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Tony Hsieh's Excellent Las Vegas Adventure
 

In which our hero, flush with $400 million from the sale of his company, attempts to reinvent his city, Zappos-style.


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Birth of a City: Hsieh plans to turn downtown Las Vegas into something resembling Austin. The first step happens in 2013, when Zappos takes over the former city hall. Hsieh won over Las Vages's city council thanks to help from local bigwigs, like former mayor Oscar Goodman.

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"You can't tell anybody about this." Tony Hsieh takes a shot of vodka, and then he tells me a secret, eyes wide, voice rising.

He wears, as he almost always does, a navy T-shirt that bears the logo of Zappos.com, the online shoe retailer he helped start in 1999, that he has run as CEO since 2000, and that he sold to Amazon.com for $1.2 billion in 2009. At this moment, Hsieh-;whose name is pronounced Shay and whose default expression, if you can call it an expression, is an impassive stare into the middle distance-;also wears a slight, conspiratorial smile. "We're thinking about taking over city hall," he says.

We're at Hsieh's favorite bar, the Downtown Cocktail Room, two blocks south of the building in question. Although the bar is part of a small, up-and-coming neighborhood in the city of Las Vegas, it is very much a diamond in the rough. Downtown Las Vegas is just 2 miles north of the Strip-;the glittering, Wall Street-backed tourist attraction in unincorporated Clark County-;but it often feels much farther away. This is a hardscrabble place, populated largely by the area's working poor, not to mention its pawnbrokers and bail bondsmen. It is also, as far as Hsieh is concerned, an enormous opportunity.

Hsieh doesn't tell me everything during this particular conversation, which takes place in the spring of 2010. He doesn't know everything yet. But he can already see a plan for the city forming in his mind. He sees barren streets blooming to life, lush with the revelries of thousands of creative young people. He sees new bars and nightclubs, hosting bands that college towns such as Austin and Athens, Georgia, would wish they had. He sees art galleries and yoga studios and bookstores and charter schools and zip lines. He sees the next great American city, sprouting up, miraculously, in the most blighted part of the most blighted city of the most blighted state in the country.

Anyone who has spent any time with Hsieh knows that he is prone to wild thought experiments and is especially susceptible to huge and unreasonable ideas. "One of the best things about Tony," says Michael Cornthwaite, a Las Vegas restaurateur and a friend, "is that he doesn't live by or within the same limitations that you're used to dealing with. He has never-;maybe never in his whole life-;thought within the same constraints as the rest of us." This means that a lot of what comes out of Hsieh's mouth must be interpreted impressionistically: If he says that he's building a movement to make the world a happier place, you understand that to mean that his online retailer has loftier goals than selling shoes. If he says that one day, there might be a Zappos airline, he means that his company could expand to other businesses-;apparel, say, or housewares.

But every so often, these visions remarkably turn out to be true in a literal sense. A few months after our interview, Hsieh sent me an e-mail confirming the plan to move to city hall. The subject line of Hsieh's e-mail included a smiley-face emoticon-;Hsieh loves emoticons-;and the following subject: Playing SimCity in Real Life.

I returned to Las Vegas at the end of last summer to find out how much progress Hsieh had made. He immediately offered to show me Zappos's future digs, which are still occupied by the Las Vegas city government. "Let's see if the mayor is here," he says, studying his phone as we walk down a sun-baked Stewart Avenue in the heart of downtown.

For the past year or so, Hsieh has spent countless hours thinking about how to fix this place. He and a staff of half a dozen people who work for his latest company, the Downtown Project, have been corralling local business owners, drafting development plans, and giving tours to entrepreneurs to try to persuade them to relocate to Sin City. He spends about half of his workweek devoted to his other job, trying to figure out how to sell more shoes and apparel at Zappos, which now has more than $1 billion in sales and 3,500 employees.

Downtown Las Vegas has two major industries: government and gaming. The past few years have been unkind to the former, as both the city and county governments have been subjected to annual double-digit budget cuts and layoffs numbering in the hundreds. The old casinos that line Fremont Street-;Binion's, the Four Queens, the El Cortez, the Golden Nugget-;have fared slightly better, but only by marketing themselves to a crowd that might euphemistically be described as "value conscious." There are more vacant lots around the planned Zappos headquarters than occupied ones. There isn't a gym, a grocery store, or a dry cleaner within walking distance.

