Web Masters Episode #54: Chris Maguire


Chris Maguire:

We got to talking to one of our professors, his name is Stephen Duncombe. He’s still at Gallatin, but his wife, Jean Railla ran a community site for crafters. It was called getcrafty.com. It had about 10,000 users. At the time it was just a message board, but people were really invested in it.

Kind of saw an opportunity there and Jean asked us if we’d be willing to redo the site, because it was looking a little long in the tooth. We were like, “Sure, we’ll do it for free, but pro bono, mostly because we want to learn how to build this type of software.”

So it was like, you get a free website, we get the experience of building social software, which worked out pretty great for us at least.

So we started actually getting involved with community and talking and getting into these threads and getting to know the members and it was really fun.

We kept on hearing as we were working on the site, rebuilding it for them was that like, “Man, I wish there was a better place to sell the things we were making. eBay is too expensive. Everything else out there is too hard to use. I don’t want to start my own site. This is really daunting. There’s nothing that caters to us as makers.”

And that’s where we were like, “Wait, wait, wait. Here’s an opportunity. It just dropped out of the sky. All right. Here’s a niche. We’re embracing it. We’re going to make an e-commerce site for crafters.”

Aaron Dinin:

Sure on its surface, an e-commerce site for crafters might sound like a niche business, but it turns out there are lots of crafters in the world. And even more people who want what they’re making. In fact, at the time of this recording that e-commerce site for crafters has grown into a company with a $28 billion market cap. It’s Etsy. And the person you just heard talking about it was one of the Etsy co-founders, Chris Maguire. Are you ready to hear the story? Let’s get dialed in.

[INTRO]

Aaron Dinin:

Hello and welcome to Web Masters. This is the podcast for people who want to learn about entrepreneurship. We do it by talking with some of the most successful entrepreneurs and internet history. My name is Aaron Dinin and I’m your host. I’m a serial entrepreneur, and I teach entrepreneurship at Duke University.

In this episode, we’re going to be exploring e-commerce two-sided marketplaces and the value of niche markets all while hearing the story of Etsy, one of the most successful e-commerce marketplaces in the world. How cool is that? It’s coming up right after I take a minute to tell you about our sponsor.

Web Masters is being brought to you with the help and support of our partner, Latona’s. Latona’s is a boutique mergers and acquisitions broker. They specialize in helping people buy and sell cashflow positive internet businesses and digital assets. That includes things like Etsy storefronts. So if you’re interested in those, this episode of Web Masters is a great one for you. Other types of internet businesses, Latona’s works with our SaaS apps, Amazon FBAs, domain portfolios, and content websites.

Basically, if you’ve got a business built around a product you’re selling online, talk to the team at Latona’s. They can help you get it sold for a great price. Or maybe you’re interested in buying an internet business. That’s great. Latona’s can help you with that too. Check out the Latona’s website where you’ll find current listings for all the businesses they’re currently helping sell. That website is latonas.com, latonas.com.

If you have been joining us here on Web Masters for a while, you’ve noticed we tend to float back and forth between stories about prominent websites most people have heard of and more obscure stories that while equally impactful, maybe aren’t as mainstream. On this episode, we’re talking about Etsy. It’s hard to get more mainstream than that. Even if you’ve never bought from the website, chances are, you’ve heard of the company and you know people who use the platform. It’s pretty ginormous, I believe is the word, but that’s also what makes Etsy’s founding story so interesting.

Even though Etsy is so big and so well-known, most people don’t know its founding story. It’s not part of tech startup lore in the same way we always hear about how companies like Facebook and Amazon got their starts, but maybe it should be. It’s definitely an interesting tale with lots of important entrepreneurial lessons. It’s also probably not what you’d expect as this episode’s guest, Chris Maguire explains. Even though Etsy is an online marketplace for crafters, it wasn’t founded by people particularly interested in crafting.

Chris Maguire:

There’s been some history that has been made up going backwards to make it seem like it fits better. We like baking stuff and we make it, but honestly it was something that fell into our laps. It was an opportunity.

Aaron Dinin:

To me, this is a really interesting distinction in the mythology of entrepreneurship and revolutionary companies. We tend to think of founders as people who are passionate about the problems their ventures are solving. Etsy is a good reminder of why that doesn’t have to be true. Entrepreneurship is about solving other people’s problems, not your problems. Chris Maguire and the Etsy story embody that. Chris didn’t set out to revolutionize the crafting industry. In fact, he didn’t even set out to be an entrepreneur.

