To say that Patrick Byrne is a complex corporate executive would be an understatement.
On one hand, the founder, chairman and CEO of Overstock.com is a well-known vocal proponent of free markets, smaller government and school vouchers. But at the same time, he’s called for greater SEC oversight, has written a CEO Owner’s Guide to ensure stronger ethics in business leadership, and is adamant about a crackdown on naked short selling of stock, a stance that has provoked the wrath of Wall Street.
“Our capital markets mean your savings,” Byrne says about his campaign. “Rogue hedge funds are killing businesses for profit. That doesn’t mean I’m against capitalism. It just means there needs to be more controls in place.”
Byrne says he is consistent in his thinking. He cites his belief in economic freedom, that he wants people to stop exploiting the system’s loopholes for personal gain and rallies around a common cry that education is at the root of empowering today’s employees as well as our youth.
This type of outspokenness has made Byrne a polarizing figure over the past few years and has drawn quite a few critics — as well as champions.
All that has done is crystallize Byrne’s resolve. It hasn’t distracted him from his passions, including his belief that fighting poverty and educating young people must be priorities. Byrne has personally founded 19 schools internationally, and in 2001, he founded Worldstock.com, an Overstock.com microsite that sells handcrafted products from artisans in developing nations and from underprivileged artisans in the United States. Overstock keeps a low profit margin on these items and ensures that the artisans receive, on average, 60 percent of the total revenue.
With all of this, there’s one thing just about everybody can agree on about Byrne — he’s extremely passionate. But he has also shown a knack for growing a business that’s hard to dispute. In just over 10 years, Byrne has taken Overstock.com from a $1.8 million start-up and transformed it into a public company that generates more than $800 million in annual revenue and receives top-notch customer service rankings.
Smart Business caught up with Byrne for a broad-ranging discussion that included how he’s been able to focus the Overstock.com team on customer service and why continuous improvement isn’t just lip service.
Ethics seems to be a common theme throughout your business, your philosophy and your causes. What’s the key to running a values-driven company based on strong ethical values?
There’s this Hindu term ‘Dharma,’ that is usually translated to ‘duty,’ but it means ‘the way you’re wired.’ I don’t think of myself as some super-ethical guy; it’s just the way I’m wired. But when you see certain things that are bad, you’re supposed to stop them, and when you see some chance to do some good in the world, you do that.
It’s a lot easier if you start off ethically, and it comes from having the right heroes. If you have the right heroes as a kid, you end up modeling yourself after them. Then it becomes easy. It’s not what courses you take in college.
How do you manage naysayers in your quest to continually grow the business?
A huge advantage we had is that we did go through rough patches early on; every new business does. I had this friend in the U.S. Army, a colonel named Stephen Tryon. He sent me a paper that the Army had developed. In 1991, when the Soviets collapsed, they did some interesting work on leadership development, and in 1994, they came up with a new doctrine: ‘BE-KNOW-DO.’
What it means in the Army context is this: The knowing and doing of being a soldier they say they can teach you in 14 weeks. You rehearse. You practice. But the most payback for their time was in the ‘BE,’ which means character. So focusing and shaping character, or only having the right character on your team, is critical.
At one point, when we ran into a rough patch and were trying to figure out what to do, I heard from this colonel and he sent me the paper. This was in 2004 or early 2005. After I read it, we made it key part of our culture. I realized that what I had been doing. For example, if I had an employee who had a skill set I needed, I was overlooking a bunch of other stuff. I had people who spun things, gave half-truth answers, played political games, etc. … and I overlooked it because they were a great C++ developer or something else I thought was valuable.
So what did you do?
Well, we were in a jam, and I had this moment where I realized we should get rid of these people. We fired all kinds of people just for being the wrong character. All of the executives who were left made a commitment to each other that, from that point forward, we would be police for the right type of character at the company. It became our first filter for bringing people in. They had to have the ‘BE.’
It turns out that was an enormously liberating decision. We realized half of our energy was fighting all these internal battles. But by getting rid of this group of people, it was getting rid of where the negative energy was in the company. When you eliminate this, it’s amazing how much energy it liberates in the company.
