If the connection to Walmart caused some Etsy sellers to cry hypocrisy, the investment was nonetheless a triumph for Etsy and for Kalin, who barely graduated from high school and who essentially conned his way into a college education. Kalin grew up in Boston (his father was a carpenter, and his mother was a teacher), and he spent his youth rebelling in ways large and small. With a 1.7 high school grade point average and unable to get admitted to any degree-granting institution, Kalin faked an MIT student ID and then used a letter of recommendation from a professor he met there to get himself admitted to NYU.
Etsy itself grew out of a freelance design project that Kalin and two friends, Haim Schoppik and Chris Maguire, undertook for GetCrafty.com, an online bulletin board for crafters run by the wife of an NYU professor. While working on GetCrafty, Kalin noticed two things: first, that there were a lot of crafters on the Internet, and, second, that many of them hated eBay. Over the years, the auction giant had raised prices substantially, making small-scale selling economically unfeasible. (Listing a $25 item on the site costs 50 cents plus a commission of 8 percent to 15 percent, and maintaining the most basic storefront costs $16 a month.) Over the course of two months, with Kalin designing and Maguire and Schoppik writing code, the trio built a modest e-commerce tool that was designed as a cheaper alternative to eBay and aimed at sellers of handmade goods. Each merchant would get a free online storefront and would pay just 10 cents for a four-month listing, plus a 3.5 percent commission. (Today, the listing fee is 20 cents.)
By the time of the venture capital investment, Etsy's rise had been well documented in the press (including Inc.). But such success obscured tensions that had been simmering within the company for years. "It was chaos—there was no management," says Fred Wilson. "It was all creative energy of the founders and just a bunch of people hanging around that, trying to keep things going."
This worked when the company was small, but by 2008, Etsy had grown so large that Kalin's creativity was straining his relationship with the rest of the company. As Maguire and Schoppik worked day and night trying to keep the website from crashing, Kalin was spending his time dreaming up new features. One day, Maguire recalls, Kalin proposed creating a system whereby sellers could broadcast live video feeds from their workshops. Another day, he was pitching his co-founders on creating a modern-day version of guilds. "There would be a brand-new idea every day," Maguire says. "Usually it'd be something that didn't even make sense. How are you supposed to teach blacksmithing over the Internet?" By the end of 2008, Maguire and Schoppik left the company. Working at Etsy, he says, "was like being in an abusive relationship."
The result was a leadership crisis as employees, investors, Etsy sellers, and even Kalin himself began to wonder if he was the best person to lead the company. "The general theme at the time was, Let's find people who've done this stuff before," Kalin says. "We needed to build a search engine, so we said, Let's find someone who has implemented a search engine. We need to manage a growing engineering team, so we said, Let's find someone who has managed a growing engineering team." He began to think that maybe it was time to find an experienced CEO. "I'm always skeptical of whether I'm the best CEO for the company," he says.
In June 2008, Kalin demoted himself to chief creative officer, and the company's COO, Maria Thomas, became CEO. A month later, he left daily operations entirely. "I'm a hands-on guy," Kalin says. "I need to be building things to feel like I'm making a meaningful contribution, and I didn't want to sit around as some kind of wall decoration-slash-mascot for culture."
Kalin spent the next 12 months focused entirely on solving the problems of Etsy sellers. He founded a nonprofit called Parachutes and invited half a dozen Etsy companies, including Ruffeo Hearts Lil Snotty, into his personal workshop. He offered them free office space and led weekly workshops on how to build a business. "There's this really interesting shift that happens when you're running an Etsy business, where you have to change your approach from 'I make clothing' to 'I'm making a living making a business that makes clothing,' " Kalin says. "A lot of people either can't or don't want to make the shift, because it means seeing things in a different light."
It wasn't nearly that simple. Erasing mass production makes for great marketing, but it isn't a particularly good business plan for clothing designers or jewelry makers. Of the sellers who enrolled in Parachutes, Jones and Sherman were the only ones who didn't return home when the program ended at the end of 2010.
Tellingly, they have succeeded, in part by distancing themselves from Kalin's most radical ideals. "I admire Rob and his thought process," Sherman says. "But we're transitioning away from being an Etsy business." He told me that if Ruffeo Hearts Lil Snotty gets substantial orders from a fashion buyer, it will probably use a factory, which will effectively disqualify it from Etsy, given that the company's rules require that Etsy members personally make what they sell. "The irony is that if we ever became successful, we won't be allowed to sell on Etsy," he says.
Senior contributing writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter,
Threadless, and Tesla for the magazine. He lives in Brooklyn, New York. @chafkin
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