- By Michael Alexander
- November 7, 2005
About a week ago, Overstock.com reported a third-quarter net loss of $14.4 million, and what do you think Patrick Byrne, O's head honcho, has to say about it? My bad.” Really, he said, “My bad.”
The reason the quarter was so rough, Bryne says, is because he “bit off more technology projects than my colleagues could chew. The last bite, an ERP implementation, was one bite too many, and we choked on it.”
I have to admire the guy's candor, but remind me to never buy stock in the company. If a tech-based company can't handle its tech, then something is screwy. In this case, you gotta suspect it's the man in charge.
This mistake resulted in two kinds of unfortunate results, Bryne said in a prepared statement to announce the results:
1. Unexpected bad things happened. We tested our new ERP system as much as time allowed, but in mid-August I cut-over earlier than I should have. We anticipated that a small number of background processes would fail, but we had more trouble than expected. Rather than pass the problem to the customer in the form of bad service, we ate the cost by doing a great many things manually that would normally be done automatically. Of course, customer-facing issues (shipping products, processing credit cards and handling returns) trumped internal issues. One internal issue was our inability to post new products: this gradually reduced the number of products on our site (especially bestsellers). This weakened sales (though we offset this for some time by running $1 shipping). When we were able to upload new products in mid-September, sales snapped back to previous levels.
2. Expected good things did not happen. Some IT projects that were supposed to lift margins through improved efficiencies in logistics or customer service were either late or remain incomplete: some of these projects have since been delivered, some (e.g., a professional customer service application) have been scaled down and partially delivered, and some have been shifted to Q1. Other IT projects that were supposed to yield marketing gains went unfinished. One example: Project Propeller's test results are extremely encouraging, but only rarely has it been turned on because the A/B test system required to fine tune the system has been low resolution and inconsistent. These projects did not get delivered because the work required to address the ERP problems eventually monopolized development resources and crowded out all other progress (until quite recently).
Bottom line, Byrne says, he blames himself for opting to pursue projects that would pay off down the road instead of focusing on more pressing problems. I give the guy thumbs up for admitting that he screwed up. Me, I would have blamed IT like everyone else usually does.
Michael Alexander is editor-in-chief of Application Development Trends.