On March 4th 2015, Etsy Inc. filed its S1 to go public. This gives us the rare chance to analyze the deepest growth secrets of a successful startup (can you call it startup after 10 years?) that beat the odds and made it to the top of the tech world.
What did Etsy do?
Etsy, founded in 2005, is a marketplace website focused on handmade or vintage items and supplies, as well as unique factory-manufactured items. The soon to be public, startup and its success are the perfect medium to convey a very important message to new startups and growth marketers:
You cannot rely on paid channels in order to successfully scale a business.
In order to support this statement, Etsy and its S1, provides a very handy chart you can see below.
The chart shows how the majority of Etsy’s visits come from organic marketing channels. More specifically, you can see similar trends for the past 4 years, with paid advertising driven visits ranging between 2–7%.
It is easy to assume that after a big round, success awaits through great amounts of advertising spending, but successful startups are the ones that are able to achieve exponential growth through organic channels. The way I usually describe the major flaws of paid channels is:
You are trying to achieve exponential growth, through linear channels.
Paid channels are “awesomely” linear (more spending = more eyeballs), making them an easy and very fast lever to use. Yet it is a short term game, that will not create sustainable growth. Plus, we are now in an era where everybody turns to paid marketing and often our cost of acquisition gets arbitraged away by competitors.
How did Etsy do it?
So how did Etsy’s achieve a whopping 87–91% of traffic from organic channels?
Well, though I believe a combination of different factors contributed to this, I think one strategy was most utilized. They empowered sellers to be independent entrepreneurs
In a 2013 interview for PandoDaily, Etsy’s CEO, Chad Dickerson, stated that he attributed the growth in users, in part, to sellers promoting their own shops on social media.
Etsy’s CEO is not kidding, try searching #etsy on Twitter and a myriad of tweets will surface. But for real. Even greater effect happens on more image driven platforms such as Pinterest and Instagram. They are able to massively leverage other existing platforms in order to stay top of mind.
In a study conducted by Nielsen they evaluated that, 92 percent of consumers report that social recommendations are the leading influence on their purchasing behavior. This greatly reflects in the growth achieved by Etsy mainly through social media. Users acquired through social recommendation have a much higher LTV compared to users acquired through paid channels.
In reality, what Etsy did so well was enabling individuals to be entrepreneurial with their hobbies. They created a virtuous cycle through several touchpoints, all directed towards helping the seller first: the “Seller Handbook” (Etsy’s Blog), internal management tools to better process their orders and staying in touch with their customers, deep social media integrations (as analyzed above), and sponsoring a great amount of third party apps to better manage your Etsy store and increase your revenues.
Very few of very neat examples:
- Craftmonkey: create marketing emails to send to your MailChimp lists by dragging and dropping Etsy’s product images and text.
- PICT: uses hotspots to embed links and product information inside of each picture, a feature that leads customers back to your store even when the image is shown on another site.
- Around.io: enables you to schedule promotional updates on Facebook, Twitter, Pinterest and Google+.
You can find all of them here (+160… how come nobody ever talks about this!)
They were able to really foster an entire third party application store to better serve their sellers!! (They are really into getting people to do work for them).
Etsy made a compelling product for the supply side of the marketplace, the supply then unlocked the demand through white hat social media. Etsy’s incredible organic channel is the entrepreneurial drive of its sellers.
The underlying strength of this organic channel is evidenced by Etsy’s repeat purchase rate. That is, the majority of Etsy’s GMS is generated from repeat purchases. Incredibly, in 2014, 78% of purchases were from repeat customers.
Higher revenues for sellers => Higher seller retention => Higher seller personal promotion through social media => Higher visibility for Etsy’s products => Higher GMS => IPO ☺
Etsy has currently 1.4 million active sellers on its platform pushing its brand and products… Simply a remarkable channel.