The first time Josh Silverman addressed the staff of Etsy as their newly installed chief executive, he tried to connect with a workforce known for its diversity, idealism and sincerity.
“Hello,” he said. “My name is Josh. I identify as male. My preferred pronouns are ‘him’ and ‘he.’ Most people just call me Josh.”
It was May 3, and Silverman was speaking to a roomful of traumatized employees. The day before, Etsy had fired 80 people, the first big layoffs at the online marketplace for handmade and vintage arts and crafts. Among those ousted was Etsy’s beloved chief executive of six years, Chad Dickerson.
Now Silverman — an Etsy board member but an unknown to most employees — stood in the Etsytorium, trying to win over a hostile crowd. His earnest introduction was an olive branch of sorts, an effort to signal that he was attuned to Etsy’s vibrant gay and transgender community, and would be respectful of the company’s distinctive culture. But to many in attendance, his remarks came off as tone deaf, and his inability to read the room foreshadowed sweeping changes that would soon transform Etsy.
The drama began last November, when Silverman joined the Etsy board and began asking tough questions of management. Soon after that, an activist investor took a stake in Etsy and called for the sale of the company. Then powerful private equity firms began buying shares, stoking fears of a takeover. The board was under pressure, and in early May abruptly fired Dickerson and installed Silverman.
On the same day as the chief executive changeover, the company announced its first layoffs. Within weeks of assuming control, Silverman shut down several projects that had been in the works for months. Not long after that, he fired another 140 employees.
It was a dizzying series of events at a company that has long held itself up as a paragon of righteous business practices. Etsy’s founders believed its business model — helping mostly female entrepreneurs make a living online — was inherently just. Employees shared their emotions freely, often crying at the office. Perks included generous paid parental leave, free organic food and a pet-friendly workplace. Etsy was certified as a B Corp by a nonprofit called B Lab, denoting its particularly high social and environmental standards.
But once Etsy went public in 2015, it was evaluated just like any other company traded on the stock market. By late last year, expenses were growing fast. And even as the company reported $88 million in revenue during the third quarter, it posted a net loss of $2.5 million. After a few quarters of tepid results, investors grew impatient and a classic clash of corporate governance came spilling into view — how would a company like Etsy balance the short-term demands of its shareholders with its high-minded long-term mission?
By some important metrics, Etsy appears to be improving under Silverman’s leadership. Revenues are up, as are “gross merchandise sales” — the total value of goods being sold on Etsy. The company’s stock has risen about 50 percent in the six months since he took over.
By other measures, however, Etsy is barely recognizable. The “Values-Aligned Business” team, which oversaw the company’s social and environmental efforts, was dismantled. A new focus on profitability has sapped many employees of their enthusiasm. A workplace that once encouraged workers to express their feelings has clammed up. Etsy is no longer a B Corp.
Today, as Silverman continues to push for change and investors keep close watch on the stock, what’s most frustrating to some close observers of the company is that Etsy seems to have given up so much to gain so little.
“Etsy had the potential to be one of the truly great ones,” said Matt Stinchcomb, an early employee who now runs the Good Work Institute, which was originally an Etsy charitable foundation before being spun off last year. “But it looks like they are cutting anything that’s not essential to the business. This is a cautionary tale of capitalism.”
Etsy was founded in 2005 by a group of friends including Robert Kalin, an amateur furniture maker who was looking for a better way to sell his goods online. To explain the power of Etsy’s community of buyers and sellers, Kalin often read aloud from a children’s book, “Swimmy,” which is about a school of fish finding strength in numbers. Kalin became the chief executive, and his sensitive affect set the tone for the company culture.
Makers and crafts enthusiasts flocked to the site, grateful that there was somewhere besides eBay and Amazon where they could buy and sell jewelry, furniture and clothing online. Abby Glassenberg was one of the site’s first sellers, using it to find a market for her handmade stuffed animals, and has chronicled Etsy over the years with her popular blog and podcast. “At this point it was really hard to sell online,” she said. “Etsy was a godsend.”
As Etsy grew, it eschewed traditional corporate customs in favor of a more freewheeling approach. Building consensus was more important than moving fast. Employees believed Etsy could be equally beneficial to buyers, sellers, staff and the planet. The idealism was infectious, and many people turned down higher salaries from other companies to work for Etsy.
Yet for all its efforts to stand apart, Etsy followed the established playbook when it came to financing its growth. Venture capitalists poured some $85 million into the company, making a takeover or initial public offering all but inevitable.
In 2011, the board decided to replace Kalin with Dickerson, who was then the chief technology officer. As CEO, Dickerson oversaw dramatic growth. When he took Etsy public in 2015, the company had 1.4 million active sellers, nearly 20 million buyers and had gross merchandise sales of $2 billion a year.
True to form, Etsy found ways to make its initial public offering inclusive. It marketed shares to small investors and Etsy sellers and tried to concentrate shares in a smaller than usual number of institutional holders. Besides upholding the company’s egalitarian ethos, the effort had a strategic rationale. The hope was that such a shareholder base might insulate Etsy from some of the short-term pressures of the stock market.