Chris Maguire:

My family didn’t have any entrepreneurs. It was a way to pay the bills and it was way to pay the bills from my bedroom, to be honest. I liked the idea of not having to leave the house. But once I got into it, I was like, this is so much better than working for some other jerk. I can be the jerk. That’s great. So the idea appealed to me intensely, but I didn’t really have a foundation or knowledge or really any role models to follow in that. It was just kind of making it up as I went along.

Aaron Dinin:

So what was the pathway that led you to web entrepreneurship? How did you first get interested in tech?

Chris Maguire:

Well, the first computer, I guess, it was probably at a school. I went to public school in Philadelphia and the computer lab had Apple IIs which even back then were real old. It’s not like I’m that old. These were very old machines and that was all the school district had. But fortunately, my parents saw that computers were something that was going to be probably pretty good for a kid to have around. I come from a very blue collar family. So they saved up a bunch of money and got us a Tandy HX, a Tandy 1000 HX was one of the first models that had a three and a half inch floppy drive.

Back then we called them hard disks and floppy drives where the five and a quarters. Yeah, getting that was incredible. Just having that in my house, it felt like incantations to open the DOS files, just knowing like, “Oh, setup.exe.” Nobody knows that. I didn’t know about the DIR command to just list everything on a disc. It felt like I was in a special club or some kind of secret wizard school, before that was a thing.

Aaron Dinin:

A Tandy 1000. I had one of those growing up too. I remember playing a lot of the original Sim City on it.

Chris Maguire:

Yeah. And for a long time we had that machine. They upgraded like the next year too. One that was only slightly faster, had the same capabilities, but still no hard drive. The hard drive divide is what kept me out of most modern computing until basically I went into high school. But a lot of games came out. A lot of programs came out. You had to be able to install them to a hard disc. And if it said, install that EXE, I was like, “Oh, we can’t use this. Oh, geez.”

I really, really wanted to play Kid Pix specifically which for those who aren’t familiar with it was an art game for kids. Kind of like Mario Paint, if you play that on the Super Nintendo, which is also equally old, I realized now. But I loved art. I love drawing. I got to love video games. And really you could argue that my first piece of computing was the ColecoVision, my family’s first console.

I played that a lot. We had the adapter that let you play Atari 2600 games and we play a bunch of those. I’ve recently acquired one again just to go back. It’s hard to go back to those games. But shortly after that, we got the NES like millions of others and blew my mind. The fact that I could control what was happening on the television screen was so empowering. I mean, it’s probably cliche at this point, but Super Mario definitely changed my life.

Aaron Dinin:

And what about the web? When did you first discover that?

Chris Maguire:

That didn’t really happen until high school. I went to a JR Masterman Public School in Philly. There was no an internet connection at the school when I started there. So we had a wonderful librarian named, Paul Scare and he had one machine connected to the internet. I forget what specifically it was. It was probably some ISDN line or something he got to the school, just for this one machine. Me and my friends, instead of going up to the school yard, we would all go down to the library and just crowd around it, see what websites we could visit. And it was awesome.

A couple of years later, my parents got America Online, which was to my group of friends, the first mainstream introduction to the internet. Like this is something that your parents could do. You get the floppy or the CD in the mail, you install it. You’re good to go. As part of that, they had this thing called members.aol.com where anyone who was a subscriber got two free megabytes of space to put on the internet. So you had your own long, long URL that you could direct people to.

I was like, “Oh, man. So I can put something up on this space for free, effectively and have anyone in the world be able to see it. That’s so cool.” So I started making a personal website, all about comics that I drew and art that I would make and stories I would write. And just anything I thought was funny, so many people back then. But that was really fun. And I started getting into HTML.

This is before CSS was a thing. So there was a lot of shoving images into HTML in a very horrible way. But yeah, that was a ton of fun. I love being able to like go to friends and be like, “Hey, here’s my URL.” And it would be members.aol.com/users/wacko2424/index.html.

Aaron Dinin:

So how did that web tinkering turn into an entrepreneurial career?

Chris Maguire:

It was sort of by accident. It was something I enjoyed doing on the side. I was like, “Oh, I’m going to be an artist. I love making comics. I would love to work in video games. That would be awesome to get into.” And this web thing, it seems kind of interesting. I’ll keep doing it. It’s fun. There weren’t really internet specific courses in high school at all. And once I got to college, I went to NYU and I got into the Gallatin School of Individualized Study, which is kind of the school for weirdos at NYU, for lack of a better term.

