Tony Hsieh’s $350M plan to make Vegas an ‘entrepreneur’s Disneyland’

This is the first part in a week-long series on the Las Vegas Downtown Project, Zappos CEO Tony Hsieh’s ambitious $350 million plan to reinvent a city.

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The gathering, at a glorified construction zone, felt like a TED conference in the desert. A charismatic speaker held a roomful of entrepreneurs rapt with visions of the future. The crowd frequently broke into rapturous applause.

The speaker, Naveen Jain, came to downtown Vegas in May to tell the story of his journey “from the streets of India to the moon.” Concluding his talk, Jain urged the entrepreneurs in the room to dream big. He asked, “Can we create a new model for learning? For transportation? For health care?”

Focused on Jain as they were, few in the audience noticed a man walk in and take a seat at the back, slightly detached from the rest. He wore a Zappos T-shirt, jeans, and a “Hello, I’m Tony” name tag. It was a customary low-key entrance from Tony Hsieh, the 39-year-old chief executive of Zappos.com.

Hsieh is the reason we were all stuffed into a makeshift conference hall in downtown Vegas, hearing about Jain’s absurdly ambitious quest to mine the moon. (Not mentioned: Jain’s up-and-down past as a dot-com hustler.)

In response to Jain’s rhetorical question, Hsieh nodded, slowly and deliberately, to show that he’s understood. He has expressed similar sentiments at various speaking gigs to introduce his Vegas Downtown Project. The Vegas he dreams of is “largest community-focused city in the world.” And the scope and ambition of his project might be comparable to a lunar mission.

Hsieh just might be bold (and wealthy) enough to pull it off.

A vision — backed by a very big bankroll

Much has been written about Hsieh’s ambitious plans for the small city that nestles the Las Vegas Strip and that has long been outshone (literally as well as figuratively) by the casinos that are its neighbors.

To get a better picture of the place, I visited Las Vegas for a few days in May. While I was there, I stayed as a guest of the Downtown Project at the Ogden, a high-rise apartment complex where Hsieh keeps an apartment. I spoke with Hsieh, many of his associates, with tech entrepreneurs and with locals who harbor mixed feelings about the migration of thousands of Zappos employees to their town.

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It all started about four years ago. Hsieh reportedly realized his shoe empire would someday outgrow its offices in nearby Henderson, Nev., Zappos’ second home after San Francisco. He determined that the rapidly-growing employee base would be more content in an urban environment than in a suburban one.

So he leased the former City Hall — smack in the middle of downtown Vegas — for 15 years. The plan was to align the culture of the downtown area with that of Zappos: Make it friendly, non-conformist, and just a little hipster.

“For most people, college was the last time where it was normal to walk down the street and run into 10 people you know,” said Hsieh, who hopes that one day Zappos employees will ditch their cars. “Downtown Vegas will be like an adult version of a college campus.”

Hsieh decided he didn’t want to ignore the existing community, and the project escalated — in a big way.

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In 2010, he sparked a media frenzy when he commited $350 million to rebuilding and restoring the downtown Vegas region.

The fund is split as follows: $200 million for investments in real estate, $50 million for health, culture, and education initiatives in Las Vegas, $50 million for tech startups, and the remaining $50 million for small businesses. Hsieh has tasked a dozen or so employees to flesh out ideas for the Downtown Project — many of whom are taking a hiatus of sorts from Zappos.

Hsieh insists that the Downtown Project is a privately-funded effort, but it’s not clear who the investors are. Some have suggested that Hsieh is paying for the entire thing himself. It’s plausible, given that he was cash-flush after selling Zappos to Amazon for over $800 million in 2009. And Zappos was not his first success story. In his mid-twenties, Hsieh cofounded and sold LinkExchange to Microsoft for $265 million.

Building ‘an entrepreneur’s Disneyland’

By the end of the year, 1,500 Zappos employees will relocate from Henderson to Las Vegas’ City Hall building downtown. The 300,000-square-foot campus is currently under construction and is designed to accommodate 2,000 workers.

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To house these employees, the development of 28 acres of land across Clark County (purchased for $93 million) is also firmly underway. New residences and amenities will emerge in the “llama,” the insider term for the mass of land stretching from Las Vegas Boulevard to Maryland Parkway, because that’s the shape the area sort of resembles from space.

