$876 million selling overstocked items and excess inventory that nobody wanted!
By Vicki Gerson
In 1999, Dr. Patrick M. Byrne recognized the potential in liquidating excess inventory through the Internet. Six months later and with no outside funding, Overstock.com, Inc. was launched. There where less than 100 products that year with more than 829,000 products today allowing their customers to save millions of dollars off the manufacturers’ recommended retail prices. In 2009, the company revenue was $876,769,000.
“I saw this opportunity that no one else had discovered,” says Dr. Byrne, CEO of Overstock.com. “It seemed so obvious that the Internet was a great place to liquidate
Dr. Byrne always had the entrepreneurial spirit. As a teenager, along with his two brothers, he sold Christmas trees and then wreaths, making $6,000 their third year in business. Through his father, he met Warren Buffet, who became his mentor. Before founding Overstock.com, he served as chairman, president and CEO at one of Buffet’s companies. But he wanted to strike out on his own and credits his success to Buffet who told him to keep two facts in mind: “Only buy a share of stock as if the market was shutting down for five years tomorrow. So, if you run a business run it as if there is no public market. You run it as if you own the whole thing, and you are trying to build the greatest long-term value. Secondly, never run a business as if you are planning to sell it or flip it.”
Remembering all the lessons Buffet taught him about business, Dr. Byrne purchased DiscountsDirect, which served vendors in the flea market industry. This business, with 18 employees, had run out of money and was closing its doors. Dr. Byrne paid four million dollars for the company and formed a new company named Overstock.com.
At first, the company was buying anything that looked good. Sometimes it was hit or sometimes it was a miss. One product a drum that spins and removes women’s hair was successful in Europe, but it was a miss in the American market. What was successful were candy bowls and figurines—items one would find at the flea market.
The company was located in Salt Lake City, but Dr. Byrne sublet some space in a 10,000-square-foot warehouse in Oregon. He was managing long distance for approximately nine months till he consolidated everything to Utah where he was based. In Portland, Oregon, he had an employee with a son with an AOL account. “We’d email him the Excel spread sheets with the orders every few hours. He’d run the information at home on a floppy disc, print it out, and then go the warehouse and fill the orders,” he says.
Ultimately, all the customers visiting the website were looking for value. “To our customers it meant a good quality product at a super cheap price,” he explains. The products were all selling for less than $100, and at that time, the kind of products you’d find at flea markets. Watches and home goods sold well. Apparel sold at first but then it died. In the early days, Dr. Byrne and Safeway made a deal that his products would be featured on the stores’ end caps. This arrangement lasted for the first few years.
Overstock.com profited from the dot.com bust because when numerous companies went out of business, Dr. Byrne purchased their inventory. “We got extremely cheap bankruptcy deals on toys and jewelry,” he says. “For a time, we were a bankruptcy liquidator.”
Dr. Byrne was focused on finding data that would help him grow his business. Data could tell him what to buy more of, what people were shopping for, what they bought and how quickly items were selling and when the company was going to run out of product.
Because Dr. Byrne was turned down by 80 venture capitalists, he put in $30 million dollars of his own money by liquidating all of his other business holdings. In addition, the initial funding was from friends, family and people who had done business with him before. But to truly grow his business after a few years, he decided to take the company public in 2002. Instead of doing it the conventional way, he went public with an IPO Dutch auction. The Dutch auction allows all the people who want stock to bid for it, and prices the stock correctly. The company has issued 24 million shares of stock, which are now traded on NASDAQ.
Through the years the company has continued to profit. In 1999, the company made $2 million and in 2000 it did $36 million. In 2001, the profit level was $75 million and, in 2002, there was $115 million in gross merchandise sales. Over the first three years of the company’s public life (2002-2005), it has a compounded 102 percent growth! •
Seven Keys That Helped Grow This Online Business
1. Delivering good products with good prices.
2. Following up with great customer service.
3. Using post sale surveys.
4. Being a good company for people to do business with.
5. Mentally block out the next five years of your life because it’s like finals week at college.
6. Always be data driven.
7. Be sure you have the right technology, or your company will be behind the norm.