On this particular afternoon, Stewart Avenue, like most of downtown Las Vegas, is deserted save for the panhandlers. Despite the fact that it's a weekday afternoon, city hall is empty, too-;the result of a government-mandated four-day workweek to help close the budget gap. The Las Vegas metropolitan area has an unemployment rate of 13.1 percent, the highest among the larger cities in the state of Nevada, which itself has the highest unemployment rate in the nation. Housing prices in Las Vegas have fallen 60 percent since 2007, and 1 out of 9 homes is reportedly in foreclosure.

Hsieh intends to change that. In addition to the plan to move Zappos downtown, he has made a series of investments from his sizable personal fortune: seed capital for several tech start-ups that have promised to relocate; $2 million for a new performing-arts center that will bring Broadway shows downtown; $1.2 million to Teach for America to improve downtown's schools; $7 million for 20 percent of the charter airline JetSuite, which he plans to use to fly prominent entrepreneurs and rock bands into town. Hsieh was also prepared to spend $2 million to build, of all things, a zip line to fly tourists down five blocks of Fremont Street-;though that project appears to have fallen through.

Hsieh has lots of other ideas, too-;displayed as 108 multicolored Post-it notes, assembled in columns, on his living-room wall, with words like Farmers Market, Breakfast Place, Community Kitchen, and Pool scrawled on them. The most pressing matter is the construction of hundreds of units of affordable housing. "We want to have 1,000 new people living within three blocks from here," he says. "The goal is to create a walking city."

Hsieh himself left a McMansion in a gated suburban community (Zappos itself is in the suburb of Henderson) for an apartment two blocks from his future corporate headquarters. Most of Zappos's executives have rented apartments on the same floor; a dozen other Zappos employees have also moved into the building, in which a two-bedroom apartment rents for about $1,600 a month.

If everything goes according to plan, Zappos will take over the old city hall-;a slightly loopy paean to 1960s Modernism with a circular courtyard and an 11-story tower that for some reason has no windows on one side-;at the end of 2013. That will make Zappos one of the largest private employers in Las Vegas proper. (A new city hall will be located three blocks south, as part of a roughly $500 million redevelopment effort that includes a museum dedicated to the history of the Las Vegas Mafia and a proposed arena for a professional basketball team.) "Zappos gives us a critical mass," says Oscar Goodman, the brash former Las Vegas mayor, known for having brokered the deal that brought Zappos downtown and for his tendency to appear in public only when flanked by showgirls in full bustier-and-feather regalia. He now serves as an executive at the Las Vegas Convention and Visitors Authority. "These are people who will need a grocery store, a bookstore, a music store," says Goodman. "It's a perfect fit."

Downtown revivals of this kind are, of course, nothing new-;they've been tried with some success in cities such as Portland, Oregon; Denver; and Miami. But this kind of ambitious makeover has never been tried in a place like Las Vegas, a large city (population 584,000) lacking both high-quality housing stock and anything resembling an urban culture. It's a transient place-;people come for a few years and then move on. "There's vacant land, no gathering space, no connection to nature," says Donald Carter, director of Carnegie Mellon's Remaking Cities Institute, who has advised Hsieh on his redevelopment plans. "It's like what Gertrude Stein said about Oakland: 'There's no there there.'"

What downtown Las Vegas lacks in parks and pedestrians, however, it makes up for in the singular ambition of Hsieh. Throughout Zappos's history, Hsieh has approached management the way Steve Jobs approached product development-;with an uncompromising rigor bordering on insanity-;and he has attempted to turn the humble act of selling stuff on the Internet into high art.

During Zappos's early years, Hsieh decided that customer service was the most important function of his company and proceeded to craft dozens of counterintuitive policies that lavished benefits on the low-wage workers who answered the phones. He required managers to spend at least 10 percent of their working hours socializing with their employees; he offered new hires up to $4,000 to quit in order to weed out those who wouldn't give the kind of service Zappos required. He offered free returns to all customers, even as Zappos struggled to make payroll.

Somehow, it all paid off. The company turned its first profit in 2003, surpassed $1 billion in sales in 2008, and was acquired by Amazon.com for $1.2 billion in 2009. Hsieh, who has no children, drives a Mazda, and takes many of his meals at a takeout kebab shop, made an estimated $400 million on the acquisition. His plan calls for roughly $50 million to be invested in tech start-ups, $50 million in small businesses, $50 million in education, $100 million in land, and $100 million in housing. Most of that money will come out of his own pocket. "I care more about making sure that we have the right community than I care about return on investment," Hsieh says. "I'd rather have something that I can help curate and that people will actually care about."

