As somebody who has been selling digital designs on Etsy, I actually wish I had gone into Print on Demand instead! I know that people have mentioned low profit margins, but it's certainly a lot more than digital.   

I had a look at an Etsy keyword tool, and it looks to be an excellent choice of niche - good demand and low competition. But it will be a question of volume, as it always is on Etsy, you need a lot of listings to see any significant returns.

And it would be pretty simple to create some bold eye-catching designs that would look great on t-shirts. And how about stickers for surfboards and water bottles, etc? Once the setup is done, you can add more designs, more product types, and scale with relative ease. I think it's a great idea!