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Tony Hsieh on Delivering Happiness to Downtown Vegas

Daily Ticker

Downtown Las Vegas has two main draws: the Gold & Silver Pawn Shop, the setting of the History Channel’s widely popular “Pawn Stars” series, and the Fremont Street Experience, a nightly light show extravaganza created by the City of Las Vegas to attract tourists away from The Strip and to this relatively unknown part of the city.

Walk a few short blocks away from these attractions and one will get the true taste of downtown Vegas: seedy motels, belligerent vagrants, boarded up buildings, check-cashing stores and bail bond services. Even locals avoid these streets after dusk.

Yet it’s downtown, not the ritzy, high-energy and grandiose Strip, that has captivated the attention and money of one of Vegas’ most prominent residents.

Tony Hsieh, CEO of online shoe and apparel company Zappos.com and author of the best-selling book Delivering Happiness, decided downtown could be changed for the better. His determination to remake the blighted neighborhood into one that he, his friends and employees at Zappos could love consumes 90% of his time. Hsieh, whose net worth is more than $1 billion according to Bloomberg, has allotted $350 million of his own money to build his dream city: one that will feature community-centric bars and restaurants, a grocery store, a dog run, specialty boutiques and more. Hsieh, who turns 40 this December, says he can revitalize the downtown in five years. He has hired a former Bellagio executive and Wall Street bankers to turn his vision into reality.

In the 13 months since his “Downtown Project” began, 10 small businesses have launched including a restaurant called “Eat” and the clothing store “Coterie.” But the majority of Hsieh’s investment – more than 20 acres of downtown – has not changed. The decrepit buildings and sketchy characters that roam the streets are still there.

According to Hsieh, a dozen projects are at different stages of development, the biggest one being a shipping container park that will house a selection of cafes, local watering holes and a bookstore. The park will even include a 40-foot tall fire breathing praying mantis that was purchased from the Burning Man festival. Hsieh’s quixotic ideas have encouraged other entrepreneurs to move to the neighborhood and open businesses. But for Hsieh and his Downtown Project team, the challenges are real and staggering.

“A lot of city revitalization projects depend on having an expensive sports team or building an expensive stadium or having a Harvard or Stanford nearby…we want to show there’s another way,” Hsieh says in an interview with The Daily Ticker. “If we can do it in downtown Las Vegas, the place typically voted as least likely to succeed and make it a place of learning, of inspiration, of entrepreneurial energy, then really there’s no excuse for any other city.”

Hsieh’s 23rd floor apartment, located in the upscale high-rise apartment building The Ogden, has the vibe and appearance of a startup. With the exception of an autographed David Copperfield photo and a handful of llama toys (Hsieh’s favorite animal), his apartment could double as Downtown Project’s headquarters. Renderings of future businesses and a giant map of downtown (with Hsieh’s real estate acquisitions highlighted in red tape) plaster the apartment walls. His apartment marks the first stop on Downtown Project tours, where individuals, led by a “Visits Wizard,” can learn free of charge how Hsieh became interested in the neighborhood and get an inside peek of what’s in store for downtown.

Hsieh moved to downtown in May 2011 from a gated community near Zappos’ suburban offices in Henderson, Nev. He decided in 2010 to transport the company’s administrative offices and its 1500 employees to the old city hall building, located 5 minutes away from Hsieh’s apartment. This fall Zappos will officially become part of downtown.

Hsieh does not deny that Zappos, famous for its quirky and unorthodox culture, was the inspiration for his revitalized downtown.

“One of our goals is to have everything you need to live or play within walking distance…hopefully that will be the next quantum leap for our culture at Zappos,” he says. He wants employees to be “around each other 24/7…it’s good for the community and the city.”

Hsieh has divided his investment into five parts:

  1. $100 million in real estate purchases
  2. $100 million in residential development
  3. $50 million in small businesses
  4. $50 million in education (investments in Teach for America and the construction of a charter school)
  5. $50 million in tech startups through the VegasTech Fund.

All of this will eventually (or hopefully) bring 10,000 “upwardly mobile, innovative professionals” to the area. The Downtown Project has received over 1,000 small business applications in a year, and 30 to 40 are submitted on average every week.

