Continue reading the main story Tony Hsieh, the chief executive of Zappos, on Fremont Street in downtown Las Vegas. Tony Hsieh, the chief executive of Zappos, on Fremont Street in downtown Las Vegas.Credit…Brian Finke for The New York Times

By Timothy Pratt

  • Oct. 19, 2012

The mountain-lodge gathering felt like an annual shareholders’ meeting, with department heads offering optimistic forecasts backed by charts, graphs and photos. Except that the 50 or so attendees wore jeans and sneakers and sat at round tables in a faux log cabin 7,700 feet above sea level and at least 20 degrees cooler than the Nevada desert below. And what they were discussing was not a corporation but a very unusual project.

Tony Hsieh, the 38-year-old chief executive of Zappos, had called the 24-hour retreat as a debriefing of sorts. It was almost a year into the Downtown Project, his $350 million urban experiment to build “the most community-focused large city in the world” in downtown Las Vegas — an area dominated by bare lots and check-cashing stores about an hour’s drive away. An icebreaker kicked off the event with whoops and hollers as each attendee stood up to share personal anecdotes or facts, like “I’ve tried chicken-fried steak in more than 30 states.” One woman announced that she had been a salsa dancing champion. Hsieh (pronounced shay) shared how to write his last name in Morse code.

A jammed schedule was handed out, with most of the dozen or so presentations lasting less than 10 minutes. The schedule featured updates from a number of Hsieh’s deputies on how they were spending the project’s money, including: Andrew Donner, a veteran of the 1990s Vegas real estate boom, on the $200 million that the project is investing in land and buildings; Don Welch, a former Citigroup banker, on the $50 million the project is spending on small businesses; and Andy White, a former start-up founder, on the $50 million going to tech companies. Hsieh’s cousin Connie was scheduled to discuss the remaining $50 million, which is to be used for education. A woman sat off to the side with a digital timer, ready to yank anyone offstage who went over his or her allotted time.

The Downtown Project got its unofficial start several years ago when Hsieh realized that Zappos, the online shoe-and-apparel company that he built to $1 billion in annual sales in less than a decade, would soon outgrow its offices in nearby Henderson, Nev. Though Amazon bought Zappos in 2009 for $1.2 billion, Hsieh still runs the company, and he has endeavored to keep alive its zany corporate culture. This includes a workplace where everyone sits in the same open space and employees switch desks every few months in order to get to know one another better. “I first thought I would buy a piece of land and build our own Disneyland,” he told the group. But he worried that the company would be too cut off from the outside world and ultimately decided “it was better to interact with the community.”

