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Tony Hsieh Answers Some of Our Questions About the Future of Las Vegas's Downtown Project

Tony Hsieh responds to our follow-up questions about what's ahead for the high-profile tech and real estate development in Nevada.

Vjeran Pavic for Re/code

After layoffs hit Las Vegas’s Downtown Project this week, and in the wake of our special series on the high-profile tech and real estate development in Nevada, we asked Tony Hsieh some follow-up questions about what things look like going forward.

He responded this morning via a document in Evernote, which we are publishing in its entirety below.

We’d like to note that in the document, Hsieh seems to take issue with some of our reporting over this past week, such as our contention that he has stepped down as leader of the Project, and even the basic premise that he is the project’s founder.

“My level of involvement at Downtown Project today is the same as it was 6 months ago,” he wrote. “My role continues to be as an investor, advisor, and equivalent of a board member that sets high-level general direction and strategy but is not involved in day-to-day management of people or projects.”

We respectfully disagree with part of this characterization, based on reporting, and we also underscore that we believe he is the Downtown Project’s face, funder and main driving force.

But in the document, Hsieh said a lot more about a lot of things, and even quotes Apple’s Steve Jobs about taking the long view of such an entrepreneurial effort.

He also added: “Like any startup, the path to getting there hasn’t been and won’t be all unicorns and butterflies.”

This week, that has become abundantly clear.

I would also note that I asked Hsieh other questions in later emails and by phone, and should he choose to answer those, too, we will update his responses.

For now, you be the judge of Hsieh’s answers, which are presented as he sent them to Re/code:

re/code Q&A — 10/2/14

10/2/14 Q&A by Tony Hsieh about Downtown Project

We issued a statement on 9/30/14 due to a huge number of misleading or inaccurate headlines that were making their rounds online with little or no fact checking: http://downtownproject.com/statement/

I’ll expand on some of the thoughts in the Q&A below (all the questions below were asked by re/code).

Is there outside money coming in?

Downtown Project is actually not a single company. It is a collection of over 300 businesses and legal entities, and so there are other investors that occasionally co-invest in different projects or companies. We don’t foresee that approach changing anytime soon.

Why did these layoffs happen?

The layoffs were due to an elimination of roles as we move forward with streamlining our operations and are focused on the next stage of growth (described below about the future of Downtown Project).

With regards specifically to the layoffs that occurred on 9/30/14, we eliminated 30 positions from our corporate support staff. We directly employ more than 300 people, and through our investments there are over 800 people working in our porfolio of companies in downtown Vegas. Lost in the news headlines was that this week, we also added over 30 positions as we plan to open up The Market next week. We plan to continue to grow our total job count moving forward.

Are you worried about the negative publicity?

There are many types of negative publicity:

1. negative publicity that is based on someone’s opinion in proper context

2. negative publicity that is based on someone’s opinion without the proper context

3. negative publicity that is based on information or quotes taken out of context

4. negative publicity that is based on misleading headlines (often used to drive more click-throughs online, also known as “link bait”)

5. negative publicity that is based on misinformation or things that are just flat out not true due to improper or lack of fact checking

6. negative publicity that is based on purposely misleading stories

7. negative publicity where when a change or correction is made, instead of clearly identifying what the change or correction was or even the fact that changes were made at all. When publications are not being transparent about identifying changes or corrections, it can mislead a reader to think that the information was correct all along.

I’m fine with #1, I get annoyed with #2 and #3. I do worry about #4, #5, #6, and #7 because most people in today’s world are busy and will take what’s published at face value without doing some basic due diligence themselves.

Why did you hand over control? What will you do? How does this, if at all, impact your role at Zappos? What did you do after you turned over the reins? Was it a relief?

One of the headlines that has been flying around recently has been something along the lines of “Tony Hsieh steps down as CEO of Downtown Project.” The implication of the headline is that I used to be CEO and that my level of involvement changed suddenly. [Editors Note: The Re/code headline did not say CEO, but was: “Tony Hsieh Steps Down From Lead Role at Las Vegas Downtown Project.”]

While it’s true that I am the CEO of Zappos.com (and continue to be), I’ve never referred to myself as the CEO of Downtown Project (or even founder). While in the early days I was more involved simply because we had fewer employees, we’ve hired more and more employees over time to divide up the work and we now have 6 people on our management team (which I am not a part of). My level of involvement at Downtown Project today is the same as it was 6 months ago. My role continues to be as an investor, advisor, and equivalent of a board member that sets high-level general direction and strategy but is not involved in day-to-day management of people or projects. (For example, I’ve never even have a desk that’s designated for me at the Downtown Project office.)

What do you say to the next entrepreneur that you’re trying to convince to come down to Vegas?

Being an entrepreneur is hard. Like anything else, it requires at least 10,000 hours of practice and learning to get good at it. Just like you shouldn’t expect to excel or be perfect at tennis if you’ve only played for 500 hours, the same thing is true for being an entrepreneur. You need to be comfortable with ambiguity, be self-aware, have the ability to hold and understand opposing points of view in your head simultaneously, be rationally optimistic, and have the determination and passion to make it through the tough times, because every business has its ups and downs. (The 10,000 hours number was inspired by Malcolm Gladwell’s book Outliers, in which he describes that it takes about 10,000 hours of practice or experience to achieve mastery in a certain field.)