The urban plan is a clear nod to the campuses of Nike, Google, and Facebook, where employees can live, work, eat and play in the immediate vicinity of their desks. One of Hsieh’s favorite ways to describe the area, which he borrowed from a recent visitor, is as an “entrepreneur’s Disneyland.”

However, after a visit to the Nike campus, Hsieh realized it was a bit too insular. So to find other sources of inspiration, he took a trip to New York University, which comfortably blends into the culture of Greenwich Village.

Three years in, the project is now part-NYU, part-Nike and already beginning to take shape.

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Hsieh owns numerous residences in the area but chooses to spend much of his time at the Ogden, the luxury apartment complex in the center of town. Visitors regularly tour his abode, which can get a bit awkward when he’s munching on cereal in his pajamas in the morning.

Hsieh is this accessible so anyone can pitch an idea. A year ago, a friend introduced him to a long-time resident, Natalie Young, who spent most of her career working at restaurants on the Strip.

Young had a dream to start her own restaurant. So Hsieh convinced her to move to the downtown area and invested capital from the small business portion of the fund. Today, her restaurant, Eat, is the trendiest brunch spot downtown.

In addition to new eateries, summer visitors will enjoy the 150-seat performance space at the Inspire Theater. In the fall, the Downtown Container Park, an outdoor mall made of repurposed shipping containers, will open, and the city will host the “Life is Beautiful” music and arts festival. The headliners are hometown favorites The Killers.

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Hsieh’s team has made quick work of the startup-oriented part of the fund, investing in some 20 tech companies, most notably Zirtual and Tech Cocktail.

If all goes according to plan, Vegas will soon be known as a 24-hour party town and a tech hub for innovative professionals, following the lead of cities like Austin and Boulder.

The man behind the mission

Despite these early successes, Hsieh views the Downtown Project as a long-term investment that will pay off in a decade or two. It’s far longer than most venture capitalists or real-estate developers are willing to wait for a return.

To understand where his drive and sense of conviction come from, I meet Hsieh’s old friend and cofounder at LinkExchange, Ali Partovi, at a bar downtown.

Partovi recalls a time in the late ’90s when the company was in its prime. He would buzz with excitement at each acquisition offer. But Hsieh calmly evaluated every opportunity with a cool reserve that is rare among young entrepreneurs, and the company ended up selling for far more than the founders could have ever expected.

“It rubbed off on me,” said Partovi, who would go on to master his own poker face, making early bets in both Dropbox and Facebook.

In fact, Hsieh is such a master of the poker face that one long-time colleague of his told me that even friends who’ve known him for more than a decade joke that they still can’t tell if he likes them.

Other friends tell me that Hsieh is patient, but he does not abide internal politics and red tape. Conversations about potential investments are straight to the point — and often take place at a local bar.

He knows how to have a good time, but Las Vegas’ newest titan is no gambler. In fact, Hsieh has deliberately avoided the region’s dominant industry: the hotels and casinos.

“What I’m working on is a kind of anti-Strip,” Hsieh told me.

Another personal passion is creating customer service-focused company cultures — he’s written a book on the topic.

“We’ve always had a decent culture, but when we moved to Las Vegas and began hanging out with each other all day and socially after work, our culture got to the next level,” he said in an interview.

The Zappos culture remains a source of pride, and the company typically invites visitors for an office tour to show it off.

During my visit in May, the group of entrepreneurs and investors I was with (among them, Paul Singh of 500 Startups and ‘super angel’ Ariel Poler) got a bit of a shock when Zappos employees created a ruckus as we passed by. To welcome newcomers, different departments will often ring cow bells and bang on their desks.

Another quirk: C-level executives serve lunch once a month so employees can voice any complaints. They also sit in cubes with everyone else, not in fancy, walled-off corner offices.

Indeed, Hsieh views Zappos.com as his greatest accomplishment, and justifiably so. The Internet company tops $1 billion in annual revenue. At the current headquarters, the walls are lined with pictures marking the company’s milestones.

Local resistance to the corporate tycoon

The Downtown Project is community-focused, but Hsieh is neither a philanthropist nor a saint. His goals are to build a thriving, global company, and to house employees in a town that caters to their needs.

