Scaling

Per our previous post which was published on the Etsy blog, here is the fourth entry in our cutting-room floor conversations series.

ERIC: There is one attribute that I think is really exciting. It’s what I call having a continuous path to scale.

So in the old days you might have crafted something that you thought might sell. It’s just that you had to make a decision at the beginning, “Am I going the craft route or the mass production route?” If you had a successful craft product, you couldn’t just be like, “Oh yeah, let me make a zillion of these and sell them everywhere.” You weren’t plugged into the right distribution channel, if you didn’t have the right manufacturing capabilities, you didn’t have the right way to sell a product. You had to be in retail or boutique stores or in the back of your car. Remember those days? Crazy.

What’s awesome about Etsy and so many other platforms is you can start small like just what you said. You get the $2.00 worth of listings and that exact same platform could take you to millions of dollars in sales. You don’t need to re-tool. You don’t need to rebuild. Especially for people who are using the maker bots and that kind of new low cost printing kind of automated manufacturing capabilities, I think they’re the first who are going to experience the distributed power of the manufacturing part that basically you’re just making the design and you could potentially have thousands of maker bots all over the world cranking it out and sending it to your customers. I don’t want to get too futuristic, but I think that that is the future.

ASHLEY: So one of the things I noticed is that there are sellers who find that they have a sticky engine of growth–like ashleyg for example, or theblackapple. So they’ll create a product. They won’t even have known that there is a market for it and it will just sell like hotcakes on Etsy. They get to a point where I think they plateau. You can only make I would say maximum, $100k on Etsy just because one person doesn’t scale very well. There is not enough time in the day for one person to do everything handmade. So when you’re ready to take it to the next level and you want to make millions of dollars or you really want to mass produce your product and distribute it worldwide, what would you suggest is the next step to take? Is there another methodology or can you scale using The Lean Startup methodology? What would you tell an Etsy seller at that point?

ERIC: Yeah, we really believe that you can scale using The Lean Startup methodology. In fact, we do quite a bit of work with established companies who have realized that they’ve been through that scalability ramp and in the process lost their innovative DNA and now they’re struggling to get it back. They need to incubate internal startups. So we realize this is a full lifecycle method that people when they get successful they tend to get bureaucratic and they lose that innovation edge and then they get disrupted themselves by the next incumbent. The key is to be able to disrupt yourself, to keep being innovative even as you scale.

What I experience in the companies that I work with that have achieved what I call product/market fit, you kind of get to that moment you’re like, “Oh my God, the rocket ship is starting to take off here.” It’s basically like founding the company all over again. You have to go back to the drawing board and start to run experiments. The experiments now aren’t about like, “Hey, does anybody even want this thing?” The experiments are about how do we scale it up and what are the bottlenecks and how do we alleviate them? So for someone who has been hand crafting products, one of those big experiments is going to be around trying to learn enough about mass production to make it work.

I’m no expert in crafting. I want to make that super clear. But the general pattern is what I call the rentership of the means of production based on the old Carl Marx saying. This is the situation where it used to be if you didn’t own the factory, you could not make the widgets. They’re no longer. For almost every product category now there are people who will let you rent mass production time on their systems. Then you can take your design and mass produce it using someone else’s equipment. You actually learn how to do it in order to get the cost down and make and drop ship it all over the world.

So moving from craft production to that kind of mass production is a big risk. It’s a big jump. It’s different. The cool thing about waiting to learn that until you already have a product, actual products that are working and people are buying, is that you don’t have to take like 10 different kinds of risk all at once. You already have an existing clear market base. With a good customer base you can take to one of those suppliers and say, “Listen, I know how much profit I can make from this. I know exactly what people are willing to pay for. Help me make this a reality.” Instead of, “I’ve got this crazy business plan for these things that maybe people one day will want.”

ASHLEY: Wonderful. It wasn’t all that long ago that there was a huge chasm between manufacturers and the small guys. If you didn’t have a connection on the inside, it was very hard to get things into production. I completely agree with you. I think being able to rent manufacturing space or equipment has really closed that gap. I think it’s just a matter of time before Etsy sellers catch onto the idea that they can get to that point and that it’s not a huge, scary risk. Especially if they have found a product/market fit and they know the cost of materials, etc. It just seems like the natural next step.

ERIC: One of the companies we profiled is called SGW Design Works. They’re in Boise, Idaho of all places. They’re a consulting company that specializes in rapid prototyping. I think there are a lot more people like that who have this expertise and know how to deal with CAD drawings and get that stuff drop-shipped and this new thing called CNC which is computer numerical controls. It’s basically mass production that’s completely computer controlled instead of requiring humans to do the stages. If you can find an expert like that who can help you – I guess after you already know what you’re trying to accomplish it really is quite easy compared to how it was even five, 10 years ago.

Photo Credits: Earrings can be found in the Etsy shop, Orno.  They were etched using a laser cutter.  Yet again, one more way to scale on your handmade products without hiring more hands.