Sunday, March 22, 2015

The growth - and demise - of Etsy?

Etsy is up for sale. It wants to go 'public' - but it also wants to maintain its ethos and credibility. Some would say they lost it some time ago.

There are quite a few articles around at the moment about Etsy. They've been prompted by two things
  • the filing by Etsy of an Initial Public Offering (IPO) of its common stockIn other words Etsy intends to market its stock on the financial markets. When it happens it will be the biggest technology initial public offering (IPO) in New York since 1999. (Guardian)
  • comments about whether or not Etsy can hold on to its "indie" integrity - assuming it's not already lost that long ago
  • lessons to be learned from Etsy's growth. After all if you start out as a small site you want to get bigger don't you? Or do you?
From a personal perspective I find Etsy interesting as its been online for just a bit longer than I've been blogging. I've highlighted it on a regular basis in the past - mainly in relation to how it grew as an independent outlet for art sales as eBay stumbled and then declined as an outlet for independent artists and artisans.
Etsy has grown from a startup built by crafters and for crafters to a juggernaut on the verge of an IPO Grace Dobush
Below you can read about the issues associated with flotation and why $2 BILLION may be realised - possibly at the expense of its credibility and relationship with crafters and artists.

Etsy Mission and Values - are they clear to everybody who matters?

Etsy: Key Stats

Etsy is a marketplace where millions of people around the world connect, both online and offline, to make, sell and buy unique goods. The Etsy ecosystem includes entrepreneurs who sell on our platform, consumers looking to buy unique goods in our marketplace, manufacturers who help Etsy sellers grow their businesses and Etsy employees who maintain our platform.

As an ex-accountant I know full well that it's key stats which get people to take you seriously - and down the bottom of Etsy's About Page we have the numbers.

Here are some key stats for Etsy - as of today's date

  • Founded in 2005
  • 40 million + members (of which a number will be inactive)
  • 1.4 million registered online stores / active sellers - interestingly women account for 86 percent of the sellers
  • 19.8 million active buyers - in nearly every country in the world
  • $1.93B gross merchandise sales in 2014 (I make that an average turnover of $378 dollars per storefront / active seller) and $1.35 billion in gross merchandise sales in 2013.
  • 600+ employees
  • Etsy has made a net loss in each of the last three years. This makes me wonder if the IPO venture is a way-out of the current situation.
  • Huge social following
...and here are the articles about Etsy going 'public'.

The IPO and future prospects for Etsy

Etsy became a Certified B Corporation™ in 2012. This is a label used for companies who maintain social and environmentally responsible business practices.

It's now seeking to become a public company traded on the NASDAQ.

The Etsy announcement

The Newspapers and Online Journals

    1. It hasn’t turned a profit in the past three years… and doesn’t promise one anytime soon.
    2. Costs could even rise more because of the company’s “adherence to our values” and “focus on long-term sustainability.”
    3. Accounting is tricky, but they’re trying to get better at it.
    4. Buyers are increasing, much faster than sellers
    5. People are shopping–and buying–from their phones and tablets.
    6. Etsy set aside 5% of its shares for its community

The dark parallel invoked on Etsy forums is eBay. It has turned itself from an auction site for enthusiastic amateurs into a more conventional ecommerce company. The fear is a profit-oriented Etsy may ditch its principles — probably along with the well-meaning Mr Dickerson — and force merchants to seek shelter elsewhere. Financial Times

The one thing that storeowners need to be very clear about is that Etsy is only reserving 5% of the shares for the Etsy community. The rest will go to Institutional Investors and they will own the company in future. There is no way that the CEO's aspirations as to continuing ethos and values will be endorsed unless they make sound business sense - and money for the investors. That's just the way things work - which is why many other business have chosen instead to develop by remaining private companies and seeking finance in other ways.

One wonders why Etsy didn't choose that option.

Etsy - Authenticity and Integrity

The major change of Etsy policy in 2013 allowed "creative authors/designers" to outsource the making of their products to other people. This was a fundamental move away from the original notion that the artist/crafter both designed AND created the products they sold.

