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How to craft an artsy, homegrown culture

September 19, 2013, 11:02 AM UTC
A naming system for conference rooms at Etsy combines foods with band names. This lounge is referred to as Wu Tang Clams.
Photo: Andrew Hetherington

Each Friday two Etsy employees outfitted in full-body jumpsuits load roughly 150 pounds of paper towels, banana peels, eggshells, and other organic waste into an orange wagon welded to the front of a bike. They peddle their trash across the cobblestones of Brooklyn’s Dumbo neighborhood to nearby Red Hook to unload it at a community farm. “I was looking for a way to minimize our wasteful ways, lower the carbon footprint, and curb our modern decadence,” says Jakob von Eichel, a former employee who founded the program.

That pretty much sums up the workplace culture at Etsy, which makes its debut on our Medium-Size Best Companies to Work For list at No. 23. Founded in 2005, the company built its business on the idea that crafters and artisans would benefit from a storefront on the Internet from which to sell their wares. Its original office was more clubhouse than corporate headquarters, home to frequent knitting circles and woodworking classes. Though it has grown since then — the company is now valued at a reported $800 million, thanks to 30 million members and 900,000 digital shops — Etsy has maintained its Brooklyn twee sensibility. Its 450 employees are like members of a club, expected and invited to embrace a way of living that favors the artsy, handmade, carbon-neutral, and entirely homegrown.

For Etsy’s management team, this isn’t just window dressing. Last year Etsy became certified as a B corporation, or a company that considers societal and environmental goals in addition to profits when making decisions. This new and growing movement (there are more than 800 such companies, including Patagonia and Seventh Generation) is to businesses what Fair Trade is to coffee or LEED certification is to buildings. Etsy is committed to searching continually for better ways to increase its benefit to others by allowing more artisans to ply their wares on the site while lowering its impact on the environment.

MORE: 50 Best Small and Medium-Size Companies to Work For

Consider the biweekly lunch program, Eatsy. On Tuesdays and Thursdays, Etsy hires neighborhood chefs to serve up healthy meals (there’s always a vegan option) using almost entirely locally grown ingredients. After chowing down, employees rip their biodegradable plates (bought from a local business) in quarters before tossing them into the compost; they will break down in roughly 2 1/2 weeks.

For employees, working at Etsy sometimes seems like being embedded in a permanent flea market. From the coders to the receptionists, most are crafters at heart. Employees volunteer to teach classes as part of a formalized program they call Etsy School. Some recent examples: Herbalism Trifecta: Infusions, Tinctures, and Lip Balms; Hula Hoops 101; and Feminism & Technology. Etsy also provides new employees with $100 to deck out their desks (which are often built in the company workshop). Thus, when Corinne Pavlovic joined as the group manager of its trust and safety team, she bought a desk lamp made out of teapots to sit beside her computer.

Employees are encouraged to reward contributions to the company. Colleagues may recognize one another’s work by sending an email to the Ministry of Unusual Business. This secretive group delivers cards, prizes, and gifts (often purchased from Etsy wish lists) to individuals or occasionally to the whole company. Recently Etsy employees arrived at work to discover a battery-charging station had suddenly been installed overnight. This is the magic that makes Etsy as fun for the employees as it is easy on the environment.

This story is from the October 07, 2013 issue of Fortune.