It’s the type of person who, none of the other programs quite fit and they want to cobble together their own education. That was me and a lot of my friends. Got into that. So I could take classes from any of the schools in NYU through this kind of like glue program and met a lot of awesome people there, really fun people and a lot of insane people. And ended up working with some of them.

I was kind of working my way through college. I was doing work studies. And the first time I started doing internet stuff for hire was with a friend of mine named Josh Corwin. He was a designer. He didn’t really do any code at all, but he was like, “Hey, I’m doing all this graphic design. They really want websites. Do you think it could help me out?” And I was like, “Yeah.”

So I started doing work for him and it was the most money I’d ever seen. It would be like, “Oh my God, I got $1,000 for working just two weeks of work. It’s crazy. Four digits. The biggest checks I’ve ever seen in my life.” So I did a lot of that. Really, I was like, this is cool. This is cool for now. I’m going to keep doing it. And I slowly got better at it, but I never saw it as like a long-term thing. But then opportunities kept on falling into my lap just because I could make an internet.

Aaron Dinin:

Ah, okay. So you did client work. I know that story. I did it too. I feel like lots of tech entrepreneurs got their starts by coding websites for small business clients, and it’s pretty much universally terrible work.

Chris Maguire:

Yeah. We have some great clients and some less great ones, but you don’t feel like you are the master of your own domain. And it’s weird because you’re an entrepreneur. This is supposed to be your business and yet everything you do is directed by a third party and it’s felt in many ways more restrictive than just being at a job.

So that made me want to branch out from that. The money was great. The money was great, but getting called up by clients at all hours of the night over the color of buttons on their website was less great.

Aaron Dinin:

Okay. So you eventually decide client work isn’t for you. You want to build your own thing instead. Is that kind of right? Is that how you get to Etsy?

Chris Maguire:

Yeah. I was really good friends with this fellow named Haim Schoppik at Gallatin.

Aaron Dinin:

Haim Schoppik would go on to become one of Chris’s Etsy co-founders working alongside Chris on the technology side of the business.

Chris Maguire:

He used to work in the finance industry. He actually dropped out of high school, worked at Goldman Sachs for awhile and then came back to college. So he was a little bit older than us. He had a lot more experience. He worked in financial technology. And he is, was, and still is a very grumbly guy, but we both love video games and we’d hit it off pretty quickly. And the two of us working on an independent study to do community software for the school, for Gallatin.

So we basically took this prefab, open source message board. I forget what it was. It was like phpBB or something like that. One of those. We had an independent study. So we got class credit for working on this community site, and it was great. That was actually some of my favorite memories of online community was on that site. Like a message board where people you knew in real life would just post stuff and you would have real conversations. Like the threads would be a conversation. It wouldn’t just be someone dropping a tweet into the ether.

We forge relationships and started art projects. And it was amazing really, for lack of a better term. But then later on this other fellow at Gallatin, who was a year ahead of me named Rob Kalin reached out and he had been involved somewhat in some of the student government stuff, but he graduated and then he was like, “Hey Chris, I hear you’re good at the internet stuff. I want to do some contract work.” And I was like, “All right.”

Aaron Dinin:

And Rob Kalin would go on to become Etsy’s mercurial, founding CEO. So as you can hear, we’re getting to the story of how Etsy’s founding team began to form. It was all a bit serendipitous. They weren’t best friends who decided to start a company together. Instead, Chris, Haim and Rob began as an ad hoc team working together on one-off client projects. They got frustrated working for other people and eventually began thinking about building their own thing.

Chris Maguire:

We started making these sketches for this sort of social media driven community site. And it was nebulous. It would change every week. At first, it’d be like, “Ah, here’s the site where people can be on a message board and give gifts to each other.” It’s like, “No, no, no. Let’s change that. This is going to be a site where anyone can use it. We give it to grandparents and they can start their own websites and they can show it to their grandchildren. We just went through all these weird sketches, but at one point we cobbled together, all right, it’s a blog and a message board all together.

