Etsy’s Next Stage of Growth & Disruption

Etsy Inc. is a global two-sided online marketplace for unique and creative goods. The company was founded in 2005 to serve as a seller-focused online storefront for craftsmen and artisans. Etsy offers a simpler, more convenient and lower fee alternative to large consumer-focused platforms like Amazon and eBay, creating a new market of independent creators and micro-entrepreneurs. As of October 2020, there were more than 3.7 million active sellers and approximately 69.6 million active buyers on the marketplace[1].

Etsy was challenged as an “unfocused” company with declining profitability

Following its successful IPO in August 2015, the company experienced several financial, operational, and competitive challenges that resulted in a 9-month long decline in the stock price. Etsy’s profitability was challenged as slowing sales coincided with increased marketing expenses. Additionally, the Company faced competitive pressure as Amazon launched its own artisan marketplace (Amazon Handmade) in October 2015, which sought to commoditize Etsy’s offering.

Etsy also struggled operationally with a lack of focus and a myriad of half-baked new business ventures. At one point, “there were some 800 business development initiatives underway at a company with a staff of fewer than 1,000”.[2] Etsy had lacked a disciplined, profit-focused approach to resource management which hindered growth and profit potential. New initiatives had strained the resources of the company and Etsy neglected its core competencies that were necessary to deliver a superior buyer experience. 

Etsy’s turnaround began with a renewed focus on buyers and profit-driving initiatives

In May 2017, Etsy’s former CEO Chad Dickerson was replaced by Josh Silverman, an Etsy board member, to drive platform growth and profitability. Silverman brought an increasing focus on buyers, instead of sellers, and profit-driving initiatives to the company. For example, one of his early decisions was to shut down Etsy Studio, a new business venture that had been introduced to sell craft supplies to Etsy sellers and encourage aspiring sellers to join the platform.

The focus on buyers has allowed Etsy to narrow the scope of its initiatives to key “jobs” being demanded by its buyers, such as product search, payment, checkout and shipping. For example, Etsy has since made it easier for buyers to find products, return items and checkout as guests. These initiatives have resulted in consistent year-over-year growth in buyers (new and repeat), gross merchandise sales and sellers. The takeaway: Etsy’s seller success is dependent on the buyer’s experience and buyers drive platform loyalty. 

Etsy must now grow its core marketplace And invest in disruptive products and businesses

As Etsy continues to mature and competition increases, it will need to strike a delicate balance between emergent opportunities and a deliberate strategy to grow its core marketplace – moving too far upmarket invites disruption. Additionally, Etsy will need to be thoughtful of how it pursues new opportunities as it seeks new channels of growth.

In August 2019, Etsy acquired Reverb Holdings, Inc., a leading global online marketplace dedicated to buying and selling new, used, and vintage musical instruments.[3] While there are many similarities and synergies between the two businesses’ creative communities and platforms, Etsy will allow Reverb to operate as a standalone business. Etsy’s acquisition reveals several insights on how the company views new entrants and future competition.

  • Etsy views Reverb as a disruptor that requires separate resources, processes and profit formulas. Unlike Etsy, Reverb only charges a 3.5% transaction fee and there are no listing fees for sellers.
  • Reverb had the potential to become a future direct competitor by moving upmarket, offering new creative product categories on its platform. Reverb’s hyper-focused approach on the buying and selling of musical instruments enabled it to uniquely enter and disrupt the creative marketplace industry and establish a strong core.
  • Etsy’s acquisition suggests that the company feels more confident about its core business today than it did in 2017 and is now taking a broader approach to growth.

Etsy’s recent acquisition runs parallel to a number of its sustaining innovation initiatives. The interdependence between buyers and sellers on the platform, or network effect, requires that Etsy continue to innovate for both parties. Optional value-added services, such as Offsite Ads and Etsy Shipping Labels, demonstrate how Etsy is exploring new products and services to differentiate from competitors and new entrants. Offsite Ads solves the seller’s job of marketing her storefront on other platforms to increase visitors and sales; Etsy pays an upfront cost to promote Etsy sellers’ listings across internet platforms and a seller will pay Etsy an advertising fee only on the sale of that order. Similarly, Etsy Shipping Labels serves to remove seller friction with the cost and time spent on shipping by providing discounted shipping labels that can be printed at home. This benefit also extends to solving buyers’ problems with inaccurate delivery estimates, delayed shipments and incorrect addresses. Both Offsite Ads and Etsy Shipping Labels bring more efficiency, defensibility and revenue to the platform.

