: Do you see social networking as a part of your expansion strategy?

A: Yes, in the basic way. We have 1 million followers on Twitter. We are sending information out, and that’s a good use of that. We work with YouTube. We invest in our blog -- the handmade video portraits. These are three- to five-minute portraits. For instance, one is on a woman who makes guitars. There’s the range of Etsy. It’s about telling the story of the person. It’s not around to brand Etsy.

Q: Do you think in these tough economic times, people see handmade crafts almost like comfort foods?

A: Yes. When there is economic hardship, people reassess what value means. One is the Wal-Mart, McDonald’s, and just looking at the price and convenience. Then there’s this idea of value. If your house is on fire, what do you rescue? It’s not your TV. It’s going to be a family heirloom, a book. That type of value is much more interesting and it’s very prevalent.

Q: You said earlier that Etsy is one-third of the way there. Is there a point when you’ll know Etsy is all the way there?

A: Etsy will never be all the way there, I’m sure. It will always be a work in progress. Right now our scale is quite small -- 5 million members. This is one-hundredth the size of Facebook. I believe Etsy can be just as large as Facebook.

To contact the reporter on this story: Meg Shannon at mshannon000@gmail.com

To contact the editor responsible for this story: Nick Leiber at nleiber@bloomberg.net

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