It could be huge. This could be a big thing. And this was right at the beginning of that web 2.0 era where we were really influenced by places like Flickr, which ism but really was an awesome photo sharing site and community site. So we kind of got this together and Rob knew this really fun guy named Spencer. His family was in real estate in Manhattan. He was like a big kid, but basically talked him into giving us our first $10,000 investment, like, “Oh, we’re going to build this site. It’s going to be great.”

He was like, “Oh, great. Yeah, cool. Here’s $10,000.” And we’re like, “Yeah, that’s awesome. We got this money. I can pay my student loans. Thank God.”

Aaron Dinin:

It’s at this point that Chris and the team took on the pro bono website work for the wife of one of their NYU professors that you heard about at the beginning of this episode. And that decision introduced them to the online crafting community.

Chris Maguire:

So we started like actually getting involved with the community and talking and getting into these threads and getting to know the members, and that was really fun. My favorite part is the community element. One thing we kept on hearing as we were working on the site, rebuilding it for them was that like, “Man, I wish there was a better place to sell the things we were making. eBay is too expensive. Everything else out there is too hard to use. I don’t want to start my own site. This is really daunting. There’s nothing that caters to us as makers.”

And that’s where we were like, “Wait, wait, wait. Here’s an opportunity. It’s just dropped out the sky. All right. Here’s a niche. We’re embracing it. We’re going to make a e-commerce site for crafters. Great, good.” So we kind of took that $10,000 that we raised to build something completely different. And we’re like, “Hey, Spencer. We got this new idea. It’s fine, it’s fine.” He was like, “Are you sure it’s fine?” We’re like, “Yeah, yeah, it’s fine. It’s going to be great.” And that’s kind of the Genesis of what became Etsy.

Aaron Dinin:

So I’ve got to ask the thing that’s amazing about Etsy is it basically managed to overcome one of the hardest problems in startups, which is successfully launching a two-sided marketplace. It’s the classic chicken or the egg problem. How do you get the buyers without the sellers and how do you get the sellers without the buyers? So how’d you all do it?

Chris Maguire:

Yeah. I get that question a fair amount. You do it by stacking the deck in your favor. And in this case, we started with a pre-existing online community. We had Get Crafty. Rob eventually made inroads to contact the owner of another site called Craftster.org, which had a hundred thousand users on it. So it was 10 times bigger than the site we were working on just to get advice and just get to know their people. Basically, it was one of those situations where build it and they will come, the sellers will come.

If this is really a problem and there’s a market for it, there’s probably a group somewhere online talking about that problem, and you got to find them. Especially now, I spend a lot of people to Reddit because Reddit seems to be the place that has served traditional message boards. So yeah, go there. There’s probably a subreddit for the problem that you want to solve and you should go there and get to know them.

Aaron Dinin:

This is another interesting part of the Etsy story that’s kind of hard to recognize in its current behemoth public company forum. While Etsy today is up to thriving marketplace with millions of buyers that draw sellers to it, that’s not how Etsy began. Instead, in its earliest days, Etsy, wasn’t trying to be a marketplace. Instead, it was focused on solving a very specific problem for a very niche group of people. Etsy was giving crafters a place to sell their products online. It wasn’t meant to be a marketplace, it just so happened that the sellers Etsy was serving brought in additional value to the community.

Chris Maguire:

In the very beginning, the sellers were the buyers. We made sure that you make an account. The base account is a buyer and then you can put in a little bit more information and become a seller. They love to buy from each other, to somebody in Wyoming, which is something sold by someone in Brooklyn and they buy something. They form a relationship over it. They’d talk in the forums about it. We set up chat rooms and really they built it themselves.

A big part of it was that we didn’t promise anything at the time other than we will give you a web presence that you can conduct business through. We didn’t promise like, “Hey, you’re going to get all these buyers coming in.” That wasn’t ever something that we intended to promise.

This is your web presence. We’re going to give it to you for dirt cheap. It was too cheap at the time. When we launched, it was free. That’s another story. But the first pricing model was 10 cents per listing for six months and 3.5% of the final sale. So 10 cents to get online. You can’t really beat that.

Aaron Dinin:

At what point did you all realize you’d really hit on something valuable? Was there an aha moment where it was clear Etsy was going to turn into something huge?

Chris Maguire:

It snuck up slowly. It wasn’t something where like I turned around one day, I was like, “Oh man, we’ve made it.” It felt like we were clawing and scraping the entire time. I mean, I was working on the site for about four years and that whole time it was just heads down to my detriment. Just heads down working and not considering the big picture stuff nearly enough. Yeah, I guess a big part of it is when magazines started contacting us saying, and news reporters would be like, “Hey, we want to have interviews.”