It was seen as a sell-out by many who subsequently left the site. Their view is that the site has abandoned the makers of genuinely hand-made goods.

At the same time Etsy has grown number of people using the site and increased revenues. Revenues grew from $74.6 million (2012) to $125 million (2013) to $195 million in 2014 following the change in policy.
Financially this may make some people very rich, but it is not what Etsy was meant to be about. Artists and crafters are now just window dressing to give the website the appearance that [items] are handmade, but in most cases they are not. They have become the online version of Pottery Barn.Joy Appenzeller Bauer
Sellers have been dissatisfied with Etsy’s policing of mass-manufactured items posing as handmade for a long time, but the site hasn’t seemed receptive to their concerns. An Etsy staffer I met a few years ago dismissed sellers’ questions about Chinese resellers as “kind of racist.” 
Here's a comment by somebody on one of the Guardian articles which to me sums up the nub of the issues which concern many people 
I find it hard to see how Etsy will manage to continue to promote itself as a legitimate venue for artisans, hand-crafters and artists once it has hungry shareholders to feed. I just don't see how the truly artisanal, handmade folks will fit with new corporate masters. Last year, in order to pave the way for their IPO, Etsy changed it's original stipulation that handmade goods be actually made by the seller's own hands. Now this is no longer required: anyone's hands will do, whole third-world sweatshops worth of them. All that is now required is that the seller have some influence on the design process. Traditional Etsians - artists and crafters making unique, labor-intensive, often one-of-a-kind items simply will not fit well into what will have to become the new paradigm, other than by providing ideas for those with sweat-shop staff to copy. I have had a successful Etsy shop for a few years now, but I view the post-IPO Etsy market with skepticism. My2Siamese

Lessons to be learned about how to grow a business

Long, long ago I got my MBA from the London Business School. This is by way of explanation for why I still retain an interest in how people write about the success of companies - and whether those writing still hold true some time down the line.

I will be returning to these articles.....
Of course the other issue is that those seeking to grow their own sites might also learn a thing or two.

Personally I'm wondering how all of this survives in a new investment driven corporate world and whether "growth" is such a wonderful thing.  There are those who are beginning to challenge some of the assumptions of the fundamentals of economic well-being.

and finally......

Here's an extract from a blog post at the end of last year by Chad Dickerson, the chief executive of Etsy, when they will have already been preparing for the announcement of the IPO.
The editors at LinkedIn asked me and a group of fellow leaders, “What is the one big idea that will shape the next year?” Our answer is based in the simple fact that people want and expect a greater level of personal connection and demonstrated sense of social responsibility from the companies they support. In an era when people are more selective about the businesses they patronize, Etsy is proud to be a part of what I see as the defining trend of 2015 and beyond: an expectation that companies must articulate the social purpose of their businesses to retain customers.
Plus let's not forget that the company was founded by Rob Kalin, a carpenter making handmade wooden computers with nowhere to sell them - who was fired as CEO by his own company - twice following disagreements about the direction of the company. 

This was an interview with him back in 2011 - Can Rob Kalin Scale Etsy?

1 comment:

  1. Great article, thank you
    Not great news.

    In a brain spinning moment, first thought...somebody might (or has) developed a website for handmade goods by the original artist. As soon as that website gets online cred, then handmade original artists might either leave Esty or greatly decrease their selling activity there as they move to a website where they are number one.

    Second, I believe small sellers on Ebay experienced a similar problem, being over taken by the dollar sign of larger and bulk sellers. Going from a flea market to a factory outlet creates unfair competition, the way I see it. But, that's a reputation for value, and then make some big bucks selling it. Capitalism lives!

    Finally, if Esty can keep the integrity of the handmade original sellers in a separate section with a big sign on the door Stay Out! to resellers or else get suspended, then I think the handmade original sellers will stay; and, is some way benefit from the added exposure larger sellers will bring in by their advertising.


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