Toney Hsieh is telling everyone to take a giant chill pill today.

The chief executive officer of Zappos and one of the leading hands behind the revitalization initiative for downtown Las Vegas called the Downtown Project, fired back against allegations that his $350 million project is failing and hemorrhaging money. 

On Tuesday, Re/code reported Hsieh had stepped down from his position as chief executive of the project, and that it was also laying off 30 percent of its staff. 

Hsieh's statement is a point by point rebuttal of what he terms inaccuracies in the press, but it still leaves open to question the long-term viability of a project that was equal parts social entrepreneurship and dollars and cents. And for policy experts and other entrepreneurs who are looking at redevelopment projects in beleagured cities around the country, Hsieh's experience in Las Vegas is likely to be informative. 

Here's what Hsieh had to say:

  • It's true that DTP has laid off 30 percent of its internal staff, or 30 positions. But its portfolio of 300 companies is actually adding to its roster of 800 employees, including a new grocery store called The Market, which is hiring 30 people.
  • Hsieh isn't stepping down as chief executive of the project, because he never was the CEO, and never had a hand in day-to-day operations. He's an investor, though.
  • The Downtown Project is not a single entity, but a collection of several hundred businesses and legal entities.

Like it or not, Hsieh's revitalization idea for Las Vegas got a lot of people very excited, because it seemed to be trying to combine some pretty big ideas about how the private sector can create social change in some of the most intransigently defeated urban areas. You don't have to look much futher than DTP's mission statement to see the idealism:

Our goal and purpose is to help make downtown Vegas a place of Inspiration, Entrepreneurial Energy, Creativity, Innovation, Upward Mobility, and Discovery, through the 3 C’s of Collisions, Co-learning, and Connectedness in a long-term, sustainable way

One of the people who was carried away by these goals and the possibilties is David Gould, a lecturer in the health and human physiology department at the University of Iowa. Gould's open letter to Tony Hsieh in the Las Vegas Weekly has been drawing a lot of attention for its oblique criticism of DTP.

"We have not experienced a string of tough breaks or bad luck," Gould writes in his letter. "Rather, this is a collage of decadence, greed, and missing leadership."

But when I spoke with Gould today, he seemed to have reconsidered.

In 2010, Gould met Hsieh, who agreed to speak with his students about the importance of social entrepreneurship. That class inspired a course which in turn pitched business ideas to Hsieh for the DTP. And in 2013, Gould says he moved out to Las Vegas to head up efforts to connect local community leaders with students at the University of Las Vegas and other national experts to try to implement some of the big ideas. 

As Gould sees it, however, "disingenous people" attached themselves to the project, with far less lofty goals. 

"I believed in the vision [of DTP] and I believed this vision was being lost," Gould tells me. 

In fact, inner city transformations are pretty complicated affairs, which require a lot more than several hundred million dollars and lofty goals. To get more insight about that, I turned to the Initiative for a Competitive Inner City, founded by Harvard Business School's management guru Michael Porter.

The ICIC studies all the dynamics involved in rescuing areas from urban blight, having worked with more than 50 cities since 1994. It has also examined some private sector urban renewal projects such as Hsieh's, and the one currently underway in Detroit, spearheaded by Quicken Loans entrepreneur Dan Gilbert

One of the connecting threads for these projects, says Kim Zeuli, senior vice president and director of research for ICIC, is that they use corporations as anchors. While there's nothing wrong with that--in fact that can be quite a successful strategy, Zeuli says--the anchors need to have something at stake in the community, and they need to be connected with a larger economic development strategy that's likely to be under way already. 

 inline image

For example, Gilbert, a lifelong resident of Detroit who professes to care passionately about the city, is investing heavily in local transportation initiatives, which can also have a dramatic impact on local businesses. It's not clear if there's an equivalent anchor with DTP.

The biggest lesson for Hsieh and others is that transformation of an area can take a very long time, perhaps far longer than a decade. In his statement, Hsieh spoke of his 10-year plan to get Zappos to profitability, implying that DTP was on similar course.

The biggest problem with corporate projects to reengineer blighted urban areas, says Zeuli, is that progress can't be measured on a quarterly basis. More specifically, cities are subject to the vicissitudes of regional economies, as well as the national economy. And though the national economy is clearly in recovery, it's a weak one, and that weakness trickles down into regional economies too.

"When you think of economic development, you can't measure it on the same time frame," Zeuli says. In short, for Hsieh's project to work in Las Vegas, he'll have to be in it for the long-haul, and far deeper than he probably is, regardless of whether he's the chief executive of the project or not.