Usually, they want to talk to Rob who was the CEO, but oftentimes he wanted to talk to the whole founding team. Hey, we’re being interviewed for things. I tell my mom, she’ll be excited to see us in a magazine. That’s cool. To be honest, I didn’t know that anyone liked Etsy, really liked it until after I left the company.

We launched the site in 2005. Haim and I left together in 2008. And it wasn’t until after that, because all we heard were complaints. The people who are usually the most vocal, people come in, “This is broken. I hate the way this looks. Oh my God.” And it’s just like, ah. It just felt like everyone hated Etsy. I did not have the presence of mind to step out of that mindset and see the forest for the trees and realize like, “Wait, no, no, no. We actually build something people like. Oh, okay. That’s kind of cool. I wish I could have enjoyed that while I was working on it.”

Aaron Dinin:

And here, Chris’s story provides another valuable entrepreneurial lesson. It’s a lesson about criticism and negative feedback. You’d assume from the outside looking in, that building a successful company, especially one like Etsy would feel pretty good. Millions of users would be signing up. They’d be loving your product. And if you were running that company, you’d think you were on top of the world. But the truth is when you’re in that position, you’re not going to be focused on the good things, you’re going to be obsessed with all the bad things. All the flaws, all the complaints and criticisms, because those are the things that need to be fixed if you want to keep growing.

So even though Etsy was growing rapidly, Chris and the rest of the founding team were so busy trying to do everything and plug up the holes that they didn’t get to enjoy themselves or appreciate the success of what they’ve built.

Chris Maguire:

It’s hard to encapsulate that job. I remember on my last week, I was trying to write down all the things that I took care of on a day-to-day basis. I was like, this is too much. I’m stupid. I was a developer. I worked the front end to the backend. Haim was mostly backend stuff. Although he did some front end stuff as well, but I focused on the front, he focused on the back and I did a fair amount of design work. Rob was the head designer. He did most of the UIs from scratch, but Haim and I also had a pretty good eye for just knowing what was good and what wasn’t. And we collaborated really. It was a good experience.

We fought a lot and it was definitely a painful sometimes. But I think truly at the end, we came out with something that was better than something any of the three of us could have done alone. We did QA, we did support. We did a little bit of PR when we would do interviews. I was in the forums actively until the people we hired to be in the forums begged me to stop doing it, and I did.

I enjoyed it a lot more when it was smaller and the bigger it got, the less I enjoyed it, to be honest. It was harder to be quite as… I hate to use the word agile because that’s a loaded term in this realm, but yeah, agile. It used to be like, “Oh, I came up with this great idea for a feature. Cool. Let’s prototype it. All right. Let’s throw it out there. Great.” That was so fun. Yu get to hear what the users say and look at the stats of how they’re using it, but you can’t do that once you reach scale.

Once you’re worried about load, which became a crippling problem for us. Back then, things were much harder, and we made them harder than they had to be. This was before the cloud, right? You couldn’t just say, “Oh, I got to spin up a server. Great. Just send another couple of bucks to Amazon.” We literally built our servers ourselves. We have photos of Haim assembling the RAM into the motherboards. And we’d ship them off into a taxi cab because we didn’t have cars. Just take the taxi cab over to the data center and install them.

I spliced the wires. We all spliced the wires ourselves. That’s not a thing people do now. And I wouldn’t recommend it, but yeah, we did everything and it was exhausting and we did not sleep enough. Work-life balance was not a thing and that is something I would intrigue. Anyone who wants to be an entrepreneur to really keep mind of that you should sleep. Sleep is good.

Aaron Dinin:

Is that eventually why you left? Did you just get burnt out?

Chris Maguire:

Sure. Yeah. This is one of those points, it’s like, how in depth do I get and how many people do I want to keep on my good side? No, I mean, I really don’t hold anything against anyone from back then. At the time, there was definitely high emotions, but now it’s hard to be mad. That’s for sure. I’m not good at holding a grudge. So the site grew and we had to hire people. Haim and I did our best to try to hire for the engineering team. But we also constantly felt like we were under a money crunch. We weren’t really given a budget.