ImageFremont Street in downtown Las Vegas.<em> </em>” src=”,” /> Fremont Street in downtown Las Vegas. Credit…Brian Finke for THe New York Times</p>
<p>Around the same time, the Las Vegas city government was also about to move, and Hsieh saw his opportunity. He leased the former City Hall — smack in the middle of downtown Vegas — for 15 years. Then he got to thinking: If he was going to move at least 1,200 employees, why not make it possible for them to live nearby? And if they could live nearby, why not create an urban community aligned with the culture of Zappos, which encourages the kind of “serendipitous interactions” that happen in offices without walls? As Zach Ware, Hsieh’s right-hand man in the move, put it, “We wanted the new campus to benefit from interaction with downtown, and downtown to benefit from interaction with Zappos.” The only hitch was that it would require transforming the derelict core of a major city.</p>
<p>For Hsieh, though, this was part of the appeal. Transforming downtown Vegas would “ultimately help us attract and retain more employees for Zappos.” For the city itself, it would “help revitalize the economy.” More important, it would “inspire,” a word Hsieh uses often. Hsieh closed his presentation at the faux log cabin high above the desert with the sort of fact he seems to always have on hand: up to 75 percent of the world’s population will call cities home in our lifetime. “So,” he concluded, “if you fix cities, you kind of fix the world.”</p>
<p>Most tourists never see downtown Las Vegas. There are a few blocks of mostly run-down casinos, cavernous gift stores and the enormous, glittering LED display overhead called, with hopefulness, the Fremont Street Experience. Less than two miles to the north, there’s the so-called homeless corridor, a patchwork of soup kitchens and air-conditioned shelters that protect the area’s thousands of homeless from life-threatening 115-degree afternoons during the summer. And this is within a greater metro area that has dominated the nation’s unemployment, foreclosure and bankruptcy lists for much of the last four years. Everyone knows at least one person who has left town for Houston, Dallas or Atlanta.</p>
<p>Nevertheless, the Downtown Project is hoping to draw 10,000 “upwardly mobile, innovative professionals” to the area in the next five years. And according to Hsieh, he and his team receive requests for seed money from dozens of people every week. In return, the Downtown Project asks not just for a stake in the companies but also for these entrepreneurs to live and work in downtown Las Vegas. (They’re also expected to give back to the community and hand over contacts for future recruits.) In expectation of all these newcomers, the project has already set up at least 30 real estate companies, bought more than 15 buildings and broken ground on 16 construction projects.</p>
<p>For those entrepreneurs who live in other parts of the country, and most do, the question often comes down to how eager they are to relocate to a downtown area filled with liquor stores and weekly hotels. Less than a year after the project was officially established, about 15 tech start-ups have signed on. The first tech investment went to Romotive, a company developing smart-phone-controlled personal robots. Money has also gone to Local Motion, a start-up that designs networks for sharing vehicles, and Digital Royalty, a social-media company.</p>
<p> Jody Sherman, who relocated his e-commerce company from Los Angeles to downtown Vegas.Credit…Brian Finke for The New York Times</p>
<p>In January, Jody Sherman relocated his e-commerce company, Ecomom, from Los Angeles to a loft in a former bread factory in downtown Vegas. Sherman, who knew Hsieh from his years working around Internet companies, visited the project last fall. At first, Sherman recalled, “I said to myself, ‘I’m a surfer in Santa Monica; there’s no way I’m going to Las Vegas.’ ” Then he stood in Hsieh’s 23rd-floor apartment in the Ogden, a building overlooking downtown, and noticed a large wall in the living room covered with Post-it notes left by dozens of visitors. Each was a suggestion of what they would like to see in the upstart community. The ideas ranged from the simple (a good pizza joint) to the complex (accessible health care). Sherman started to visualize the kind of community that could support his still-young business. “I have a lot of imagination,” Sherman said. “I could see what he was planning. I could see it working.”</p>
<p>The project has since invested $600,000 in Ecomom, which has grown from 13 to 29 employees since Sherman arrived. (Sherman’s first ad for three customer-service employees drew more than 100 responses.) To do its part for the community, Ecomom has donated 75,000 organic meals to children, and Sherman has brought in new members to the project. Now he lives four floors below Hsieh, who leases 50 sleek, modern condominiums in the Ogden, 30 of which are maintained as “crash pads” for touring entrepreneurs. Hsieh calls the building the project’s secret weapon. “It basically tricks them into coming,” he told me. “And downtown basically sells itself.”</p>
<p>But luring entrepreneurs isn’t always so easy. One night, Hsieh and a few members of his team met with Jake Bronstein, who had come from New York seeking investment in his start-up apparel company, Flint and Tinder. Bronstein began the dinner meeting by describing several products he would like his line to make, including a “10-year sweatshirt” built to last a decade, and the conversation soon veered from granular details (the type of cotton, the size of the factory) to what each side expected from the deal. Bronstein said: “I don’t think I’m coming here saying, ‘I’m here, write me a check so I can come and live in your world.’ I’m interested in something more than money.” His salmon remained untouched as he fielded questions and comments from the project reps around the table. “Every factory in the world is doing everything to maximize R.O.I.” — return on investment — Hsieh said. “We’re doing everything to maximize R.O.C.”</p>
<p>“What’s R.O.C.?” Bronstein asked.</p>
<p>“Return on community,” Hsieh answered.</p>
<p>Then, after a few moments of banter, Bronstein confessed, quite abruptly: “Here’s the truth. I want to be involved. That’s why I came. I’m willing to talk around moving to Las Vegas; I just don’t want to do that right now. I have a wife. I have a big dog. I can’t walk in and say, ‘I’ll sell you 30 percent; I’m moving here.’ ” The deal appeared less likely by the minute.</p>
<p>Fred Mossler, a former Nordstrom shoe buyer who has been with Hsieh since the early Zappos days, tried to get things back on track. “I think you’re going to want to live here after about two years,” he said. “You’ll start understanding what we’re talking about.” Hsieh suggested the possibility of Bronstein’s coming once every month and staying for a week. The conversation started to turn. Within a few minutes, a dollar amount ($250,000) and terms of investment were traded across the table. After dinner, the group walked a few blocks for drinks at the Downtown Cocktail Room, which also served as the project’s de facto office. Bronstein asked, “So how do we finish the deal?” Hsieh answered, “I believe we just did.”</p>