It didn’t work. In the first nine months after the offering, the stock fell 75 percent. Etsy was still spending heavily on growth and marketing, and while revenues were up in early quarters, the company was unprofitable. Insiders were selling shares, creating more supply than demand for the stock. It didn’t help that Amazon launched a competing vertical, Handmade at Amazon.
Yet even as Etsy grew to number more than 1,000 staffers, the company’s unorthodox culture survived. Dickerson held weekly “Office Hours,” when any employee could ask him about anything, and spoke openly about his doubts, admitting when he didn’t know the answer to a question.
Etsy became a B Corp in 2012, completing a certification process that put the company on par with Patagonia and Ben & Jerry’s in terms of social and environmental bona fides. Meditation and yoga classes were offered during the workday. Companywide meetings, known as “Y’all Hands,” featured musical performances by employees. New mothers and fathers got six months of fully paid parental leave. The company moved into an old Jehovah’s Witness building in the Dumbo neighborhood of Brooklyn, New York, giving it an eco-friendly face-lift. Men and women shared bathrooms, which were adorned with signs that read, “We believe that gender is not binary.”
The emotional, individualistic culture had its drawbacks. The emphasis on go-it-alone craftsmanship meant Etsy managed its own data centers, instead of using more efficient options like Amazon Web Services or Google Cloud. With everyone empowered to express themselves, there was a lot of sharing going on. Inboxes were stuffed with unnecessary emails, which dragged on productivity.
A Sense of Urgency
On Nov. 15, 2016, with little fanfare, Silverman joined the Etsy board. Silverman had been a senior executive at eBay and chief executive of Skype. After leaving an executive role at American Express in 2015, Silverman, who is now 48, said he wanted to take on one more big job, but was waiting for the right opportunity. “I was patient and picky,” he said. “This was my keystone.”
Silverman said he came to his first board meeting prepared to listen. But in the Etsy boardroom, seated around a large custom-made table featuring gold inlay, a large owl sculpture looming over the directors, he said he was troubled by what he heard from Dickerson. Expenses were growing faster than revenues. Sales on the site were up, but the rate of growth was slowing.
As Dickerson tried to move the meeting on to topics including international expansion, Silverman spoke up. “I don’t think we’re big at all,” he told the board. “We’re at the early stages.”
Silverman pressed Dickerson to get more aggressive about the rate of growth, and called for a renewed focus on increasing sales. Privately, he came away concerned about the company’s trajectory. “There was not a sense of crisis,” Silverman said.
Senior employees at the company during this period say that Dickerson was already pressing the team to accelerate the rate of sales growth, and that he had encouraged employees to read “A Sense of Urgency,” a management book by John Kotter.
In March, things got worse for Dickerson. Black and White Capital, a small hedge fund, took a stake in Etsy and sent a private letter to the board, saying it was insufficiently focused on sales growth, that operations were inefficient, and that the company should “explore strategic alternatives” — a euphemism for selling the company. Soon after that, TPG and Dragoneer, two powerful private equity firms, bought into the company’s stock. Among members of the board, a consensus emerged that Dickerson had to go.
“The house was burning and nobody was paying attention,” said Fred Wilson, the co-founder of Union Square Ventures, which was an early investor in Etsy, and the board chairman. “Chad got the company about as far as he was going to get it. We needed somebody to take it to the next level.”
Instead of the soft skills that Dickerson brought, the board wanted someone with experience in marketing, software and e-commerce, someone who was comfortable at a big public company. In other words, someone like Silverman.
The Soul of the Company
At 4 p.m. Tuesday, May 2, Dickerson called an emergency meeting in the Etsytorium, a cavernous conference room inside headquarters. Usually a loose public speaker, Dickerson read from a script, his voice shaking as he made an announcement: He was laying off 80 employees — the largest cuts in Etsy’s history. And, he said, he had been fired by the board.
Dickerson broke into tears, and sat down to steady himself. Many in the audience openly wept.
Dickerson had learned that he was being replaced only days earlier, and his termination was effective immediately. Even by the unsentimental standards of corporate America, it was an abrupt transition. That night, a large contingent went drinking at a local beer garden.
The next morning, Dickerson, Silverman and Wilson all addressed the company. Dickerson told the crowd he was hung over. Wilson made some perfunctory remarks. “If you’re going to blame anyone for this decision, I want you to blame me,” he said.
Finally, Silverman took the microphone, addressing his new staff for the first time. After introducing himself (and noting his gender), Silverman spoke about his background and experience. He said he wanted to preserve what was best about Etsy and help the company grow.
When he began taking questions, the room turned hostile.
“Yesterday felt impersonal, unempathetic and decidedly un-Etsy,” the first employee said, according to a recording of the meeting. “What is the new leadership planning to do to earn our trust and maintain the empathetic and human culture that is the entire reason that many of us chose to work here?”
“Trust is earned, not granted,” Silverman replied. “Keep an open mind, and we’ll get to know each other.”
Employees saw Dickerson one last time. The next Friday, he came back to the office to give a Last Lecture, a traditional Etsy send-off. Dickerson spoke openly about his personal life and his time with Etsy. Everybody cried.
