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5 questions for Tony Hsieh and the Downtown Project

It has been, to say the least, a turbulent week for Zappos CEO Tony Hsieh and his Downtown Project that aims to revitalize the blighted area of Las Vegas surrounding the new Zappos headquarters.

What began on Monday with a feature series on Re/code reading pretty much like every other breathless story on the effort quickly derailed on Tuesday. Local press began reporting of “massive” layoffs and there was news that Hsieh had stepped down from his leadership role at the project. Re/code ended its series on Wednesday in the way I think it should have began — focusing on hard questions about the project’s discipline (especially on the venture capital front) and a trio of suicides largely ignored or swept under the rug by a community built around “happiness.”

Hsieh himself answered some of the questions on Tuesday night via a statement on the Downtown Project website, and again in an interview (via Evernote) with Re/code on Thursday. Essentially, he argued, Downtown Project was always a money-making venture and it always planned to realign around its most-promising startups, small businesses and other projects in 2014. He also downplayed his own role at the project, claiming he was never involved with day-to-day management (or hasn’t been for a long time) and that people are reading too much into reports that he’s stepping down.

But there are still a few questions that need to be answered before we can assess if there’s really cause for concern and what are the chances that the Downtown Project can still thrive in the long run. The Downtown Project has not responded to my request for an interview, so here’s my take.

A wall of Downtown Project ideas, on Post-It Notes, in early 2012.
A wall of Downtown Project ideas, on Post-It Notes, in early 2012. Credit: Gigaom / Derrick Harris

1. We know what was delivered, but what was promised?

No one would argue that realigning resources to focus on the best bets (those Hsieh refers to as “cannonballs”) is sound business strategy, but I get the distinct sense that wasn’t what was promised to the business owners and employees who signed up to be part of Hsieh’s vision. Rather, there was a lot of talk about “community” and changing the world and treating a city like a startup — all things that usually take a lot more than three years to truly accomplish — and none that I heard about a five-year plan.

Business is business in the end, but it’s hard to imagine some people (possibly many among the 30 who were let go, and probably among the businesses and projects not deemed worthy of “cannonball” status) would have been so gung ho if they knew it was kill or be killed come 2014. I suspect that’s even truer for the folks involved in projects such as building a music scene or arts scene, who reportedly were among those laid off and probably among the most idealistic Downtown Project employees.

2. Is whoever is in charge now qualified to be in charge?

On Wednesday, I was interviewed along with PandoDaily founder Sarah Lacy and former Las Vegas Sun reporter Joe Schoenmann on Las Vegas’s NPR affiliate for a segment on the seeming Downtown Project fiasco. Lacy, whose company is among the Vegas Tech Fund portfolio, noted that there are high-ranking people within the Downtown Project who have no business doing the jobs they’re doing.

I had the same reservations upon hearing about the project for the first time, especially the seeming pride with which they wore their ignorance. Building a startup is one thing; building a city is something very different. I don’t care how many books you’ve read, especially if it was only one.

The story of prominent startup Factorli’s abrupt shutdown suggests there’s not always sufficient planning or due diligence on the Vegas Tech Fund side of the house, either. Factorli launched publicly in May and was done by October.

The Factorli Team. Photo courtesy of Factorli.
The Factorli Team. Source: Factorli.

Schoenmann’s reporting over the past year has referenced questionable business dealings and real estate transactions, and comments to his posts have referenced certain Downtown Project higher-ups as being in it mainly for personal gain. David Gould, the former University of Iowa professor who resigned from the project Monday night, wrote an open letter to Hsieh referencing “decadence, greed, and missing leadership.”

Hsieh didn’t reference any of these criticisms in his statements. If he’s not in charge, it seems fair to ask who is.

3. The downtown community — part of the Downtown Project, or not?

As I wrote on Tuesday, I think one of the biggest problems with the Downtown Project thus far has been its engagement with the actual community surrounding its small-but-growing collection of real estate holdings. Poorly communicated promises and a lack of qualified leadership might have exacerbated this problem.

But whatever the cause, I think the project needs to refocus on the community part of its original mission statement or risk becoming just another one of many shopping-dining-drinking destinations in town. Frankly, I’m not sure it can sustain itself as one if its only customer base is Zappos staff, implanted startup employees and the power lunch set.

Other downtown rejuvenation projects such as the performing arts center, the perpetually evolving arts district and the mayor’s dream of a professional soccer stadium could all help bolster the Downtown Project’s prospects, but they’re no guarantee. The fact remains that much of the money in Las Vegas lives in the suburbs or at least closer to them than downtown, and they have their own restaurants, bars and shops. More, in fact.