Hsieh is often described as a Silicon Valley-style entrepreneur who relocated to Las Vegas, but he seems more at home in this weird, fantastical place. After all, this is a city in which entire self-enclosed worlds can go up in a matter of months and can be vacated and demolished just as quickly. It is a young city that embraces, and has been embraced by, ambitious entrepreneurs (and mobsters) with visions that wildly transcend the reality of the place. "There are people who call Las Vegas an ethical car wash: You come here and you can reinvent yourself," says Michael Green, a professor of history at the College of Southern Nevada. "That obviously can be negative, but it means that Las Vegas accepts people at face value. It's a good aspect for someone like Tony Hsieh." Green says that though Hsieh is sometimes compared to the casino mogul Steve Wynn, he's more like the casino owners of the 1940s, who helped transform a dusty frontier town of 8,000. As a lifelong resident of Las Vegas, Green thinks that the idea of walking down the block for a latte in 120-degree heat is slightly ridiculous; but he also knows that in Las Vegas, ridiculous things can happen. "What Tony is pursuing strikes me in part as a pipe dream and in part as something worth doing," he says.

Hsieh's interest in urban planning began with a need for more space. By late 2009, Zappos was very close to outgrowing the three low-slung beige buildings it occupied in a corporate office park in Henderson. Hsieh, assuming Zappos would need a new headquarters, began studying the campuses of Apple, Google, and Nike. Those companies had thrived and won acclaim from the business press by providing so many perks-;free food, basketball courts, video-game rooms, laundry services-;that employees never had to leave the confines of the office park.

Hsieh thought about partnering with a casino and filling it with restaurants, a gym, and everything else a Zappos employee could possibly need. One proposed partner was the Silverton Casino, which has a 25-story tower on an 80-acre site. "The idea at the beginning was to build our own self-sufficient world," he says. "The Silverton was so big that you could still have the casino, but you could also have a Zappos campus and give employees access to all the casino amenities."

During his first few years in Las Vegas, Hsieh spent every weekend on the Strip. But a few years ago, he found himself at the Downtown Cocktail Room. It's a speakeasy sort of place, and one of the only bars in all of Las Vegas where you won't find a slot machine. Hsieh struck up a conversation with the bar's owner, Michael Cornthwaite, a 38-year-old entrepreneur who, along with his wife, Jennifer, is widely regarded as the first of downtown Las Vegas's urban pioneers. Hsieh kept coming back, and in 2009, when he mentioned that he was looking for a new headquarters, Cornthwaite jumped on the opportunity to sell him on downtown.

"I said, 'Forget about just your campus,'" Cornthwaite recalls. "'This is an opportunity to take a city that's young and raw and have a huge impact.'"

Cornthwaite's words stuck with Hsieh. He started wondering why corporate campuses, and corporate cultures for that matter, had to be so parochial. Why do companies radically cut themselves off from the surrounding community? He discovered the work of Geoffrey West, a theoretical physicist who has observed that cities, unlike animals and corporations, get more productive as they grow. By integrating Zappos into a city, Hsieh wondered, could he cheat the slow decline that seems to befall most large companies? "We're trying to integrate all the different concepts of what makes a city more productive, and crossbreed them into the company," he says. "We're creating this alien hybrid that benefits the city and benefits Zappos."

Hsieh knew that moving downtown was risky and potentially expensive. He explained to Jeff Bezos and his other Amazon overseers that he would finance aspects of the project from his own pocket. If Zappos couldn't afford to buy city hall, he would buy it and serve as the landlord. (Amazon did not respond to requests to comment for this article.)

I meet Hsieh on the 23rd floor of a brand-new apartment building that overlooks the future Zappos headquarters. Hsieh moved here in May and rented 25 apartments, at a rate of roughly $35,000 per month. He has taken three of the apartments for himself, knocking down the walls to create a single, 5,000-square-foot residence; turned two into an office for the Downtown Project; and kept the other 20 to put up visitors he is pitching on Las Vegas. (The week before, he had flown in the education entrepreneur Sal Khan on one of the JetSuite planes and put him up gratis to try to persuade him to open a school downtown.)

Hsieh has made a number of improvements to his own living quarters. He hired an urban gardener to cover every square inch of wall space in a living room with plants. ("We have to see if this smell lasts," Hsieh says, referring to the lingering scent of fertilizer.) He also installed, apparently for parties, a machine that spits out pancakes at a rate of one every few seconds and another that produces instant mashed potatoes.

