Last week, Brooklyn-based Etsy, an online handicrafts retailer, lets artisans set up shops on its website, raised undisclosed amount of money from Union Square Ventures, Flickr co-founders Caterina Fake and Stewart Butterfield and Joshua Schachter (founder of Yahoo’s Delicious book marking service.)

“I like their sensibility,” says Schachter, “I think what they are doing is interesting and new.” He is right. Etsy is leading the charge on a new start-up trend — treat individuals not only as potential buyers but also as partners in product development. Examples include Skinny Corp of Chicago, Slim Devices of Berkeley.

Many of them are flying under the radar, but are still being effective in using the Internet to create virtual communities around their products, and profiting from their share-the-profits-with-the-end-users approach to business. My article about this trend is now up on Business 2.0/CNNMoney.com. [Putting the customer in charge.]

“It’s the open-source software concept applied to product marketing,” says Georg von Krogh, a professor of management at Switzerland’s University of St. Gallen. “I think the reason we are seeing this approach to business bubbling up is because technologies are now allowing people to create things for themselves very cheaply. And the Internet is allowing people to connect. Smaller companies are leading the way.”

Not small exactly! Skinny Corp had sales of $20,000 in 2000, and five years later they are tipping the $6.5 million level. “Our users have the ability to change the company whenever they want, because they make all decisions, from what we sell, and how much we sell,” says Jake Nickell, co-founder of the company. “We just shepherd the decisions of the community.”

Slim Devices is doing some clever stuff as well. You just have to look at their community pages to understand why they have been one of the few start-ups to find success in the digital music space. Slim CTO Dean Blackketter believes getting customers involved will eventually increase sales of Slim’s own products. “The more we open up to our community,” he says, “the more it helps us.”