There’s also a little thing called the Las Vegas strip.

The downtown Container Park.
The downtown Container Park.

Don’t get me wrong, I really do enjoy the Container Park outdoor mall, but actually revitalizing the surrounding area with parks, music, social programs and more would go a lot further to make the area a real draw in terms of revenue and brainpower. Make it a safe, communal, 21st century neighborhood rather than a playground for wannabe Mark Zuckerbergs or, more accurately, Tony Hsiehs. This would increase the diversity of the collisions Hsieh and his team love to talk about, and it might even convince more yuppies and intellectual types to move downtown, bringing their wallets and ideas with them.

4. Is there a tech story beyond downtown, spanning UNLV and Switch?

On the startup front, I think the Downtown Project probably needs to work more directly with the University of Nevada, Las Vegas, and SuperNAP data center operator Switch Communications. If the city is ever going to be home to a real tech industry — big companies creating lots of jobs and spawning more companies — it needs a better pipeline from education to entrepreneurship. This is the model in Silicon Valley, Boston and even more-local regions such as Salt Lake City.

I think there’s a natural fit between Hsieh’s money and experience, Switch’s expertise in data center and cloud technologies, and the entrepreneurship and computer sciences programs at UNLV that has yet to be fully tapped. Building a better-educated base who know about valuable technologies, combined with a local source for venture capital, is a more sustainable model than importing a bunch of talent and hoping it sticks around. Apps come and go and can come from anywhere, but big tech requires institutional knowledge that starts well before VCs are involved.

Supernap Gallery 2011 - 08
Switch and its customer base know a lot about infrastructure. Source: Switch Communications

5. Will the party ever stop?

One of the biggest themes of the Downtown Project its it focus on creating “collisions” — interactions between people that spur great ideas. One of the biggest ways to ensure these happen has been with a steady flow of parties, bars, mixers, social events and other channels for ensuring people cross paths.

The problem is that the pressure to always be happy and always be colliding seems to have a dark side. Some (even aside from the Re/code piece) have pointed to this culture as a possible cause behind the three suicides of affiliated entrepreneurs, who were sometimes far away from their traditional support bases and trying to keep up appearances as the their businesses struggled. I’ve spoken with startup founders who have taken the tours, been pitched the Vegas Tech lifestyle by Hsieh, and decided not to come here because they couldn’t figure out when they were supposed to spend time on their business, much less do anything like have a family.

The "living room" at the Gold Spike, a Downtown Project-owned bar and dorm-style living quarters.
The “living room” at the Gold Spike, a Downtown Project-owned bar and dorm-style living quarters. Source: Gold Spike

In a lot of ways, what Hsieh is trying to build in downtown Las Vegas seems like a caricature of Silicon Valley, and one that puts the cart before the horse, at that. I spend a fair amount of time in San Francisco, and I’ve never seen a fraction of the lectures, meetups and other entrepreneurial activities that I see in Las Vegas. In my experience, good engineers go to meetups to learn about new technologies; everyone spends a lot of time working.

The hip bars, $4 toast and anonymous sex parties aren’t what brought technology startups to the valley, they’re just the result, for better or worse, of what those companies have accomplished and the money they’ve made. Give good entrepreneurs and good technologists a foundation to succeed, and they will. The fun part will take care of itself.

3 Responses to “5 questions for Tony Hsieh and the Downtown Project”

  1. markfowler402363568

    One of the things that I see happening is that 100’s of startups have applied for The Downtown Project (and Vegas Tech Fund) and have never been responded to or never been given any reason for being declined besides “Not a good fit”. There doesn’t seem to be any system for choosing a company and no real guidelines for application (accept maybe moving to LV, which is not clear BTW).

    It would be interesting to see which companies applied, were summarily declined (sorry, not a good fit) and later went on to make a gazzilion dollars in Silicon Valley.

    Perhaps they only want burner/co-op/restaurants and sewing rooms.

    Solution: Open up some of these abandoned motels (bunkbeds!) and give away the space for free to any startup with a decent deck and team. Give them food vouchers at EAT (or the food containers at the park) and let them use Work In Progress or any other Co-working space (all paid for by TDP) with a commitment to support them for up to 12 months (not the 3-4 months like most incubators, some MVP’s need more time to create and model). Take 10% of the top and more if they need cash. Set a MINIMUM amount of companies you will do this with. 2 per month should do it. I bet you it could be done for 3k per month for each company, 4k tops. That’s 24 companies with only 312K invested in year one (not including rehab on the properties). Oh, and your Real Estate portfolio will undoubtedly go through the roof, returning 10-100x on the investment. Just a plan, perhaps we need one.