In March of 2017, Etsy stock was at an all-time low at just under $10 a share. There were grumblings about the marketplace’s slowing growth and insiders worried about how it could possibly stay afloat while competing against Amazon. Activist investors besieged the leadership team and ultimately led to a changing of the guards, with turnaround guru and eBay vet Josh Silverman taking the reins. A year after hitting an all-time low, Etsy’s stock rebounded and grew 200% to $30 a share; now at just over three years, a 10x increase at over $110 a share. So what can be attributed to this meteoric comeback? Articles from the likes of Fortune and The New York Times speak to the company’s restructuring and highlight new projects under Silverman that helped accelerate the company’s gross merchandise sales (GMS). The untold truth is that a foundational shift took place that would provide a guiding light for all decisions that would come thereafter. Below is my account of this shift as a product marketer at the company from 2016 through 2017 and personal anecdotes in which I believe all companies, operators, and investors can learn from.
Define your audience and work backwards
If you were to ask a dozen or so Etsy employees in 2016 who the company’s core audience was, it is likely you would have heard at least three different answers – you would hear some folks say sellers, others say buyers, and even some say manufacturers. As I’ve written about previously, building great products and marketing them effectively starts with foundational work to define your market segment, opportunity, and ultimately coming to understand your customer intimately. The quantum shift at Etsy under Silverman was not the dozens of new “ambulance” projects that he kicked off; it was defining buyers as Etsy’s core audience. Having come from eBay, Silverman understood that buyers were at the heart of a marketplace business. Keep the heart healthy and blood (GMS) is circulated effectively throughout the body (marketplace), providing its muscles (sellers) with the nutrients needed for growth. Silverman’s decision to define buyers as Etsy’s core audience was not without controversy. In many ways, Etsy’s communal feel could be chalked up to sellers and the mechanisms put in place to provide them with a sense of ownership in the company. They were louder and were listened to more attentively than buyers; in fact, Etsy had built out seller community teams to keep them up to speed on company changes and answer questions or concerns that would often arise. In short, if you had said sellers were Etsy’s primary audience in 2016, you wouldn’t have been wrong.
Once buyers were defined as the core audience, the product and marketing strategies followed suit. Quickly, teams began to orient themselves around buyer needs, aiming to instill trust and confidence within Etsy site visitors by enhancing the product taxonomy, providing more transparency during checkout and shipping flows, and improving search functionality. Perhaps at the pinnacle of this shift, Etsy’s commission rate increased from 3.5% to 5% per transaction, putting the business in a more competitive position against the likes of Amazon and eBay. Sellers and their Etsy employee champions didn’t let this change go quietly. Community boards lit up with complaints and threats to leave for greener pastures and a slew of employees resigned over the course of a couple of months. Despite the reaction, and inline with the strategy’s expected results, Etsy experienced an acceleration in GMS and active sellers on the platform – breaching 2 million sellers for the first time by 2018.
Takeaway: define your core audience and work backwards from their needs and desires, obsessively. Don’t get distracted by other audiences, even if they have impact on your business.
Focus on your core business and build a niche
In 2016, perhaps as a reaction to Amazon’s encroachment via Amazon Handmade, Etsy was working on launching two new businesses – Etsy Studio and Etsy Manufacturing – stretching to find growth with new ventures outside of their core marketplace business. In particular, Etsy Studio can be viewed as a glaring representation of this expansion strategy. The development of Studio included building an entirely new site, standalone from Etsy.com, that allowed craft enthusiasts to buy crafts supplies for their own projects, complete with tutorials and how-to content. Having been secretly in development under a code name for well over a year, Studio had a sort of cachet internally. While Studio and its potential customers played in the same arena as Etsy buyers, there was a key distinction. Etsy customers didn’t come to Etsy to become craft makers themselves; they came to Etsy to buy products from top tier craft makers. The distinction, albeit nuanced, was picked up by Silverman.
Much like Studio, Etsy Manufacturing, which helped sellers find and connect directly with manufacturers to form responsible partnerships, was viewed as a distraction. In early 2018, less than a year after Studio was launched, it was folded along with Etsy Manufacturing to ensure resources were focused on the core marketplace business. In Etsy’s own words to the seller community upon the closure of both Studio and Manufacturing – “As part of our emphasis on giving you the tools you need, we looked across our products and services and decided that Etsy Manufacturing was taking focus away from features and services that would have a bigger impact for your business.” You may be asking, what were the features and services that were expected to impact sellers’ businesses? Emphasis was put on building tools that would help sellers fuel buying behavior, such as improving product imagery, better product categorization tools to improve search relevance, payment infrastructure updates, etc. In other words, Etsy was helping sellers better serve their core audience, buyers. Keep the heart healthy and the whole body benefits from the increased blood flow.
Takeaway: when confronted with competition or slowing growth, don’t branch out into new businesses to attempt to tap into new revenue streams. Instead, double down on what you do well and build a niche.
Stay motivated
Beyond the strategic decisions to define a core audience and focus on the core marketplace business, there was a less tangible transformation that took place during Etsy’s revamp under Silverman. More so than other businesses, marketplace businesses tend to run on autopilot (perhaps an oversimplification, I know, but overarchingly true). At Amazon, you’ll hear it discussed as a ‘flywheel’. In other words, more buyers leads to product sales and more sellers, and more sellers and products leads to more buyers. It’s a self-sustaining business. This can lead to complacency, or even a lack of accountability at its worst. Not to say that Etsy employees became complacent, but overall, there lacked a sense of urgency that is often required in business. I found Etsy employees to be brilliant and deeply intellectual, I want to stress this. However, the culture was academic. What I mean by that, is the collective company intellect produced concepts and scholarly presentations or papers, that more often than not, lacked actionable plans for practical implementation.
Once the company shifted its focus toward buyers and the core marketplace business, teams were quickly reshaped and assigned tangible goals and were encouraged to move fast and test. Failure was encouraged, so long as learnings could be applied to the next test. This marked a significant change in direction, aimed to produce a steeper learning curve and launch products and features faster. In order to compete in a competitive landscape like that of ecommerce, Etsy began to move quicker, relentlessly pushing ahead and iterating on key features onsite. The impact has become obvious, in Etsy’s most recent quarterly earnings report, it disclosed revenues had risen to $198 million, a 31.64% increase year over year, and currently holds a market cap just under $5.5 billion – quite a climb from its $1.1 billion market cap back in March of 2017.
Takeaway: don’t let complacency become acceptable even when the business is growing, continue to work toward big goals with a sense of urgency.
While these anecdotes are specifically attuned to Etsy’s unique circumstances, I believe much can be learned from Etsy’s comeback story and its lessons applied to new ventures and existing companies in need of re-focusing.