Etsy: A Site for Artisans Takes Off

As Etsy's online marketplace for handmade items nears its second anniversary, the site is making money and thinking global

At the Brooklyn headquarters of online marketplace Etsy, which bills itself as "your place to buy and sell all things handmade," there isn't an Aeron chair in sight. Instead, in keeping with the site's artisanal ethos, nearly everything in the space was made or scavenged by a staff member. Computers were assembled from spare parts, the halfpipe (for skateboarding) and stage (for bands) built from salvaged wood. And except for the odd Ikea item, most of the furniture was found on the street.

To observers, Etsy fits the checklist for the second-wave dot-com success story almost perfectly. Cool offices? Check. Trio of twentysomething founders? Check. User-generated content? Check. Snowballing word-of-mouth? Check. Venture capital funding? Check. (VC firm Union Square Ventures helped raise about $1 million in two rounds.) And—perhaps less typical of a Web startup—Etsy is actually making money. Just a few days shy of its second anniversary, the site has grown to a community of more than 250,000 registered members and 50,000 sellers, and is expanding daily. By the fall, the team expects Etsy to be completely in the black.

Like other young entrepreneurs who recently sold their companies to one of the "Big Five"—Microsoft (MSFT), Google (GOOG), Yahoo! (YHOO), eBay (EBAY), and Amazon (AMZN)—27-year-old Rob Kalin and his two co-founders seem tantalizingly close to becoming paper millionaires. But Kalin isn't interested in becoming a paper millionaire.

Veterans on the Board

"Almost everyone I know who works for a company that's been acquired doesn't enjoy his job much," he says. "But one of my major goals for creating Etsy in the first place was to make a company I would want to work for." That means fair wages, profit sharing, good health benefits, and a nonhierarchical command structure.

Kalin says he has no illusions about the perils of running a values-led business once quarterly earnings become a concern. And he has the benefit of learning from the experiences of some high-profile Web startup veterans: Caterina Fake, co-founder of Flickr, and Albert Wenger, former president of Delicious—both of which were acquired by Yahoo— serve on Etsy's board (see, 10/2/06, "Yahoo's Strategy: Growth by Acquisition").

At the same time, Kalin says he has his customers' interests at heart. Fueled by high-profile Web startup veterans' experience and a mix of what he calls "youthful exuberance, naïveté, and a little bit of arrogance," Kalin says Etsy's goal is to build a sustainable business. And he's talking over decades, not just within a few years. "I feel a huge responsibility to the people who are making a living off of Etsy," Kalin says. And although he acknowledges that's a relatively small number of people currently, "The sense that I have now is that this is just beginning," he says.

"We'll Just Launch It"

Of course, Kalin is the first to admit that he's never really been able to look more than two to six months into the future. Back when Kalin first came up with the idea for Etsy, Kalin's grandfather—an experienced businessman who had worked for IBM (IBM) and GE (GE)—peppered him with questions about target audiences and market share. But against his grandfather's advice, Kalin decided to skip past the formal business plan.

"There's so much you can't plan for—so instead of trying to fudge the numbers," he says, the approach was, "We'll just launch it and see."

And so far, that approach has worked. Taking a page from eBay's playbook, the bulk of Etsy's revenues come from its 20-cent-per-item listing fee and the 3.5% per sale commission. Though the site doesn't have outside advertising, for $7 a day Etsy allows its sellers to buy a spot in the site's main showcase of featured items (billed as "seller's top picks," rather than ads). Kalin says those showcase spots sell out within minutes.

In its two years of operation, nearly $10 million worth of handmade goods has been sold on Etsy, with the average sale around $15 or $20 (see, 2/26/07, "Bringing Your Art to the Online Market"). Jewelry is the top category in both listings and sales. Kalin says 95% of Etsy sellers are women (average age, 33), mostly stay-at-home moms and college students looking to supplement their income rather than make a full-time living. About 500,000 items currently are listed on Etsy.

Expansion Plans

Over the past few months, traffic volume has increased so rapidly that "just keeping the site up and running" has been the team's top priority. But with the spate of new hires, including a senior programmer swiped from eBay, the Etsy team hopes to make headway on some ambitious new developments. So with a growing staff that's set to reach 35 employees by the time the new San Francisco office opens at the end of this summer, the Etsy team has begun to formalize many of its formerly informal processes.

One innovation: There's an internal wiki, complete with digital whiteboards where employees can list their daily tasks—an outgrowth of real-world whiteboards the team used in the early days. "It's just a place to keep track of everything that's going on," Marketing Vice-president Matt Stinchcomb says. And so far, that's been quite a lot.

Next up on Etsy programmers' to-do list is a new payment system that will allow buyers to pay for items from multiple sellers in one transaction. And because Etsy sellers already hail from 84 different countries, making the site truly international—adding currency conversion, foreign-language support, and other features—is another project in the works for 2008. Though will always be the core of the business, down the road the team hopes to expand its offline ventures, too. "The big goal is to enable people around the world to make a living making things," Kalin says, and that includes the man himself.

To see a slide show with advice from Etsy sellers on selling their items online, click here.

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