Depending on whom you ask, Alicia Shaffer, owner of the hit Etsy store Three Bird Nest, is a runaway success story — or an emblem of everything that has gone wrong with the fast-growing online marketplace for handmade goods.

With the help of up to 25 local seamstresses and alluring photography, Ms. Shaffer takes in upward of $70,000 a month in revenue selling twee headbands and leg warmers via Etsy. But as her business has grown, she has been harshly criticized online and accused of mass-producing goods, of obtaining wares from China. Detractors consider her a blight on Etsy’s hipster cred.

The dispute over how goods are produced and sold on a site that prides itself on feel-good, handmade authenticity underscores the growing pains transforming Etsy as it moves toward a potentially lucrative initial public offering of stock.

As for Ms. Shaffer, she denies the claims that have dogged her business recently but says she understands why questions have arisen about the volume of goods she produces. She says her store strictly adheres to Etsy’s guidelines, including that all items listed are either handmade or “vintage” secondhand, with some new exceptions that allow for approved outside manufacturing. “We’re a team of dedicated Etsy artisans who have been able to grow a tiny shop into a little machine,” she said.