Fifteen years later, Etsy is now more an incumbent than it is a new market disruptor. As such, Etsy’s strategy will need to evolve with the new challenges that emerge for an incumbent. How can Etsy avoid disruption in the future?

Etsy must now confront the same challenge that created an opportunity for its unique entry. With more than 60 million sellers on the platform, Etsy’s sellers are facing new barriers to visibility with buyers: non-first page listings are less likely discovered and therefore, less likely to drive sales. Moreover, Etsy’s recent change to its search algorithms prioritizes listings that offer free shipping, further limiting who belongs on the first page of search and cutting into sellers’ profit margins. As discoverability becomes expensive for sellers, this creates opportunities for new entrants. To avoid disruption, Etsy should continue to invest in solutions that help sellers attract new buyers and personalize the search experience based on a buyer’s needs instead of profit-driven logic such as prioritizing ad-paying, high margin sellers in search results. Additionally, sellers’ and buyer’s emotional needs should be equally prioritized with functional needs to help sustain a purpose brand, foster community and drive lifetime value.

Acquisitions serve as another inorganic growth strategy for an incumbent and help create defensibility again disruption. However, this strategy risks introducing new challenges to the core business, most notably the decision to integrate the target company into the core or incubate it in a different business unit. A key question for management as the core marketplace grows in sellers and expands its product categories is: How will Etsy avoid cannibalization between its core and vertical-focused business units as the businesses mature and scale? Management should consider the breadth of product categories available on the core marketplace if it pursues a strategy of creating a portfolio of adjacent marketplaces that target specific community and product verticals. Alternatively, where resources, processes and profit formulas of a target company align with that of the core Etsy business, management should consider folding the target into the core marketplace, treating the acquisition as sustaining innovation.

Etsy has had a rich history of changes to its strategy, which has allowed it to grow its market share and compete against incumbents like Amazon and Ebay. The company is once again at an inflection point as it assumes the role of an incumbent. Many of the strategies that allowed Etsy to create a new market may no longer apply. Etsy’s future growth will be derived from a combination of a more deliberate strategy of scaling its core marketplace and investments in new disruptive products and businesses.


[1] Etsy Q3 2020 Financial Results (October 2020)

[2] How Etsy Crafted an E-Commerce Comeback; by Phil Wahba for Fortune, July 25, 2019, (https://fortune.com/2019/07/25/etsy-ecommerce-growth-strategies/)

[3] Etsy announcement about Reverb acquisition, accessed August 15, 2019, https://investors.etsy.com/press-releases/press-release-details/2019/Etsy-Completes-Acquisition-of-Reverb-a-Leading-Online-Marketplace-for-New-Used-and-Vintage-Musical-Instruments/default.aspx

Plant-Based Market Overview

Beyond Meat (BYND), a food company that manufactures, markets, and sells plant-based meat products in the US and internationally, went public last week and tripled its issue price of $25 on its first day. Despite being unprofitable, BYND continues to attract investors with its speed and scale of distribution (already in ~15,000 grocery stores and ~12,000 restaurants), rapid revenue growth (170% YoY) and demonstrated economies of scale (20% gross margin).
Beyond Meat S-1 Document

Consumer appetite for plant-based products has been on the rise and there are no signs of it slowing down. Already, approximately 120 million Americans identify as either vegan, vegetarian or flexitarian, and 60% of Millennials have already at some point consumed plant-based meats. The impact of this phenomenon has been most notable in the dairy category, where growing popularity for milk alternatives like oat milk and other nut-based milks has resulted in a significant decline in dairy sales and has even forced some dairy farmers to begin plant-based milk production (92-yr old dairy plant pivots).

I’ve been excited about plant-based products for some time now, and have tried everything from meats to cheese to milk and even seafood! I’ve synthesized my insights on this growing market and compiled some of the most interesting companies producing plant-based products for consumers below.

