Jan 2, 2019 · 35m · a16z
a16z Podcast | Wall Street's Most Hated Man -- A Conversation With Overstock.com's Patrick Byrne
0:00 / 0:00
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of the a16z podcast, host Michael Copeland chats with Overstock.com founder Patrick Byrne about building a profitable e-commerce business, contending with Wall Street corruption, and pioneering early adoption of Bitcoin and cloud computing.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
The host as informed peer 2.9 Guest teaching 4.3 Guest disagreement 2.5 The host pushing back 1.8
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 21:49 Calling Wall Street full of criminals and SEC captured
Byrne forcefully attacks financial institutions and regulatory bodies, calling the SEC captured towel boys and recounting how he publicly named Wall Street figures as criminals.
Hardest push from the host ▶ 31:46 Pillows vs overturning 6,000 years of central trustHost Michael Copeland humorously rejects Byrne's grand claim that crypto is dismantling 6,000 years of central institutions by pointing out that Bitcoin customers are primarily purchasing items like pillows and blankets.
Biggest teaching moment ▶ 10:43 Warren Buffett's lesson on hidden IT and inventory costsByrne reframes traditional cost-benefit analyses of cloud versus physical infrastructure by passing along a lesson from Warren Buffett regarding uncounted overhead like personnel, light, heat, and dusting.
The host holds their own ▶ 13:39 Correcting guest on Andreessen Horowitz's founding dateWhen Byrne playfully gloats about liquidating companies backed by VCs who turned him down, host Michael Copeland immediately interjects that a16z was not around in 1999 to reject him.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Overstock's Origins and Rejection by Venture Capitalists | 2 | 3 | 2 | 1 | Michael Copeland asks standard conversational questions about Overstock's beginnings and why 85 venture capitalists rejected Patrick Byrne in 1999. Byrne explains his traditional business mindset focusing on profits over land grabs during the dot-com bubble without hostilities. | |
| Evolving Infrastructure from 'Lemonade Stand' to Enterprise Systems | 2 | 4 | 1 | 1 | Copeland uses light humor while prompting Byrne on how Overstock transitioned from a single server to enterprise systems. Byrne educates the listener on how Overstock had to temporarily shut down departments and reporting during peak Christmas traffic to keep the site online. | |
| Overcoming Resistance to Cloud Adoption and IT Overhead | 3 | 5 | 2 | 2 | Copeland probes the root causes of internal organizational resistance to cloud migration. Byrne recounts advice from Warren Buffett on how standard accounting fails to capture hidden overhead expenses like dusting, personnel, light, and heat. | |
| Evolution of Business Model and the Creation of the Partner Program | 3 | 4 | 2 | 2 | Byrne jokingly boasts about liquidating dot-com bankruptcies funded by VCs who turned him down. Copeland quickly defends his firm by pointing out Andreessen Horowitz didn't exist yet back in 1999. | |
| Competing on Supply Chain Logistics and Curation | 3 | 4 | 1 | 1 | Copeland frames questions around low-margin e-commerce competition and the value of human curation versus endless selection. Byrne cites Clausewitz on logistics and details Overstock's human buyer strategy. | |
| The 'Most Hated Man on Wall Street' and Battles with Financial Regulators | 3 | 5 | 6 | 2 | Byrne displays high combativeness towards Wall Street hedge funds and the SEC, calling regulators captured towel boys and detailing his crusade against financial corruption. Copeland guides the topic with open questions about his reputation and post-2008 vindication. | |
| Championing Bitcoin and the Blockchain Revolution | 4 | 5 | 3 | 4 | Byrne shares his grand libertarian vision of blockchain replacing 6,000 years of centralized institutional trust. Copeland playfully pushes back, noting that buying pillows and blankets with Bitcoin hardly signals an immediate dismantling of societal institutions. | |
| Value Investing, Mentorship by Warren Buffett, and Economic Outlook | 3 | 4 | 3 | 1 | Byrne reflects on his mentorship under Warren Buffett and offers a grim economic forecast of a financial crash worse than 2008. Copeland smoothly concludes the episode. |
Statements from this episode (14)
Patrick Byrne was rejected by 85 VCs while pitching Overstock
“I was turned down by 85 venture capitalists. At the height of the dot-com boom, when folks were dropping out of Stanford Business School on a one-paragraph business plan, raising a hundred million dollars, here I had run some companies. I had, I thought I had …”
Patrick Byrne: Overstock should have prioritized tech over retail initially
“If I had to do over again, I was probably wrong, or at least my emphasis was on the wrong syllable. I should have been more focused on the technology to begin with.”
Overstock ran a $500M+ business with just 13 developers in 2005
“We actually didn't have the skill sets back in Oh five Oh six. We had 13 developers. We were a five, six hundred million dollar company with 13 developers.”
Patrick Byrne removed Overstock tech leaders who resisted cloud adoption
“It really ultimately it was two or three years ago. I had to remove some people who were quite obstructionist to moving into the cloud. And the new leadership has been much more receptive.”
Overstock liquidated 19 startups funded by the VCs who rejected Patrick Byrne
“We went in and liquidated 19 companies that had been funded by the same Fellows who turned us down.”
Overstock launched a partner drop-shipping marketplace years before Amazon
“And thus began our partner program. We were the first to the market with it. Amazon followed a couple years later.”
Byrne: Overstock never physically touches 90% of products sold
“Now 90% of our business, we never actually touch.”
Byrne: Overstock is 10% cheaper on average than Amazon
“In many ways, we're like Amazon, except I like to say about 10% cheaper on average, and with better customer service, as several industry groups have certified.”
E-commerce moats stem from supply chain logistics, not marketing or strategy
“Marketing is sexy, and people come out of business school, and they want to talk marketing, they want to talk strategy, but Clausewitz said, amateurs talk strategy, professionals talk logistics. And that was about war, but it's same thing is true for, it's rea…”
Patrick Byrne claims the SEC is a captured regulator for Wall Street
“The SEC is what economists call a captured regulator. You know, society sets up regulators to protect us from certain industries, but it's a standard feature of regulations, since the first regulator, the Interstate Commerce Commission, that they become captur…”
WSJ named Patrick Byrne among five people who foresaw the 2008 crisis
“The Wall Street Journal wrote a story at the end of a wait saying, okay, there were five guys who figured this out and, you know, Nassim Taleb and Patrick Byrne.”
Patrick Byrne believes the crypto revolution is bigger than the internet
“I think the crypto revolution is even bigger than the internet.”
Crypto will disrupt traditional political institutions and government functions
“The crypto revolution is going to disrupt all kinds of political institutions that, that you really, we just have to wake up and remember They didn't come out of the burning bush.”
Patrick Byrne predicts a 2008-level economic crisis within two to three years
“I also think there's going to be quite soon a big, in the next two or three years, a big disruption in our economy. I think in oh eight or worse is going to happen, and with each disruption, people will shift farther into online, and then it ratchets.”