It was like, “All right. You got to get the bare minimum amount of heads in here and try to keep the ship running.” So Haim was always trying to cut corners with the servers, and we were trying to keep head count to a minimum, which was a mistake. We were also really bad at letting go. This was our baby. We grew it from the ground up. And if we weren’t there every day, it was going to fall over. I swear. We should have been engineering ways where we could have taken ourselves out, but we didn’t.

Aaron Dinin:

So money was tight. You were under resourced. Was that the problem? What was the original business model behind Etsy?

Chris Maguire:

Our business model was based on selling things. It was very obvious how to make money. We were selling things through the site. We take a cut of the sale. Done. Most internet companies at the time were based on ads, still are based on ads. And that’s just not a business model that’s ever appealed to me. There was a point where we started trying to introduce some more paid ads into the site. And I was like, “Oh, I know, I understand. We got to do this.” It’s not I don’t like it, but then we took more money.

We had those first early angel investors. We had two of them based in New York, but then we took money from Union Square Ventures. And that’s kind of when things are real now. You’re running with people who expect you to turn things around.

This was something I was not fully cognizant of at the time. I think we would all say that, “Man, this didn’t turn out exactly how I expected,” In terms of like how things would shift. But like they say, they call it the rocket fuel and they’re not lying like, “Hey, we put this money in. We want 10X. So make it happen.”

Basically, there was a lot of conversation over whether or not the leadership team was the best to run the company. Rob is a very eccentric guy. I haven’t talked to him in a little while, but I doubt that has changed. He’s very creative, very good at what he does, but also very chaotic for lack of a better term.

Haim and I felt like we could reign him in and we’d get something cool made, but it turned into a situation where the three of us were kind of agents of chaos, I guess. Basically, Rob decided one day that he wanted to step down. He didn’t want to be the CEO anymore. And he hired a woman named Maria Thomas to first be the COO. But very quickly he was like, “I’m stepping down all the way. She’s going to be CEO. I’m going to be a chief creative officer or something like that.” We just did not get along with Maria.

Aaron Dinin:

Why not? What was your concern with her leadership?

Chris Maguire:

She was coming from NPR and she, in our eyes didn’t understand the site or the business. So we butted heads a lot. A lot of that is on us. A lot of that’s on the situation, but we were like, I don’t think we can work like this. Basically, we got to a point where we’re like, “All right. We’re willing to hire someone, get somebody in here above us who can run engineering as a whole. We’ll keep the site running under the hood and keep our team going and that’ll be great in theory.”

So she was like, “All right.” Started interviewing a candidate. The first person she interviews that we know of at least was a guy by the name of Chad Dickerson. He worked at Yahoo. So we interviewed him and we were like, “All right. Yeah, he seems fine. But who else do we got?” And then Maria is like, “Well, I’m sorry. I already hired Chad. It’s done.” He hardballed me and I had to give him a job or not. And then we were like, “Oh. Well, we quit.” So at that moment, Haim and I made our exit. And those were the broad strokes of it.

Aaron Dinin:

What was it like to just basically walk away from your baby from the thing you’d devoted so much time and effort and passion to?

Chris Maguire:

It was painful. This thing was our whole lives for four years and now it wasn’t all of a sudden. So there’s a big adjustment period, for us and the company for sure. We spent the last couple of weeks going over with the teams, how everything worked on the site and where things were. And we realized like then it was like, “Man, there’s a lot of things about this that we have not shared with people. We did a bad job at that, but you don’t understand this stuff and that’s our fault.”

We’re like, “Sorry, guys. Good luck.” But then it was immensely relieving to not have that weight on our shoulders anymore. So we just took a couple of months off and slept. We did kind of this cross country trip where Haim and I went to Los Angeles. We went to BlizzCon to go hang out with video game nerds. Then we went to Disney World and we went to Vermont to a cabin.

My wife calls it our honeymoon, but it was important for decompressing and kind of after that get our heads straight. All right. There’s more to the world than this website. Let’s move on.

Aaron Dinin:

Based on the story Chris has shared, it seems like the real turning point for Etsy was around the decision to take venture capital. A lot of entrepreneurs think of fundraising and venture capital is a solution to their problems. They don’t have enough people or money or other types of resources and VC presumably gets them those things. That’s not actually true. That’s not what venture capital does. Venture capital isn’t something you take to solve your problems, venture capital is something you take in order to scale a business that’s already operating.

