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>Market value means that your turnover should already be low, your employees can't leave for better paying jobs. The curve isn't flat. >Do you really think th

>Market value means that your turnover should already be low, your employees can't leave for better paying jobs. The curve isn't flat. >Do you really think those people are going to leave Etsy because it no longer has the CEO's cult cheerleader squad decorating the offices? I think people that spend their time learning a craft then peddling hand crafted objects for, let's face it, love over money, will not want to work for anything approaching a Wal-Mart or other 'soulless corporation'. Speaking generally, of course.

clavalle 9y ago
>The easiest response is to ask you to read some Warren Buffett. I've read plenty of Buffet, Munger, Graham, Dodd and the rest. Pretty common knowledge. What you are missing in your analysis is that Buffet et. al. invest in very well understood businesses (hell, they didn't even touch Amazon). Very well understood businesses tend to have very well understood systems (including the people and their roles and contribution to those systems. They have settled to a point where they /are/ interchangeable. They also tend to be boring and have well understood moats like huge capital or regulatory requirements. They can thrive in the fat part of the curve (or even a bit below it if they have stellar management). Etsy is none of those things. They are carving out a new niche (or an very old niche with very new scope) with new technology in a constantly changing landscape that, really, anyone with a laptop and some free time could monkey. They will die if they try to live with average, interchangeable parts. No doubt about it.
- valuearb 9y ago
  If Etsy's management didn't understand their business, they shouldn't have been it's management. But truth is, their business isn't from Mars, it's easy to understand, even if it's not easy to optimize. And if they truly need special custom development, why are they so poor at doing it? Where are the benefits of all that admin spending? And BTW, I can't think of one Berkshire business that has any significant moat from "like huge capital or regulatory requirements". In Insurance their real moat is either the direct cost model (GEICO), or their underwriting discipline and long term thinking. Etsy should know what makes it special to customers. Why isn't it more efficient at delivering that?
  - clavalle 9y ago
    >Etsy should know what makes it special to customers. Why isn't it more efficient at delivering that? It is a Very Hard Problem and I don't envy them at all. Verification of authenticity. I honestly wouldn't know where to begin. Spot check with live people? Expensive and begging for errors. Have sellers document their process? Easy to fake and expensive to check. Have a hair trigger for banning people that are clearly breaking the rules? They also have the structural problem that Painstakingly Crafted generally takes time. That means less throughput. And all of that is on top of the general problems of running an internet retailer with global reach. Because of all of the pressures of throughput and the cost of verification they decided to ignore all of that and just give up, for the most part. And now it is a race to find a new 'quirky stuff that looks crafty' niche like an online Hobby Lobby to live in or lose their brand completely. I don't think it will work in the long term and I think we are witnessing a slow motion Pets.com. Probably, what they'd need to do is split what they are doing. One side would be how most of Esty is right now: a bunch of Hobby Lobby level quality crafty looking things that aren't actually hand crafted in any meaningful sense. It would be the place to go to get cheap, somewhat unusual gifts. On the other side would be high end items. Hand crafted $2000 rocking chairs, for example. Something that can be marked up significantly and that it is worth it to go the extra mile by Etsy and sellers to verify is handcrafted. Maybe video walkthroughs of the process, spot checks, samples sent in to Etsy to be examined by experts etc. Sellers can exist in both areas or one. The Verified Crafted side would buttress the Crafty but not Crafted side brand wise and the Crafty side would have a larger, more predictable income stream to make sure Verified Crafted can tackle the sticky problems it faces.
  - tomc1985 9y ago
    > But truth is, their business isn't from Mars, it's easy to understand, even if it's not easy to optimize. And if they truly need special custom development, why are they so poor at doing it? Where are the benefits of all that admin spending? Speaking of Buffet, this sounds a little bit like his explanation of the "Institutional Imperative" http://www.berkshirehathaway.com/letters/1989.html http://www.berkshirehathaway.com/letters/1989.html (just above the 'miscellaneous' section at the bottom)
valuearb 9y ago
The curve isn't flat, but the benefits are massively disproportionately expensive the farther up it you go. This isn't an argument about making the company "soulless". You can still have a great and fun work environment without spending 25% of sales on admin. And much of what makes work enjoyable isn't benefits, but leadership. Having management that is competent, humble, approachable, and driven to empower employees can change a lot.
- clavalle 9y ago
  No argument here but what do you mean by 'admin'?
  - valuearb 9y ago
    "Etsy’s general and administrative expenses amounted to 24 percent of total revenue. (EBay and MercadoLibre.com, the Latin American online marketplace, each spend about 10 percent of revenue on such expenses.) " I should have said G&A (general and administrative expenses). Essentially the cost of your workforce, the offices, benefits, etc. Etsy's is huge compared to any reasonable comp, and nowhere has anyone explained why it must be so. Ebay has bigger economies of scale, so maybe Etsy can't really get to 10% with their smaller sales, but it should be in the 10-20% range. If it's "correct" number for G&A is 14%, they are essentially taking 10% of every sales dollar to spend on a party for the employees. It also means their total compensation per employee might be as much as 70% higher than market. Total comp is pay, payroll taxes, benefits such as medical/dental/parking/mass transit/etc. Probably not, since it also includes office expense such as the cost of the CEO's merry band of office decorators. But it's not hard to imagine that they might be 40-50% over market in employee comp, plus spend way too much on office costs.
    - clavalle 9y ago
      Interesting. So you are talking about executive management, finance, and other overhead staff not developers or product development. I asked because you mentioned developer salaries earlier in the thread. 24% does seem awfully high.