As you might expect with a project of this scale, Hsieh and his team hit on significant logistical issues early on. Unlike the manicured, small towns of Silicon Valley that Apple and Google call home, the region does not boast award-winning schools or hospitals. (Thus the $50 million that Hsieh earmarked for health and education.)

A second potential source of conflict? The locals who are perfectly content with their way of life. Not everyone has welcomed the incoming swarm of young entrepreneurs, investors, and Zappos employees.

Then there are the party buses that threaten to pass by their houses at night — the Downtown Project team is in the process of acquiring and revamping a dozen of these potentially noisy buses.

One resident, who asked to speak anonymously, informed me about a recent disagreement, which she sees a disturbing sign of things to come. The story goes that a staff member from the Downtown Project recruited non-Zappos employees for an organization called “SHIFT Vegas.” SHIFT members were asked to consult on the development of community work-spaces. Hsieh is outspoken about his vision to turn the area into a co-working capital of the world, so the invitation made sense.

The group made a recommendation for a co-working space, but the Downtown Project team dismissed it in favor of a daycare center for Zappos employees.

In the wake of this decision, community-members spun off separate groups for non-Zappos employees.

They haven’t gotten far. According to a source, none of the non-Zappos groups have received financial backing for any of their ideas from the Downtown Project.

Incidents like these have not made their way into press updates. Instead, Hsieh is frequently quoted as saying he intends to collaborate with local residents and is funding projects that will yield a “return on community.” Hsieh told me he is aware of the discord, but he seems to believe that it will clear up on its own.

He predicts, “In five years from now, locals will turn around and say ‘Woah, what just happened?'” In other words, naysayers will thank him later when yet more trendy co-working spaces, eateries, and community theaters emerge in their town.

This may be wishful thinking. Despite his laid-back style and boyish looks, Hsieh is still a corporate tycoon in the eyes of many local residents. You don’t have to spend too much time in the area to sense brewing discontent. Another small-business owner I spoke with scoffed when asked about the Downtown Project. He immediately hit back, “Don’t you mean the Zappos project?”

However, not all the locals believe Hsieh and his crew are corporate invaders out to get them. Maureen Schafer, a long-time resident who runs a community business group for local tech execs, views Hsieh’s efforts as the most ambitious she’s seen in her lifetime. Schafer is the vice president of corporate development at local healthcare startup LifeNexus. She plans to stay put, especially now that a branch of Cleveland Clinic and the Brookings Institute have settled nearby, adding heft to the region’s healthcare community.

“There have been attempts to restart this part of the community — but this project will finally do it,” she said.

The dream: Downtown Vegas tomorrow

In the first half of the twentieth century, most people believed that the human body was not capable of a four-minute mile. But in 1954, Roger Bannister ran the distance in 3 minutes and 59 seconds, shattering society’s expectations.

Barely a year later, someone else broke the record, followed by another, and then another. These days, a four-minute mile is almost routine.

Hsieh frequently tells this story, a precursor to his explanation of the Downtown Project.

“It’s not that nutrition was any better on Earth,” he explained in a Business Innovation Factory (Bif) keynote in October 2012 (see video below). “It’s just that people believed it was possible.”

Indeed, the Downtown Project is the modern equivalent of a four-minute mile. Few people would believe that a startup guy with little or no urban planning experience is capable of rebuilding a city and its economy in just a few years. And in contrast to most large-scale development projects, Hsieh is collaborative and refuses to act behind closed doors. For inspiration, he’s invited friends and the community to plaster the walls of his apartment with post-it notes.

When I spoke with Hsieh, he outlined his goal to inspire entrepreneurs to follow suit, restoring other cities around the country. Granted, these other cities might not have an entrepreneur in residence, singularly dedicated to converting the region into a glorified startup incubator.

“We think of the city as a startup,” Hsieh told the audience at BiF. “How many times in your lifetime do you get the opportunity to help shape the future of a major city?”

Tomorrow in this series: Hsieh’s focus on health and education in downtown Vegas. 

Tony Hsieh image (top) photo credit: Robert Scoble via photopin cc // Downtown Vegas images via Christina Farr // VentureBeat