<p> Zach Ware, Hsieh’s right-hand man in Zappos’s move to Las Vegas, on the top of the building that will house the new Zappos headquarters.Credit…Brian Finke for The New York Times</p>
<p>A few days later, I asked Hsieh how he could be sure that Bronstein, or any entrepreneur, could ensure an adequate “return on community.” I was expecting something of a philosophical answer — something in line, perhaps, with his comment about fixing cities — but instead Hsieh was practical. First, he said, he could afford to take some risks (“it’s $250,000 out of $350 million”). Second, the project team trusts its networks, and Bronstein had come recommended. “Innately, we believe that people are good and trustworthy,” Mossler said. But in the end, Hsieh added, “he needed us more than we needed him.”</p>
<p>The transformation of metro areas has been tried many times before. Edward Glaeser, the Harvard economist and author of “Triumph of the City,” has said these efforts can be divided into two camps: cities still in the process of being built (think Houston over the past few decades) and cities in decline that try revitalization. The Greater Houston area, for example, has added more than a million residents since 2000, most of whom were drawn by affordable housing and a low cost of living. Cities like Boston, with its Faneuil Hall, and Baltimore, with its three-decade remaking of Inner Harbor, have transformed older areas in decline.</p>
<p>While Glaeser resists making generalizations about what works and what doesn’t, he said that smaller projects within economically healthy cities have a greater chance of success than trying a build-it-and-they-will-come approach when surrounded by decay. Almost all of these projects, however, are driven by a partnership between business and government. None have depended so heavily on one man and his money as the Downtown Project.</p>
<p>Hsieh first called Glaeser last fall to discuss his ideas for Las Vegas, and he invited Glaeser to give a talk to Zappos employees in February. Then, “Tony convinced me to spend more time,” Glaeser said. He stayed at the Ogden for two days and was surprised by what he saw. Most urban-renewal projects “would normally lay down structures . . . and hope that human capital will come,” he said. “Here, they are leading with human capital.” In fact, the project’s goal of 10,000 new residents is derived from unpacking Glaeser’s metric (borrowed from Jane Jacobs) that says 100 homes per acre is the ideal density for creating the sort of unplanned interactions that make successful cities paragons of creativity.</p>
<p>But making room for all of that new human capital can sometimes lead to trouble. At the mountain-lodge retreat, I saw Hsieh pull a couple of his deputies aside after lunch. A few days later, as Hsieh and I shared shots of coconut water in his apartment, I asked him what had been so urgent.</p>
<p> An empty lot in downtown Las Vegas.Credit…Brian Finke for The New York Times</p>
<p>Hsieh said that the abrupt huddle concerned the purchase of a 50-unit apartment building that seemed to have gone awry. The Downtown Project and Zappos donated $1.5 million this year to Teach for America’s Las Vegas operation and planned to move the organization’s office downtown. This summer, 125 new teachers arrived in town, the largest number since the organization landed here in 2004. The plan was to buy Towne Terrace, a boxy, simple affair about three blocks north of Hsieh’s apartment, to house the Teach for America recruits in a hurry. But it turned out that the building “had residents,” Hsieh explained, “some who had lived there a long time and made a really tight-knit community.” Two days later, he told me, Donner was scheduled to meet Towne Terrace’s anxious residents on the building’s roof to tell them about the Downtown Project’s plans for the property.</p>
<p>At 6 p.m., the temperature still hovered around 100 degrees while about 15 residents milled around under neglected pergolas with peeling paint. Donner bounded onto the roof in jeans and a T-shirt. “The first thing I need to tell all of you is, you’re all going to stay,” he said. The terms: their leases could be kept as is for at least 12 months; the project would give a six-month notice if anything changed. There was a collective sigh, then applause. “Papa,” one of the Terrace’s oldest residents, sat in a wheelchair, still as a stone. Someone said loudly in his ear: “Did you hear that, Papa? They said we can stay. So don’t cry no more.”</p>
<p>Although Hsieh and his team repeatedly refer to the area as a series of empty lots, downtown Las Vegas has for decades been a magnet for low-rent apartments and the homeless — in part because several large social-services agencies have offices nearby. The Towne Terrace misstep was a reminder that the project needed to be mindful of existing communities. Hsieh was remorseful but undeterred: “We made some bad assumptions. Next time, we’ll dig deeper.”</p>
<p>Avoiding such miscalculation may require building a more comprehensive strategy, says Richard Florida, urban theorist and author of “The Rise of the Creative Class.” Although he doesn’t withhold praise for the Downtown Project, Florida thinks it needs a “robust community proc­ess,” in which an outside group could help build consensus with the surrounding community and create a plan that takes their wishes­ into account. “You can have serendipity,” he said. “But when you’re building a community, you also need a strategy.”</p>
<p>At times, though, it seems as if Hsieh’s strategy is much looser and based, in part, on instincts. It raises a question: How will Hsieh know when the project has succeeded? According to Glaeser, success is a matter of longevity. “If some of the businesses fail — and they will, that’s not a sign of failure for the project. It’s capitalism for you,” he said. “Failure would be if people didn’t stay around in 15 years.” And for his part, Hsieh believes there will be people who move here and stick around for that long. “However,” he said, “our timeline is a lot more aggressive. Downtown Vegas will change dramatically for the better within five years.”</p>
<p>In the meantime, Hsieh is still trying to persuade the reluctant. A few days after the Bronstein dinner, he had worked out a contingency plan. With a fresh martini in hand, he laid out a formula by which a certain number of the 10,000 new residents the project intends to attract could be “commuters” — as long as they engaged in “approximately 1,000 hours per year of serendipitous encounters.”</p>
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