Earlier today, Fred Wilson wrote a post about an entrepreneur who pitched him on a business he sees as a competitor to one of his portfolio companies. That entrepreneur was me, that business is Wander&Trade, and that portfolio company is Etsy.
The perceived conflict is this: both Etsy and Wander&Trade have their eyes on small business vendors. This perception is also reality. What is not reality is Etsy’s ability to recruit and retain small business vendors, at least not in its current incarnation, while Wander&Trade has built its entire platform around it.
Tl;dr: Etsy is a great company that has mastered the crafter market. However, most small businesses that are beginning to scale, have a product line that is picking up steam and is already sold in volume via major retailers, and are focused on building a brand name for itself — i.e. the profile of Wander&Trade vendors — are highly unlikely to be interested in having their products sold next to handmade wares on a platform that is known for catering to crafters.
For anyone who understands branding, this is a simple, obvious truth. But its deeper than that.
Last year, there was a controversy around Etsy kicking out vendors who had grown from crafters handmaking products into businesses manufacturing products at scale. After these vendors rebelled, because they had nowhere else to go, Etsy changed its rules to allow vendors to have non-handmade items.
This reveals two things. First, there’s an opportunity for a marketplace to service small businesses just beginning to scale. Second, that Etsy isn’t that marketplace.
First, the opportunity. This is obvious. Had there been someplace else to go, the vendors would not have pressed Etsy to let them stay.
The second point is similarly cut and dry. Etsy was kicking these people off because they didn’t fit. I repeat: Etsy kicked these people off because they didn’t fit! Yes, Etsy changed its rules to let these vendors stay. However, Etsy has spent 10 years building a business to service crafters, not small businesses ready to scale. Changing your rules will not change those 10 years of branding, product design, business planning and financials overnight.
However, Wander&Trade has built a marketplace that is specifically tailored to the small business vendor. Crafters like Etsy’s handmade brand; small business like Wander&Trade’s local business story. Crafters feel at home with Etsy’s unpolished UI; small businesses expect Wander&Trade’s sexier presentation. Crafters will use product photos shot on a phone; small businesses need more sophisticated merchandising, including professional photography and copywriting, which Wander&Trade provides. Crafters can’t afford to give up more than the 3-15% Etsy takes; small businesses, who are used to giving up 50% at retail, find Wander&Trade’s 25% take rate to be a steal. Crafters are okay with the fact that Etsy’s smaller margins don’t allow it to invest in backend technology, dropshipping infrastructure, customer service help, and other details that provide a premium experience for both the vendor and customer; small businesses not only need and expect it, but Wander&Trade’s financials can afford it whereas Etsy’s cannot.
None of this means Etsy is a bad business. Quite the contrary. Its just a very different business.
Let’s assume that Etsy, now a billion dollar company, were nimble enough to quickly revamp its entire product to service a small business market. Let’s assume it would be willing to up its take rate to 25%, alienate the majority of its crafter vendors, and double down on small businesses. How would Etsy ever get there? It has spent a decade doing something completely different. Etsy’s DNA doesn’t even begin to equip it with the tools needed to accomplish such a task. This doesn’t make Etsy a bad business — quite the contrary, it’s an amazing business — but it makes changing its stripes virtually impossible.
But not entirely impossible. Etsy could build a new, complementary brand that crafters can “grow into” once they’ve scaled. Or Etsy could purchase such a company.
Unfortunately, no one else is doing this — a platform with a vertical agnostic marketplace structure that is tailored specifically to small businesses — with the exception of ScoutMob and maybe AhaLife. And I don’t see Etsy buying ScoutMob, who’s currently raising a $10mm series B, anytime in the near or distant future. However, I fully admit that Etsy could build something that resembles Wander&Trade from scratch. And while I would advise it, I doubt Etsy would ever be able to. 10 years of a completely different DNA shows that its not in Etsy’s nature. Only if Etsy were to bring in someone from the outside would such a task begin to look feasible.
I digress. Fred is definitely right. The conflict is there. But it is also moot. Etsy can try to capture new small business vendors. But in its current incarnation, its unlikely happen.
If you’d like to find out more about Wander&Trade, including a link to the alpha product or an investor deck, email brandon [at] wanderandtrade [dot] com.