As consumers increasingly demand healthy alternatives, and ingredient technology advances, plant-based proteins will displace traditional ingredients to create a new generation of products. 
Success of new products with consumers will rely on: Taste, Texture, Comparable Appearance, Price, Brand and Distribution

Menagerie’s Final Update

We created Menagerie to make it easy for modern couples to confidently choose their wedding vendors. We envisioned a future where every couple would be able to receive personalized virtual wedding assistance and was equipped to seamlessly discover high quality vendors that fit their budget, style and vision.

Along the way, we grew our team, launched a MVP, joined an accelerator and received funding, pitched at Demo Day on both coasts, and worked very hard to deliver our vision to our couples. While there was much success to be celebrated along the way and our second launch in November showed promising initial traction, we eventually discovered that we were struggling with product-market fit.

Last week, after a year and half, our team made the difficult decision to shut down Menagerie. In this reflection, I want to summarize and share our biggest learnings, and express gratitude to all those who inspired and supported us along the way. I hope this can not only become a valuable read for existing and future founders, but also motivation knowing that regardless of the outcome, you will have helped people and/or businesses along the way and that this startup journey will forever be one of the most rewarding experiences and greatest learning opportunities of your life.

Team Menagerie Demo Day SF 2016
Team Menagerie at Demo Day 2016

Menagerie was part of a new wave of wedding startups that offered chat-based wedding planning services and personalized vendor recommendations. Our predecessors and incumbents were primarily content platforms and vendor directories that published content on wedding ideas/ trends/general advice, and made money from vendor listing fees. Our opportunity was also these content platforms’ biggest problem — expensive vendor listing fees resulted in high vendor churn because of low ROI, which led to stale vendor listings/data that inhibited their ability to provide personalized vendor recommendations and eventually facilitate transactions.

Our empathy for the wedding vendor’s struggle with discoverability and profitability enabled us to quickly grow a community in New York, and work with vendors to build a comprehensive database of their business information, services, pricing and images of their works. We did all of this with just typeform, dropbox and excel. Four months later, equipped with our growing vendor community and database, we were confident that couples would come to us and start requesting vendors because we were free, offered transparency on vendor pricing and services, and guaranteed high quality via curation. Wrong. We had only a few requests and most people came to just look at pictures.

Lesson Learned: Modern marketplaces require more than transparency, beautiful design and a curated supply base to establish trust with users and achieve liquidity. A superior, differentiated user experience is necessary.

In an effort to better understand the hesitation and needs of those who were coming to us, and engage couples with more hand-holding, we launched Irene, our chat-based virtual wedding assistant. Leveraging Chatra, we were able to launch her in less than a week. She was a hit, people loved Irene and we instantly began having real conversations with users, receiving requests for vendors, and started sending personalized vendor recommendations via email. Looking back, we should have doubled down on Irene and stayed focus on how we could increasingly deliver value to couples through her. At the time, Loverly, Lady Marry, Joy and many others had not yet even introduced virtual wedding assistance. So why didn’t we?

Lesson Learned: Focus on scaling something that is working.

Over the summer, we started prototyping new ideas on how we could begin facilitating the next phase of the wedding decision making process. Why? Because we were eager to extend our relationship with couples beyond chat and facilitate their full decision making process when choosing a wedding vendor. We got distracted by features that might work rather than focusing on what was working.

We began bringing couples into our office for interviews and prototype testing. We collected their wedding planning assets — spreadsheets, research, vendor communications, and more. We met with dozens of couples, we listened, we took notes…but we heard feedback, not intent. The consequence of this inaccurate user research was a roadmap that directed us to build our couples’ assumptions and introduce features to respond to “I would need to do this to use your product”.

Feedback misled us to focus on improving their existing wedding vendor research methods — collecting vendor information and entering it into excel spreadsheets — instead of focusing on delivering quality recommendations and building trust to eliminate the reliance on their extensive research process (that had ultimately evolved from a mistrust of existing wedding products and lack of personalized solutions). We thought we were building with our users, aligning with their existing behavior and delivering exactly what they needed. But instead we ended up designing an alternative experience rather than optimizing for what our couples needed.

