Business Model Breakdown is back and this time we’re going to get a little crafty as we examine the Etsy business model. The once tiny website that helped small-scale artisans and merchants sell their creations online had a sizzling hot 2012 and now grows at rates equal to E-Bay. That’s why we’re going to break out the canvas and start putting together the pieces behind the irresistible Etsy.

Small is Beautiful.

It’s a phrase that encapsulates what Etsy is all about. But what happens when you put together thousands and thousands of small & beautiful things together on one site?

An (artsy) explosion of e-commerce.

In 2012, Etsy sales were up 70%, new buyers increased 80% and there were 10M new members. Jewelry was the highest-grossing category, while furniture was the fastest growing. With almost 800,000 sellers and about 22 million members from about 200 countries, this enterprise is showing that handmade & homegrown is much more than just a niche category.

While companies like Amazon have built their empires on aggressive pricing strategies and questionable business practices, Etsy has kept it real from day one and focused on putting tools into the hands of its community to empower them to sell:

“The site was started to help support small creative businesses … It’s always been that way, but we just keep finding new paths to reach that end goal.” ETSY Seller Education Lead

The question is, how have they done it?

There are three key aspects to the Etsy business model:

  • community engagement is at the heart of their strategy
  • they continuously develop tools and educational materials to empower sellers
  • they are a mission-driven company that balances altruism with tactful strategy

If you were to ask the average seller what brought them to Etsy as opposed to alternative options (ie. Ebay, independent stores, etc.), the majority would tell you it is because of the community.

People who list their products on Etsy want to do business in a friendly and sustainable way. In the same way that many people yearn for the olden days of walking down the street, popping into local shops and seeing friends and neighbors, Etsy’s sellers want to create an authentic and highly personalized feel to their online stores. It is that sense of personal relatability and trust between not just buyers and sellers, but also sellers and sellers, that has allowed Etsy to build one of the most cohesive communities on the web.

Etsy seller’s breakdown …see the full Etsy infographic here

There is so much love in the Etsy community, in fact, that a whole new network (We Love Etsy) was spawned to share the feeling.

The company has gone far and beyond just providing its members with social tools, such as forums and blogs, to swap tips. They have built their community into their business model and given its members the power to influence and engage other members. From simple social media programs like the Guest Pinner program, to the merchant-driven Etsy Success Symposium, an annual gathering held ever year to help Etsy sellers increase their sales and reach. A quick look at the Etsy Teams page and you would see how Etsy’s community roles.

But none of these community-building initiatives would matter if a large number of people in the Etsy community didn’t have the ability to drive significant sales. That’s why Etsy has put a lot of emphasis on education and the development of tools to streamline the sales process for its sellers.

With materials such as the Etsy Seller’s Handbook, Etsy Success Newsletter and Etsy Online Labs, the company is ensuring that anyone with a handmade product to sell can learn how to / have the tools to drive sales using Etsy.

With over 800,000 sellers on the platform, they cannot simply create more educational material and hire loads of people to educate the entire community, they must also rely on the help of their top sellers to bring new sellers under their wing. Imagine trying to do that without the backing of a fantastic, supportive community!

And with the increasing number of sellers comes a greater and greater incentive to find new ways to reach buyers. Etsy had started to notice a growing trend towards more and more mobile traffic to it’s site (~25%), especially around holiday times (33%), so early this year they purchased the mobile photo collage app MIXEL, which bears some resemblance to Pinterest. After we talked a little last week about the numbers behind transactions being driven through sites like Pinterest, you can see how this could be a big benefit for the Etsy community going forward.

+ The Advent of Collaborative Commerce+

And it is precisely at the intersection of the two sides, the buyers and the sellers, where Etsy makes its money. They take a 3.5% cut of the commerce generated on the platform in addition to a $0.20 fee for every product listed. The business model canvas below further breaks down the Etsy business model:

View larger image here or download the full PDF.

In the end, however, none of this – a vibrant community, educational material, a beautifully-designed platform – would matter if people didn’t believe in the company itself. The last thing the world needs is another online behemoth that pushes products from place to place at the lowest possible cost. People buy into Etsy because they believe in it and they want to be a part of it. Not just the sellers, but the buyers too:

“The buyers at Etsy are more interested in supporting creative small businesses. They come to Etsy because they want something unique, they want something that has a story; that when they wear it they’re going to feel really special and want to talk about it. They’re a different kind of buyer – it’s a totally different kind of market at Etsy.” ETSY Seller Education Lead

Etsy exists to help small businesses grow in this big, globalized world – their mission is to ‘enable folks to making a living making things, and reconnect makers with buyers.’ The fact that they generated $895.1 million in sales last year wouldn’t matter much if it weren’t part of a bigger story. Etsy is about impact, and as we continue to drive deeper into 2013 we will see that more and more businesses are becoming impact-driven because that’s where the real energy is.

+ The Reason to Empreender – Impact

Etsy’s commitment to the world of small & beautiful can be seen in every aspect of their organization, from their creative hiring initiatives to their listing as a certified B Corp. While not flawless by any means, it is one of the best examples of a highly visible company doing business to a different drumbeat. And what a business it is, which is why this business model is so worth studying.

Overall, the shift to a more collaborative and creative economy can be seen in examples like Etsy. The next generation of companies is building their business model to generate impact for their respective communities without sacrificing profitability, and making it fun in the process. As the movement grows and more and more entities make the shift, the effects will be exponential – the new era of business is only just beginning.

PLAN – the Business Model

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