In other words, venture capital doesn’t solve problems, it creates new problems. Specifically, once you take venture capital, you’ve got a new job and a new responsibility. You have investors who are expecting something like a 10X return on the money they gave you. Let me tell you that ain’t easy. Remember that the average return in the stock market is something like 10% and that’s, if you’re really good in the markets, but a 10X return on investment capital is more like a 1,000% return. That’s orders of magnitude bigger. It’s really, really ridiculously hard to achieve. Those kinds of expectations can stress a founding team to its breaking point. And that’s kind of what happened at Etsy.

Chris Maguire:

There was a schism at the root of the founding team too where Rob was all in for raising a bunch of money and making a big thing. And he was like, “I want millions and millions of users, millions and millions of dollars. It’ll be incredible.” And I want it to grow with the site. As we make more profit, then we can hire some more people, make it a little bigger. There’s no reason for this model, not to be profitable very early on. It’s something where we could have had 100,000 users. We’re making some money. We have a team and that team can slowly grow as the user base grows, but that’s not the rocket fuel VC way.

We kind of stepped in. I was like, “All right. I’m not fully on board with the rocket fuel, but all right, we’re doing it. All right, let’s go.” So that was certainly the source of a lot of consternation between the three of us. You don’t get it until you’re in it. And then you’re in it, and you’re like, “Oh, this is what I didn’t get.”

Aaron Dinin:

And just for the sake of clarity, at what point in Etsy’s growth curve did you step away from the company?

Chris Maguire:

When we left, we were a couple a month or two removed from our million registered user. And it felt like we were closely coming in on our 2 million. It was ramping up. We still weren’t profitable though. And that was kind of something that stuck in my crawl. Instead of becoming profitable, we would do things like we rented out this office, which still was not a nice office, but Brooklyn real estate was not cheap. And hired a bunch of people. I would have loved to keep the headcount low and not get a giant office. Work remote as much as possible.

So it was between a million and 2 million users at that point and growing. It was getting to the point where there were legalities involved with how we derived our statistics. We had to write the database queries in a specific way so that lawyers would not get angry at us.

I mean, at that point, scaling wasn’t fun. I enjoyed building something new and it was like, “I can do this stuff and these are problems to solve, but they’re not interesting problems. It’s not interesting for me to figure out how we shard the database in the most effective way.” I’m like, “All right. That’s kind of interesting to know about on a baseline level.” You start doing it and it’s just not as fun as building new stuff and talking to people.

It did get to a point where we couldn’t talk to users in that intimate setting. We couldn’t jump in the chat room and just be like, “Hey, what’s up guys?” We made a lot of friends who were sellers and I’m still friends with a lot of them to be honest. And that’s really cool. Yeah. It was just a bigger than we wanted. I would put it that way.

Aaron Dinin:

What do you think about where Etsy’s gone since you left it? Did you ever imagine it becoming a multi-billion dollar public company?

Chris Maguire:

It’s so big now. It’s hard for me to wrap my head around and have an opinion. It feels like, “What’s your opinion of this country?” It’s like, “Well, that country has got a lot of people in it.” So it’s hard for me to paint this broad brush, but it’s still out there. It’s still allowing people to live out their livelihoods. It still makes people really angry, perhaps increasingly so. There’s a bigger audience now, so the anger grows with those peaks and flows. I’m just really happy it’s not my problem anymore.

It’s cool it’s there. I haven’t been to their new offices. They look really nice and really expensive. It would be cool maybe one day to visit it. But it’s all the way in Brooklyn. I’ll get there one day.

Aaron Dinin:

Okay. Fair enough. So aside from maybe planning an eventual visit to the Etsy offices in Brooklyn, what have you been working on since leaving the company?

Chris Maguire:

Well, I kind of got to a place where I started another couple of companies then worked for someone else for a change at this company called Catchafire for a couple of years, and then got to a point where it saved up a bunch of money. And I’m like, “I can do anything I want with my life right now. What do I do?” Well, my two favorite things in life are ice cream and video games. So it should be one of those things.

So I ended up opening an ice cream shop. I make my own ice cream and we can play video games in it. And probably down the road, I’ll make a video game about ice cream or something.

Aaron Dinin:

Wow, tech titan to ice cream maker. That’s a pretty big shift. What drove it?

Chris Maguire:

I just love ice cream. Like most people, grew up eating it. Again, making things, having my hand involved in making something. This is my first brick and mortar experience ever. A large part of this was knowing that I had facilitated literally millions of transactions on the internet and didn’t know any of the people involved for the most part. The brick and mortar experience is the opposite of that.