Lesson Learned: Separate user Feedback from Intent because users often assume what they want and don’t actually know what they need, which is no different than founder assumptions.

The night before Demo Day, our team ambitiously attended a New York bridal expo to do a soft launch of Menagerie. Couples lined up to sign up for Irene and expressed excitement about a personalized budget and vendor recommendations. Our messaging resonated strongly with couples. That night, many couples logged back in to chat with Irene and visit their dashboard. Things were looking up. The next two months we had more than 500 New York couples signing up.

As we were celebrating new couples joining Menagerie, we began to notice an increasing decline in retention. We thought maybe these couples needed a reminder to stay on top of their planning and that this behavior was natural; so we increased our email campaigns to draw users back in the following weeks after they signed up. But it didn’t help, because ultimately, they didn’t have a need for many of the features we offered, and as a result, most couples concluded that Menagerie wasn’t for them.

Over the last year and a half, our team invested a lot into building our vision and persevered through many startup challenges. While this was not the outcome we had anticipated, this journey was filled with many accomplishments and presented the learning opportunity of a lifetime. Menagerie enabled me to grow as a female leader, uncover and eliminate my fears, improve as a product/project manager, develop tremendous empathy for founders, customers & investors, and finally, discover gratitude for every opportunity and person in my life.

Starting Menagerie was never just about the opportunity, it was about the people that would be a part of this journey and the shared experience of crafting a vision, building our ideas, and celebrating once-in-a-lifetime milestones.

Thank you Harlan, Jeff, Dino, David, Moni, John, Sushma, Scott, Abby and Jenn for your belief in Menagerie, your hard work and the fierce energy you brought to the team every day.

Thank you to all of our wedding vendors that joined our community and brought so much excitement to Menagerie. Thank you to all of our couples who allowed us to be a part of your once-in-a-lifetime wedding experience.

Thank you Matter Ventures for investing in our vision and supporting us along the way. You never forget those who believed in you from the very beginning.

Onwards and upwards!
Tiffany

Menagerie’s Demo Day

My team and I are grateful for Matter Venture’s support and all those who have shared with us the experience of crafting a vision, building our ideas, and celebrating once-in-a-lifetime milestones.

I’m excited to share our pitch at Demo Day in San Francisco: View

Menagerie Demo Day

Problem Solving for the People by the People

Following an unprecedented election that left Americans divided and displaced, the media in battle over facts with the Trump administration, and the security of every individual uncertain and threatened, we are now witnessing an explosion of organizations and startups focused on uniting people and leveraging the power of collaboration to collect data and build technology to secure our freedom and future.

Fears of government defunding data collection, manipulating data sets and mis-communicating politically inconvenient research have inspired the founding of organizations like Data Refuge, a distributed, grassroots effort around the United States in which scientists, researchers, hackers, students, librarians and other volunteers are collecting government data to preserve it and keep it publicly accessible. Their focus on climate and environmental data is in defense of the White House removing climate data from the EPA website and screening scientific research. Others, like Open Context are helping preserve, annotate and share archeology data.

Find out what other government data is being removed from the Internet at Sunlight Foundation, where they are actively tracking the removal or changes to data sets.

Collaborative research platforms will emerge in every industry to not only aggregate and maintain integrity of data sets but also enable individuals to accelerate the development of solutions independent of government funding and policies.

This is Wikipedia on steroids and much more. Data.world is a social network exclusively for people who want to find and collaborate on building data sets. Similarly, ResearchGate provides a professional network for the scientific community to connect, collaborate, share results and drive progress. Already, more than 11 million scientists and researchers use it and are uploading more than 2.5 million publications each month.

Beyond the civic tech and education categories, this same model of empowering individuals to organize and work together to problem solve has also been successful in transportation with Waze, financial investing with Numerai, app development with GitHub, data science with Dataiku, startup solutions with ProductHunt, and many more.

Success of these platforms have initially been driven by users who are mission-driven, motivated by gamification/monetary rewards, or seeking to build an online portfolio. These platforms crossed over the chasm from passing curiosity to active and productive engagement, enabling them to truly provide more value with each user and establish a sustainable data network to help them accelerate solutions. And as these platforms grow, they will become future leaders in their industries and many will redefine our workforce.