With consumers spending billions online each month, and the large majority of internet users patronizing virtual boutiques, shopping has become an anonymous affair, done via digital avenues that erects walls between buyer and seller, often with an invisible middle man in the mix. Online market place Etsy.com tears down those walls.

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Etsy Founder Rob Kalin.

“Our mission is to connect independent creators directly with their ideal consumers,” explains Adam Brown, spokesman for the linked-in bazaar. He continued, citing the company’s official philosophy, “We want to enable people to make a living making things, and to reconnect makers with buyers.”

Founded in 2005 by friends and recent college graduates Robert Kalin, Chris Maguire and Haim Schoppik, Etsy laid its virtual framework thanks to loans from friends, and recruited independent artists and craftsmen to help lay the seeds for a burgeoning community in which handmade was preferred to mass produced and creativity trumped capitalism.

Sure of the site’s mission, but low on funds, Kalin decided to write what Brown described as a “love letter” to Caterina Fake, founder of Flickr and Hunch. “Kalin just loved the way she ran her sites, the emphasis on community,” says Brown.

Impressed by the nascent market place, Fake agreed to invest in Etsy, imparting upon Kalin this advice, “If you’re headed down the wrong road, turn around.” Clearly Kalin and his crew were on the right road, because Union Square Ventures, Cafe Habana owner Sean Meenan and other investors soon followed Fake’s lead, allowing Etsy the financial stability to expand into the future. And expand they did.

Today, a mere five years after its founding, Etsy, which charges a 20 cent fee for each item listed and takes 3.5% of every sale, boasts 6.9 million members, mostly women, and generated an estimated $273.2 million in sales so far this year, and may exceed $400 million in 2011.

But Etsy’s growth hasn’t been without its pains: The core team fell apart in 2008, not long after receiving an extra $27 million in investment, when former NPR executive Maria Thomas took over Kalin’s CEO position, and a number of employees, including Maguire and Shoppik, left the team. Thomas herself was out by December of the next year, turning the CEO seat back over to Kalin.

Such staff shakeups are not uncommon in the world of startups. Not all companies can bounce back as quickly as Etsy, however. Rather than crippling the company, Brown says the changes only helped the site flourish.

“It was for the best,” says Brown. “It was a period of change, yes, but the fact is that we still had a site to grow, and we kept going and remained dedicated.”

He said the same thing of Etsy’s learning process: “We are conducting our education in public. It’s a constant process of tinkering.” The community’s suggestions, he’s sure to point out, are incorporated whenever possible.

The thrust of Etsy’s success comes not only from its wide range of products — one can find anything from photographic prints to knit sweaters to vintage dresses –  but also from the collective experience. It’s more than just an emporium for independent designs and art. It’s a movement.

“Etsy’s an empowering experience,” asserts Brown of the members’ experience. No longer are artists forced to work within someone else’s boundaries. They can shape — and sell — their own vision, meeting and greeting as they go. The anonymity of online shopping has been stripped away, creating a community that helps both Etsy and its vendors flourish.

“We’ve always grown organically,” says Brown of Etsy’s marketing machine, or lack thereof. Rather than relying on new media to spread their message, says Brown, Etsy relies on word of mouth.

But Etsy doesn’t sit on the sidelines entirely. “We try to support our sellers and their own marketing,” says Brown, pointing to the site’s online seminars, tips and “teams” built around products or specific regions, which often receive grants to organize their own marketing events.

Etsy also provides grants for geographical or product-specific groups, and operates an online research section to help burgeoning businesses understand and conquer their respective markets.

The community-building inherent in Etsy’s structure also helps further its other mission: constructing up a sustainable, eco-friendly free market. The “shop local” option, for example, helps cut down on packaging and shipping emissions, while the sellers’ independent nature means less environmentally detrimental mass productions.

Kalin and company now employ a team of 175, ranging from design to bloggers to engineering. Asked how they decide who’s the best fit, Brown pointed to two traits: “Obviously they have to be one of the best at what they do,” he explains. “We always say, ‘One good person is better than three who are just pretty good.’”

The second factor? “A prospective employee has to be a good cultural fit: they have to love and respect things that are man-made and the DIY attitude we celebrate.” A start-up’s philosophy has to course through every member of the team, otherwise it simply won’t work.

Looking at Etsy’s meteoric growth, it becomes clear that today’s successful start-up needs at least three things: tenacity, community-building and a whole lot of courage, all qualities money can’t buy.

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Startups need tools to organize themselves. Here’s what Etsy uses behind the scenes.

  • Customer Relationship Management: Right Now
  • Accounting: Intact
  • Project Management: Confluence and JIRA
  • Cloud Computer: OpsCode’s Chef
  • Internal Email: Gmail
  • Marketing: Bronto
  • Site Analytics: Google Analytics