Will Wall Street ruin Etsy’s social and eco values?
Etsy’s share value nearly doubled in its first day of trading last week as a public company. But with the company’s commitment to social and environmental accountability over shareholder value, many question how long the Wall Street love will last.
The online shopping marketplace, which connects makers of handcrafted goods to buyers, is a Certified B Corp, which means it pledges to adhere to social, environmental and transparency guidelines set by independent certifier B Lab.
In its prospectus, Etsy warned that its focus on the long-term sustainability of the business and the "ecosystem" may hurt its short- or medium-term results and that the longer-term benefits may not materialize "within the timeframe we expect or at all."
As an example, Etsy said it may change its shipping practices or locate its servers in "low-impact" data centers to reduce its eco-footprint "even though these actions may be more costly than other alternatives."
![[Image: Etsy]](/public/images/discussions/18230/etsy-still.jpg)
Among its other quirks, it pays employees 40 percent above local living wages, offers paid time to employees for volunteering and composts its food waste at its headquarters.
Etsy claims to want to change the conventional business model that often puts maximizing profits above community.
"For decades now, the conventional and dominant retail model has relentlessly focused on delivering goods at the lowest price, valuing products and profit over community," wrote CEO Chad Dickerson in filings. "I do not believe that this race to the bottom is a sustainable, successful model."
Patagonia and Warby Parker are also B Corps, but only one other, Rally Software, has gone public. Unlike Whole Foods and Container Store that embrace a similar "conscious capitalism," the guidelines of B Corps are embedded as foundational documents.
One challenge, according to the New York Times, is that that if Etsy eventually reincorporates as a full-fledged "benefit corporation," as required under B Lab rules, it could be sued for falling short of its social and environmental standards.
The broader challenge is that, while revenues are strong, the company hasn’t made a profit and may have to lower its standards to get into the black. It makes money from a 20-cent listing fee, a small cut from items sold, and advertising and payment services. Etsy also won’t give quarterly or annual revenue guidance, instead saying it will "talk to investors."
Writing for Bloomberg, Katie Benner says that just as Google has, Etsy will likely have to adjust during challenging times. She wrote, "Investors are like waves beating on the shore: Eventually, they make all the rocks basically look the same."
- Etsy’s IPO prospectus – Securities & Exchange Commission
- Etsy I.P.O. Tests Pledge to Balance Social Mission and Profit – The New York Times (tiered sub.)
- Does Etsy’s IPO mean goodbye to crocheted shorts? – Bloomberg News
- Can a happy, crunchy company like Etsy really survive on Wall Street? – The Washington Post (tiered sub.)
- Etsy’s Gearing Up to Make History — But Is Wall Street Ready for It? – TheStreet.com
- Etsy IPO challenges company’s socially conscious reputation – Marketwatch
Discussion Questions
As a public company, will Etsy be able to hold onto its social and environmental ideals? How much equity does Etsy gain from consumers and its sellers for its B Corp status?
As a public company it’s going to be difficult for Etsy to hold on to its social and environmental ideals. Suddenly Etsy management is going to be responsible to shareholders, not their personal ideals (which built the company). But like many tech companies that are not profitable, Etsy was in a position of having to please its investors and employees, so they cashed in and went public. Etsy will be able to hold on to some of its ideals. Others will fall by the wayside as the reality of being a public company sets in.
Conscious Capitalism is a fascinating thing—one that flies in the face of MBA 101 (“The purpose of a corporation is the increase shareholder wealth”) and also includes improving life for its employees and stewardship of the communities in which it operates.
The easiest thing to say is “traditional Capitalism is so 20th century.” The Container Store is a great place to shop, after all.
The B Corp idea is fascinating, but I would probably avoid filing that way because the U.S. is a very litigious country—too risky.
If one knowingly buys into the concept of principles over profit and the “breakthrough” idea of investing in the future rather than immediate profit skimming, then frankly, you are obligated to ride that horse to the finish line. Otherwise it’s like debating how long your marriage will last while on your honeymoon. If you invested in Etsy and find greed creeping back into your consciousness and you’re on the verge of backsliding your way to destruction, go get help.
As I understand it, Mr. Dickerson could not have been more clear as to what Etsy is all about. He deserves our utmost admiration. That said, even companies devoted to conscious capitalism have to be managed wisely, significantly better than are those with little evidence of principle.
I’m not so sure one can cast Wall Street as the villain here. As a public company, if shareholders (including the executive and staff at Etsy) want to reap the benefits of a high P:E ratio, then they need to deliver strong and sustained growth. Period. That’s the math. Are shareholders expected to add a stewardship premium to EPS? Not likely. So it’s back to the question of if customers are willing to pay a premium for it. I hope so, but the reality is often that in order to sustain high growth levels, the target market widens, and you often get into segments less willing to pay a premium for such. I can’t hazard a guess, I can only hope.
If Etsy holds onto its social responsibility, ultimately Wall Street will be disappointed. Their metrics will be compared to all other companies and it won’t be satisfactory. Yesterday Wall Street bought revenue growth. Tomorrow they will look for a bottom line that delivers not Etsy’s expectations, but their own.
Yes, Etsy will be able to stay true to its values as a socially conscious enterprise as they will likely attract investors who share the same values. There’s a a big movement in conscious capitalism/investment and investors asking their financial advisors to build social portfolios. Etsy could potentially become the “blue chip” for such investment strategies!
It would be great if they could, but I agree with Katie Benner’s comment, “Investors are like waves beating on the shore: Eventually, they make all the rocks basically look the same.” There will come a time when the mission is challenged by the need to make money and Mr. Market, is almost impossible to ignore, even when he’s wrong.
Best of luck to Etsy though and if they can continue to move the needle beyond where they have taken it today, that would be beneficial, IMO.
The question is what side of corporate history do you want to be on?
In the post social media world of business, demand is driven by customers who pump up interest in things due to values, authenticity and conscientiousness. People don’t say on social media: “Hey, I just bought this amazing product made by underpaid third world workers, etc.” They make noise about a product to say: I am part of this movement.
We are already seeing greater transparency in retail regarding global sourcing with retailers correctly making a fuss over the treatment of workers and that’s what is making domestically manufactured products interesting to consumers. ETSY is there—on that side of corporate history. That’s the bet.
Maybe. Etsy needs to always remember that they are in business to make money. If they keep losing money over time, they will go out of business. Plain and simple.
Other sellers like Patagonia, Warby Parker, Ben & Jerry’s, and Method have operated as B Corps. Etsy is different for two reasons: it’s the only publicly traded company and the only online B Corp without its own branded products.
The IPO has provided advantage to its brand and disadvantage to its operations. IPO-generated awareness plus a unique set of principles will boost its brand value, which already has strong equity around indie goods and social responsibility. IPO-generated investor scrutiny of sustainable practices and higher wages will challenge its cost structure in two directions, one pulling for purity, the other pulling for pragmatism.
How will it resolve these contradictions? Expect Etsy to launch revenue generating services that trade on its brand more than operations. The easiest would be private label, but that would be sternly opposed by sellers. Others include certifications for sustainable products and consulting for B Corps. Just like Amazon it will be able to apply its unique capabilities far beyond retail.