When I arrive, four young people from Hsieh's favorite band, Rabbit, are eating TV dinners and messing around with the mashed-potato machine. The band, which hails from Mount Dora, Florida, is getting ready for an acoustic show at Zappos's offices for the two dozen or so employees working the graveyard shift in the company's call center. After more than a decade of business success, a best-selling book, and hundreds of millions of dollars of accumulated wealth, Hsieh can call on favors from celebrities-;he's friendly with Tyra Banks, Ivanka Trump, and Tony Robbins-;but his favorite band hasn't been anywhere near a major music festival or TV talk show. Rabbit's biggest fans, besides happiness-obsessed multimillionaires, are children under 7. (Sample lyric: "And we'll laugh and run/ 'Til the whole day is done/ I'm having way too much fun/ With my imagination.")

We board a luxury bus with the logo of his book, Delivering Happiness-;a giant smiley-face emoticon-;and head out to the Zappos offices in Henderson for the show. (Hsieh bought the bus, which was previously used by the bassist for the Dave Matthews Band, for his 2010 book tour and hasn't had the heart to give it up.) After an introduction from Hsieh-;he informs the crowd that it is in the presence of the band responsible for Zappos's hold music-;Rabbit plays four songs, and then most of the graveyard shift piles onto the bus to head downtown to continue the festivities.

Hsieh has put on dozens of similar events, at his own expense, to try to get his employees excited about the move downtown. "I look at the move as a challenge and an opportunity," says Augusta Scott, 61, who started answering phones in the Zappos call center in 2007 and now serves as the company's in-house life coach. Scott had never spent much time downtown, but she began exploring after the move was announced. In October, she and her Chihuahua, Holli, left their suburban home and moved into an apartment on the same floor as Hsieh. "People say it must be stressful being right down the hall from Tony," says Scott. "I don't see it like that. It's like being with my family."

If Zappos employees are beginning to come around to Hsieh's plans, it is less clear if Las Vegas, in all its transient, libertine glory, is ready for Zappos. "Some part of me doesn't trust what he's doing yet," says John Curtas, an attorney and part-time restaurant critic who lives a mile and a half from the new Zappos headquarters. Curtas, who has watched the city of Las Vegas attempt and fail at one redevelopment project after another, worries that Zappos will overwhelm the nascent pockets of urban activity, turning downtown into a glorified corporate campus. Still, Curtas admits, "as much as I'm afraid Zappos is going to Disney-fy the area, it's got nowhere to go but up."

Hsieh's sudden embrace of the city seemed to come out of nowhere, even to those who had spent years trying to develop the struggling downtown. Andrew Donner, the founder of Resort Gaming Group, the real estate concern that has agreed to purchase city hall and that will serve as Zappos's landlord, told me that he found Hsieh mystifying when he took him on a tour of downtown. "He said, 'It'd be cool to put a ski slope there,'" Donner recalls. "I'm like, 'What are you talking about?' But he wasn't laughing." Eventually, Donner came around, if not to the ski slope, at least to the idea that Tony Hsieh's imagination and sizable bank account might be good things for the city.

Rabbit was to play another show at the Downtown Cocktail Room the following evening, a Friday night, but a few hours before, I found Hsieh hanging out alone in his apartment. He was thinking about the corner of Fremont Street and Las Vegas Boulevard, which does not, as yet, have a tenant. "I think this place needs more daytime hubs," he says, standing on a south-facing balcony. The hazy, fantastical mass of lights and spires that is the Strip was visible in the distance, but he directed my gaze downward, to a drab two-story structure with papered-over windows and a "For Sale" sign. "Some people think it'd be a great live-music venue, which it would be," he says. "But strategically, I just think that the first couple of years a bookstore would help the area more." He doesn't know who would run the bookstore or who would pay for it, but he isn't worried about that. If he can't find someone who is passionate about bookstores, he'll do it himself.

We turn around and go inside, facing the wall of Post-it notes. I ask him which idea he's most excited about. "It's not any one thing," he says. "I guess what I'm most excited about is integrating it and bringing people together and making it easy for people who are passionate about it to make it happen. I'd rather just help arrange the different pieces together."

Hsieh brings up a $50 million apartment complex he's hoping to build, which he says will be inspired by a college dormitory. It's going to be within walking distance from where we are standing-;to take advantage of rock-bottom real estate prices-;and, he says, "filled with friends."

"Do you think your whole career has been about trying to re-create college?" I ask. Hsieh often speaks with nostalgia about one of the first businesses he started, making and selling pizzas out of his Harvard dorm.

He pauses and thinks about the question. "Maybe in some ways," Hsieh says. "It's less about trying to re-create that period of my life. It's just that college is the only example I can think of where you have that social connection and where someone can just come up with an idea-;to start a club or whatever-;and just do it.

"People," he says, "lose that sense of anything is possible when they grow up."

IMAGE: Marc Burckhardt
Last updated: Jan 24, 2012




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