Like every person, you see their face, you hand them something, they hand you money. There was something appealing about that. Just getting back to like, what is commerce? Just seeing commerce on a ground level, I think gives me a better basis for these huge branching monopolies. Definitely getting down to basics and understanding the roots of what it was I was doing in the first place, I guess.

Aaron Dinin:

And what can you tell us about the differences between running a billion dollar tech company versus running a local ice cream parlor?

Chris Maguire:

That’s a great question. Strong opinions about both. I’ve heard more positive things about ice cream. If somebody is happy on the internet for an e-commerce transaction, they’re silent. Silence is usually taken for happiness. But ice cream, if they’re happy, they’ll tell you like, “This is delicious. This is the best vanilla I ever had.” Well, thank you. Thank you. Of course, you also get people like this old lady came up to me the other day and was like, “This peach is terrible.” And I was like, “I’m sorry, you don’t like it. It’s one of my favorite seasonal flavor.”

She’s like, “You should not sell it.” I was like, “Okay, I get it.” Personally, I love it. But I get it. Face to face you hear the positive and that’s been great like actually hearing people who like it. I don’t have to wonder if people like my ice cream like I did with Etsy. I know it.

Aaron Dinin:

Chris makes a good point. For all the admittedly well-deserved praise, internet businesses get for their scalability and accessibility and things like that, they also create a painful disconnect between entrepreneurs and the consumers they’re serving that doesn’t happen as easily in brick and mortar stores. In Chris’s ice cream parlor, it’s easy to tell when someone is enjoying the product. In contrast, as you heard, when he was building Etsy, he struggled to see the millions of users he was making happy.

But pretty clearly there were definitely a lot of them and they all owe a huge thanks to Chris Maguire. I want to thank him too for taking the time to share his story and the story of Etsy. If you’d like to try his ice cream, you can find it at the Tubby Robot Ice Cream Factory in Philadelphia, PA. I don’t know about you, but ice cream and video games seem like a pretty great combination to me.

If you make it there, drop us a line and let us know how it is. You could let us know on Twitter. We are @WebMastersPod. And you can also use that handle to share any thoughts, feedback, or comments about the episode or ping me directly. I’m @AaronDinin. That’s A-A-R-O-N-D-I-N-I-N. I also produce lots of other educational content about startups and entrepreneurship. You can find it all on my website. That’s aarondinin.com.

Thank you to our audio engineer, Ryan Higgs for his help producing this episode and thanks to our sponsor Latona’s for their support. Remember if you’re interested in buying or selling an internet business, be sure to visit latonas.com. I hope you enjoyed this episode. If you did, please let us know. As you heard in Chris’s story, these digital types of ventures aren’t the best when it comes to connecting creators with positive feedback. So if you wouldn’t mind, take a minute to give us a nice rating and review on your podcasting app of choice. We’d really appreciate it.

Be sure you’re subscribed to Web Masters, so you get the next episode as soon as it’s released. That’s coming soon. Until then, time for me to sign off.

[OUTRO]

Aaron Dinin:

By the way, when I googled the phrase, Etsy founders, your name doesn’t come up. How do you feel about that?

Chris Maguire:

I don’t know. I haven’t actually searched that in a while. Let’s see. Oh, yeah. I don’t know. I don’t really care. It’s actually nice. I like being under the radar. I’m pretty happy about that actually. I try not to get too much into startups because it’s hard for people to relate to, I find. But if I was to get into it, if someone was like, “Hey, you got to be Chris. He did an internet thing.” Actually, that’s how my neighbors have described it as like, “Oh, we found out about you, Chris. We heard you did an internet.” And I was like, “Yeah, I guess, I did.”

There’s a rumor going around the neighborhood here that I founded Instagram and I just don’t know where that came from. Most people here don’t have any idea of what it’s like to be in a startup or be in that world. And that’s what I like about it.

Aaron Dinin:

You see, if I were you, I would totally lean into that. I’d be like, “Yeah, of course I found Instagram.”

Chris Maguire:

It’s funny because when they started mentioning it like two years ago, I don’t have a smartphone. I don’t even have Instagram. So I was just like, “Oh yeah. That’s not right.” I just said, “That’s not right. Sorry.” But you know, not trying to draw on it more. I don’t know. I like just being a regular human being.

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