Business development / Communities / Entrepreneurs / Jobs / Startups

Can the market play nice with social good? Etsy suggests not

A new feature in Bloomberg Businessweek lays bare some of the tensions behind the company's recent turmoil.

A green wall in Etsy's headquarters. (Photo by April Joyner)

Etsy recently saw its CEO and CTO ousted after a disappointing earnings report. Layoffs followed. No doubt, it’s a rocky time for the Dumbo company.

A feature in Bloomberg Businessweek lays out one possible reason why: the company’s social good ambitions, such as its recent green-building certification, aren’t impressive to investors who are looking to maximize profit above all.

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This tension was laid bare by activist investor Seth Wunder of Black-and-White Capital, as Businessweek‘s Max Chafkin and Jing Cao write. Wunder criticized Etsy for its high operating expenses, which amount to nearly a quarter of the company’s revenue:

Among the departed were engineers, as well as employees from some of Etsy’s more far-out groups, including the “office hackers,” a group responsible for developing cool stuff for Etsy employees like a paint-by-numbers mural and a system for tracking office waste, as well as the “values aligned business” group, which is in charge of making sure that Etsy stays true to its beliefs.

Yet those expenses include many of the employee perks and social responsibility initiatives that are part of Etsy’s brand. The story includes a quote from Charlie O’Donnell speaking to this:

And yet, says Charlie O’Donnell, a venture capitalist who was at Union Square Ventures when it led the first investment in Etsy, this idealism is one of the company’s most important attributes. He credits it with allowing Etsy to recruit talented engineers away from Google and Facebook and helping it attract a distinctive crowd of buyers and sellers. “This is something a lot of investors miss and don’t understand is an asset,” he says. “It does translate into growth.”

But for other investors, that ethos isn’t so compelling. Namely, Etsy’s revenue hasn’t been growing apace with expectations: its growth has fallen from 44 percent at the beginning of 2015 to 25 percent at the end of last year. As a result, its stock price has fallen sharply since its April 2015 IPO.

The notion of Etsy’s emphasis on social benefit conflicting with its responsibility to shareholder doesn’t bode well for the company’s status as a B Corp: a nonprofit certification that serves as proof of a company’s adherence to social benefit principles. It’s an issue we reported on even before the company’s IPO in 2015. Keeping with our predictions then, the Businessweek story suggests that the company will likely let its certification lapse.

That’s likely why fellow Brooklyn B Corp Kickstarter has declared it will never go public.

Series: Brooklyn

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