clavalle 9y ago

>The easiest response is to ask you to read some Warren Buffett. I've read plenty of Buffet, Munger, Graham, Dodd and the rest. Pretty common knowledge. What you are missing in your analysis is that Buffet et. al. invest in very well understood businesses (hell, they didn't even touch Amazon). Very well understood businesses tend to have very well understood systems (including the people and their roles and contribution to those systems. They have settled to a point where they /are/ interchangeable. They also tend to be boring and have well understood moats like huge capital or regulatory requirements. They can thrive in the fat part of the curve (or even a bit below it if they have stellar management). Etsy is none of those things. They are carving out a new niche (or an very old niche with very new scope) with new technology in a constantly changing landscape that, really, anyone with a laptop and some free time could monkey. They will die if they try to live with average, interchangeable parts. No doubt about it.

valuearb 9y ago
If Etsy's management didn't understand their business, they shouldn't have been it's management. But truth is, their business isn't from Mars, it's easy to understand, even if it's not easy to optimize. And if they truly need special custom development, why are they so poor at doing it? Where are the benefits of all that admin spending? And BTW, I can't think of one Berkshire business that has any significant moat from "like huge capital or regulatory requirements". In Insurance their real moat is either the direct cost model (GEICO), or their underwriting discipline and long term thinking. Etsy should know what makes it special to customers. Why isn't it more efficient at delivering that?
- clavalle 9y ago
  >Etsy should know what makes it special to customers. Why isn't it more efficient at delivering that? It is a Very Hard Problem and I don't envy them at all. Verification of authenticity. I honestly wouldn't know where to begin. Spot check with live people? Expensive and begging for errors. Have sellers document their process? Easy to fake and expensive to check. Have a hair trigger for banning people that are clearly breaking the rules? They also have the structural problem that Painstakingly Crafted generally takes time. That means less throughput. And all of that is on top of the general problems of running an internet retailer with global reach. Because of all of the pressures of throughput and the cost of verification they decided to ignore all of that and just give up, for the most part. And now it is a race to find a new 'quirky stuff that looks crafty' niche like an online Hobby Lobby to live in or lose their brand completely. I don't think it will work in the long term and I think we are witnessing a slow motion Pets.com. Probably, what they'd need to do is split what they are doing. One side would be how most of Esty is right now: a bunch of Hobby Lobby level quality crafty looking things that aren't actually hand crafted in any meaningful sense. It would be the place to go to get cheap, somewhat unusual gifts. On the other side would be high end items. Hand crafted $2000 rocking chairs, for example. Something that can be marked up significantly and that it is worth it to go the extra mile by Etsy and sellers to verify is handcrafted. Maybe video walkthroughs of the process, spot checks, samples sent in to Etsy to be examined by experts etc. Sellers can exist in both areas or one. The Verified Crafted side would buttress the Crafty but not Crafted side brand wise and the Crafty side would have a larger, more predictable income stream to make sure Verified Crafted can tackle the sticky problems it faces.
- tomc1985 9y ago
  > But truth is, their business isn't from Mars, it's easy to understand, even if it's not easy to optimize. And if they truly need special custom development, why are they so poor at doing it? Where are the benefits of all that admin spending? Speaking of Buffet, this sounds a little bit like his explanation of the "Institutional Imperative" http://www.berkshirehathaway.com/letters/1989.html http://www.berkshirehathaway.com/letters/1989.html (just above the 'miscellaneous' section at the bottom)

valuearb 9y ago

The curve isn't flat, but the benefits are massively disproportionately expensive the farther up it you go. This isn't an argument about making the company "soulless". You can still have a great and fun work environment without spending 25% of sales on admin. And much of what makes work enjoyable isn't benefits, but leadership. Having management that is competent, humble, approachable, and driven to empower employees can change a lot.

clavalle 9y ago
No argument here but what do you mean by 'admin'?
- valuearb 9y ago
  "Etsy’s general and administrative expenses amounted to 24 percent of total revenue. (EBay and MercadoLibre.com, the Latin American online marketplace, each spend about 10 percent of revenue on such expenses.) " I should have said G&A (general and administrative expenses). Essentially the cost of your workforce, the offices, benefits, etc. Etsy's is huge compared to any reasonable comp, and nowhere has anyone explained why it must be so. Ebay has bigger economies of scale, so maybe Etsy can't really get to 10% with their smaller sales, but it should be in the 10-20% range. If it's "correct" number for G&A is 14%, they are essentially taking 10% of every sales dollar to spend on a party for the employees. It also means their total compensation per employee might be as much as 70% higher than market. Total comp is pay, payroll taxes, benefits such as medical/dental/parking/mass transit/etc. Probably not, since it also includes office expense such as the cost of the CEO's merry band of office decorators. But it's not hard to imagine that they might be 40-50% over market in employee comp, plus spend way too much on office costs.
  - clavalle 9y ago
    Interesting. So you are talking about executive management, finance, and other overhead staff not developers or product development. I asked because you mentioned developer salaries earlier in the thread. 24% does seem awfully high.