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

by Kerry Miller

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Etsy Labs, the Brooklyn headquarters of online marketplace Etsy.com, is open to the public for classes in topics like sewing or pattern-making.

The Etsy team now uses virtual whiteboards -- part of a staff-wide Wiki -- to keep each other updated on their daily activities.

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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 BusinessWeek.com, 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.