May 23, 2017
Jason Rowley is a venture capital and technology reporter based in Chicago.
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Teespring, the full-service marketplace for tee shirts, is beginning to fray. The company has raised nearly $57 million in venture capital to date from Y Combinator, Khosla Ventures, Andreessen Horowitz, and others.

Sources told Crunchbase News that, over the past several weeks, Teespring underwent steep layoffs, leaving a skeleton crew of twenty to thirty people at the company’s main office in San Francisco’s SoMa neighborhood. This most recent round of layoffs included both remote workers and employees now formerly present at the company’s headquarters.

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Reached for comment, a Teespring spokesperson confirmed that the firm had undergone changes, saying that “[r]estructuring the company was a difficult decision, however making these changes enables us to run a healthy and profitable business moving forward.”

The statement went on to say that the company “believe[s]” that its “new structure sets Teespring up for continued success and will provide better opportunities and experiences for the millions of creators building businesses and brands on the Teespring platform.”

According to sources, Teespring was on the brink of insolvency prior to the layoffs. Those with close knowledge of the situation say the company is now profitable as a direct result of the layoffs. Sources suggest that this may be an effort to shore up the company’s finances before a sale or new round of investment.

There were many questions we asked that Teespring did not answer. Their statement didn’t directly address the scope and scale of the layoffs our sources disclosed to us, or how many employees are left at the company. It didn’t discuss the prospects of an acquisition or subsequent funding rounds. There was no mention of the extent to which declining ad response rates hastened the exit of power sellers from the platform. And the state of the company’s manufacturing and distribution facility in Kentucky was not addressed.

While the company has not made statements regarding a possible sale, sources state that the company’s executive team and board have been in search of an acquirer for the company. Amazon has been considered to be a preferred final resting place for the company’s assets and key employees. Amazon launched a competing service to Teespring called Amazon Merch in late 2015. A representative from Amazon’s corporate communications team declined to offer comment.

Finding The Loose Threads

How Teespring got to this point is an interesting case study in “platform risk” and economies of scale. In some ways, the company is a victim of its own success.

The original vision of Teespring was to produce a platform that enabled anyone with an idea to start a tee shirt business. Teespring would handle the ordering, payments, sourcing, printing, and drop shipping. The creator would also take a share of the profit.

As with many marketplaces, a number of “power sellers” emerged on the platform, and they made up a material part of Teespring’s revenue, according to sources.

However, as these power sellers grew their tee shirt businesses, the economics of Teespring’s model began to break down for them. Realizing that, at sufficient scale, they could make more money by handling the sourcing, printing, shipping, and other parts of Teespring’s service themselves, some of these sellers began to leave the platform. According to sources, one power seller left Teespring to start their own Facebook advertising consultancy based on their experience with Teespring to sell shirts.

The Unraveling of Teespring

The exodus of power sellers was compounded by the fact that Teespring was a marketplace platform that itself rode on top of another platform – namely, Facebook –  as its main sales channel. Power sellers on the site used Facebook advertising to spread the word about new shirt designs to niche markets.

According to sources, some of the most lucrative shirt campaigns were targeted at very narrow audiences. However, as one source said, there are only so many shirts one can sell to a specific niche, and there are only so many niches. Market saturation and advertising fatigue are very real forces Teespring power sellers seemed to run up against.

According to sources, the first signs of trouble for Teespring’s distribution platform appeared in mid-2015. At the time, power sellers began complaining that Facebook ads they purchased to promote their targeted Teespring campaigns weren’t showing up in the FB news feed. Teespring ran a number of tests using different domains. It determined that the company’s primary domain was indeed receiving less traffic from Facebook. Sources speculated that Facebook might have throttled content associated with Teespring because the company or sellers using Teespring had saturated the Facebook newsfeed.

Most sources suggest the company has been relatively judicious with its finances, eschewing many of the excesses typically associated with startups that raise lots of money quickly. (Dropbox’s $100,000 chrome panda statue comes to mind.)

However, there were some minor missteps that seem to have magnified the company’s financial problems. Sources say that in its early days Teespring outsourced the printing and drop-shipping of completed shirts to local and regional vendors, but the company tried to bring this work in-house with the goal of reducing marginal costs on their end due to economies of scale. Teespring invested close to $22 million in a production and fulfillment facility in northern Kentucky.

In sum, the combination of sellers leaving Teespring because they could be more profitable as standalone businesses and the decline of the company’s primary sales channel is what led to the marked decline in the company’s business. Prior to restructuring, efforts to diversify the company’s revenue streams such as a partnership with the NFL and music merchandising companies, and recent expansion into other custom items like coffee mugs and tote bags have proved insufficient to stem the bleed of capital. This would explain the most recent deep cuts to the company’s headcount.

Although there’s little doubt that the reported layoffs have been strenuous for the company, it’s still uncertain whether this stitch will be enough to save itself from falling apart at the seams.