The VegasTech Fund talks with about 30 different startups a week, and usually five or 10 tech entrepreneurs travel to downtown Vegas to meet with Downtown Project leaders in person. Hsieh emphasizes that he’s looking for a specific type of small business owner; national retail and food chains should not apply. The six criteria that are essential for getting Downtown Project seed money are:

  • Passion–entrepreneurs must be passionate about their ideas
  • Community–the business has to contribute to the community in some way
  • Execution–entrepreneurs must prove they are capable of achieving their dreams
  • Sustainable–businesses must ultimately be self-sustainable
  • Unique or the Best–the idea has to be unique and the entrepreneur must show it brings out the best in him or her
  • Story Worthy–the business should be worthy of a story in a major publication or national news outlet

Budding entrepreneurs are also required to submit a 2-to-4 minute YouTube video explaining the idea and how they meet the aforementioned requirements. If accepted, the Downtown Project gets a stake in the company and once the entrepreneur pays off the initial investment, the profits are split 50/50 for life. “It’s essentially like getting married,” Hsieh says.

Small business owner Sarah Nisperos says she would not have been able to launch her downtown boutique without Hsieh’s financial assistance. She transformed a former check-cashing store into a trendy apparel and accessory shop in just five weeks and officially opened to the public last September. Nisperos, a longtime friend of Hsieh’s, borrowed $350,000 from the Downtown Project and hopes to repay the zero-interest loan in just a few years. The majority of her clientele are locals but she expects that to change as more tourists become aware of what downtown has to offer.

“I did five times as much as I had projected I was going to do in my first month and it just keeps growing and growing,” she says. “I think it will really hit especially when Zappos moves downtown. I am thinking by the end of 2013 it’s going to be a business that I don’t have to worry about so much. Maybe I’ll only have just one gray hair a month instead of seven.”

Hsieh’s specific goals for downtown do not necessarily coincide with the city’s plans. Las Vegas Mayor Carolyn Goodman tells The Daily Ticker that “what downtown has become now had nothing to do...with Tony Hsieh.” The city has been focusing its efforts on expanding the Fremont Street Experience as well as offering tax benefits and financial incentives to major developers in hopes of luring the big construction projects that the city depends on for revenue. One of the ventures the mayor wants to see completed in the near future is a major league stadium in downtown.

“Right now we’re seeing an awful lot of purchasing of old buildings and refurbishing,” Goodman says. “We’re not seeing the big construction yet. We do have a big project here and a big project there but not at the magnitude that we had before.”

Goodman, who was elected into office in 2011, will continue the strategy promoted by her predecessor and husband, former Mayor Oscar Goodman. She said she supports the initiatives of the Downtown Project – “everything [Hsieh’s] doing is very innovative and very exciting” – but expresses skepticism that building a city based on happiness and serendipitous encounters will work in the long run.

"It's more of a lifestyle than it is bricks and mortar," she says.

Michael Cornthwaite, owner of the bar Downtown Cocktail, led the charge for a revitalized downtown before Hsieh became involved.

“Tony didn’t show up on the scene claiming to know everything,” Cornthwaite says. “He showed up and said 'What’s happening here. How can I help?' He came up with his own ideas.”

Cornthwaite says Hsieh’s presence and money has accelerated the downtown revitalization process. “What would have taken me 20 to 30 years to accomplish will take Tony five,” he notes. Most importantly, Hsieh has the support of locals.

“It’s really about creating a city for the people that live here and improving the quality of life and not just an economic opportunity,” Cornthwaite says. “In the end [Tony] knows it won’t be a bad financial investment. He wants to create something that could possibly be duplicated in other cities around the world. And the idea being a better world.”

Hsieh acknowledges that what he hopes to accomplish downtown has become a “learn-as-we-go” process – neither he nor his Downtown Town Project team have traditional urban planning and real estate experience. But that has not stopped him from pursuing his utopian dream.

“Fifty percent of all humans now live in cities,” Hsieh notes. “Over our lifetime it’s going to be 75%. If showing that focusing on collisions and community and co-learning is a model that works then hopefully it will help inspire other cities.”

And if Hsieh’s social experiment never takes off?

“I’d probably say this hasn’t worked…yet,” he says with a smile.

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