Silverman wasted no time making changes. His sole focus, he said, was speeding up the pace of sales growth.
He identified 30 projects that had the best chance of boosting sales on the site. Etsy began giving buyers more assurances, telling them that it didn’t share credit card information with sellers, and that the company would refund their purchases if something went wrong. It began encouraging sellers to compare prices before listing an item. And for the first time, Etsy is running sales and promoting the holidays. Each of these changes, Silverman said, resulted in modest but measurable sales increases.
Not everything worked. A move to display all-inclusive pricing, instead of the cost of the product and shipping separately, hurt sales and upset sellers. And a new way of displaying search filters didn’t move the needle. “More than half of the things we try don’t work,” Silverman said. “But we’re trying things.”
Other projects were shut down. Etsy Studio, a new marketplace for arts and crafts supplies that had consumed significant resources, was sidelined. Plans for further international expansion were put on hold. A marketing campaign was scrapped.
At the same time, Silverman began redrawing what he said was a convoluted organizational chart. Too many people were managers, he said, and too many managers had too few reports. On June 21, less than two months after taking over, Silverman announced another, larger round of layoffs.
Despite the tumult, Silverman said progress was being made as small tweaks to the site began to pay off. “We subtracted people and we’re getting a lot more done,” Silverman said. “There’s a lot more focus, a lot more urgency.”
Several current Etsy employees said that they appreciated a new sense of direction and accountability, and that the company was becoming more innovative. “The tolerance for risk has gone up significantly,” said Linda Kozlowski, the chief operating officer. “There’s been a cultural shift of accountability in a good way.”
With sales up, Etsy is highlighting successful sellers with a series of videos. But not all users are happy. For years, sellers and buyers have complained that as Etsy has grown more popular, mass-produced goods have flooded the site, making it harder to find handmade items, and harder for sellers to make a living.
“They’re doing their best to mimic eBay and Amazon,” said Amy Stringer-Mowat, co-founder of American Heirloom, a Brooklyn company that makes customized bamboo cutting boards. “It’s hard to bite the hand that feeds you, but that’s the best way to describe how I feel about what’s going on.”
Stringer-Mowat’s company got started on Etsy, but she said sales on the site have slumped in recent months. She stopped hearing from Etsy employees in the marketing department who had helped her promote her business, and she said Etsy was pressuring her to offer cheaper shipping rates, which cuts into her profits.
“I’ve seen Etsy through all these changes,” said Glassenberg, who has noted a dramatic change in tone from the company on her blog. “And for the first time, I’m worried.”
Inside Etsy, Silverman’s reorganization has upended parts of the company once considered sacrosanct. Last month, Etsy changed its mission statement. Gone was a verbose commitment “to reimagine commerce in ways that build a more fulfilling and lasting world.” Instead, the mission was reduced to just three words, “Keep commerce human,” accompanied by a spreadsheet outlining its goals for economic, social and ecological impact. And because remaining a B Corp would require the company to change its legal standing in Delaware, where it is incorporated, Etsy will let that certification lapse.
Silverman insists that Etsy is still a mission-driven company. Many perks remain in place, and the company is lobbying in Washington, including for the protection of net neutrality. But Silverman says Etsy’s greatest potential for impact is helping sellers — many of whom are women running small businesses — increase their sales. “The company had the best of intentions, but wasn’t great at tying that to impact,” Silverman said. “Being good doesn’t cut the mustard.”
On Glassdoor, the career reviews website, Etsy’s overall company rating has declined sharply since May. Many of the anonymous reviews portray a company in decline. After The New York Times asked Etsy about the ratings, a member of the human relations team asked employees to talk up the company on Glassdoor. In a matter of days, several new glowing reviews appeared with titles like “Why I love Etsy.”
Opportunities to Grow
On the afternoon of Nov. 6, Etsy reported strong quarterly earnings. Sales, revenues and adjusted profits were all up. In after-hours trading, Etsy shares spiked. When the markets opened the next morning, however, the stock slumped. The results, fine as they were, were not good enough.
Three days later, Silverman was back in the Etsytorium, addressing his staff. The quarter was proof that changes to the company were paying off, he said, suggesting that the tumult of the past six months had not been in vain. “The quarter that we just reported, that you all worked so hard to deliver, means so much to Etsy and to all the people who rely on us,” Silverman said. “I’m super fired up.”
Etsy will likely grow with Silverman as chief executive, but it may never again be the sensitive community fostered by Kalin and nurtured by Dickerson. Once a beacon of socially responsible business practices with a starry-eyed workforce that believed it could fundamentally reimagine commerce, Etsy has over the past year become a case study in how the short-term pressures of the stock market can transform even the most idealistic of companies.
“There’s only so much wiggle room as a public company,” said Stinchcomb, the early employee. “If you really want to build a company that works for people and the planet, capitalism isn’t the solution.”
Wilson, the chairman of the board, dismisses that as sentimental hooey.
“To all the people who say taking Etsy public was a mistake, I say that’s ridiculous,” Wilson said. “There are some people who will say, ‘Well, it’s not right for me. I like the old culture.’ Well, I’m sorry about that. Going public was the best thing that ever happened to this company.”