This is true anywhere in the world, but if you move to downtown Vegas and bring with you the entrepreneurial qualities of resiliency, resourcefulness, and optimism, you’re much more likely to form a strong network of true friendships with people who have a bias for building new relationships, looking out for each other, and helping each other out. You would have the opportunity to join a real world social network, and even if your startup doesn’t work out, you can make meaningful personal connections that will last a lifetime and you will have made progress in logging your way towards 10,000 hours (which usually happens across multiple companies).

The other thing I would say is that you can really think of the city itself as a startup — and how many opportunities do you in a lifetime have to help shape the future of a major city? This opportunity is here. The choice is yours.

What is the future of the Downtown Project?

Downtown Project officially launched in January 2012 with a 5-year plan. Our approach was and continues to be to take a long-term approach, modeled after the way we experimented and invested in a lot of things during the early years at Zappos (and made a lot of mistakes along the way), and then eventually scaled from almost no sales in 1999 to over $1 billion in gross merchandise sales in 2008 (9 years) – and continuing to grow and scale afterwards.

Here’s the 5-year plan for Downtown Project:

Year 1 — 2012 — acquire/assemble land and start making tech, small business, and other investments

Year 2 — 2013 — fund/experiment — fire a lot of “bullets” (make a lot of investments) in a lot of different areas, and see which ones hit

Year 3 — 2014 — focus on optimizing core while finding the top winners to pick as “cannonballs” to double down our bets on (in terms of additional follow-on investments, resources, and time) while streamlining our other operations

Year 4 — 2015 — continue to streamline and scale operations

Year 5 — 2016 — get to cash flow positive/sustainability

Note: the terms “bullets” and “cannonballs” are references to Jim Collins’ book Great by Choice, which I highly recommend reading.

The fundamental premise of everything we’re doing is inspired by Ed Glasier’s book Triumph of the City. As cities grow, innovation and productivity per resident increases as the exchange of ideas improves. (But when companies get bigger, the opposite happens — innovation or productivity per employee generally goes down. Geoffrey West gives a great TED talk about the surprising math of cities and corporations.)

We are currently in year 3. Here’s a quick look back at the various milestones we’ve hit so far:

1. We assembled about 60 acres of land (year 1 goal) focused on an area of downtown Vegas that most tourists don’t know about called “Fremont East.” The purpose of doing so was to guarantee connectivity in order to ensure the ability to help build a walkable neighborhood, as Vegas has generally been a car-driving town.

2. We helped accelerate a tech ecosystem by investing in (and often relocating) about 100 tech companies (goals for years 1 and 2).

3. We invested in a critical mass of small businesses as well as our own operations (mostly food and beverage) to help make the area both safer and more walkable. These include: Carson Kitchen, O-Face Doughnuts, Nacho Daddy, La Comida, Bin 702, Big Ern’s BBQ, Kappa Toys, EAT, Grass Roots, Hydrant Club, Coterie, Inspire, Scullery, The Bunkhouse Saloon, Gold Spike, The Perch, Oak & Ivy, WILD, and many others.

4. We launched Downtown Container Park to help incubate local small businesses and create an urbanized version of a town square for locals to connect and collide, with both daytime and nighttime activation. One of our other goals was to significantly increase the number of kids and families that hang out in the area, and we look at metrics such as “stroller count” as a proxy for that. In less than a year, we’ve had well over 1 million visitors to Downtown Container Park and are happy to report a lot of kids and families hanging out, especially on weekends.

5. We launched over 50 construction projects (unlike other development projects, we don’t count construction jobs for individual projects as part of our internal “total jobs created” count, nor do we count secondary jobs that many economic impact jobs count. We only count the number of people who are on payroll for the businesses we invested in or wholly own).

6. We helped create over 800 direct jobs through businesses that we have either invested in or wholly own.

7. We identified winners that are financially viable and good bets that we want to focus our cannonballs on (push additional resources and follow-on investment dollars towards). These include restaurants as well as tech investments, both categories that we believe can scale, but the method of scaling is obviously different given the different industries. We’ve internally refer to these as our “double down” bets, and the size of the second round of investments which we are referring to as cannonballs is analogous to the difference between a series B round vs. series A or seed round in the tech investment world.

8. We increased the number of collisions (meaning serendipitous encounters between people) in the area which, when combined with diversity in perspective, knowledge, and experience, results in an increase in idea flow and collaboration, which ultimately drive innovation and productivity increases.

Like any startup, we’ve made a lot of mistakes along the way and learned and pivoted in the process. One of our biggest learnings was that the word “community” means a lot of different things to different people, especially when you are talking about physical buildings and neighborhoods, and there are different expectations that are associated with that word compared to the same word when used in an online or technology context. We originally used the phrase “Return on Community” (ROC) to describe our strategy, but we found that it created unrealistic expectations and also caused us to be perceived as a charity in some cases. As a result, we started using the term “Return on Collisions,” which is both more concrete and more measurable. We believe that by managing for increasing Collisions + Co-Learning + Connectedness (when combined with Diversity + Density), we will improve the innovation and productivity of downtown Las Vegas over the long term, even if it’s occasionally at the cost of short-term profits or cash flow.

Moving forward, we hope to execute on our high level plan outlined above for years 4 and 5. How exactly that will play out will remain to be seen, just like we had to figure stuff out along the way (and we still are) at Zappos. We need to continuously learn and continuously adapt. Changes and surprises are inevitable, but we remain inspired by the words of Steve Jobs: “You can’t connect the dots looking forward you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something: your gut, destiny, life, karma, whatever. Because believing that the dots will connect down the road will give you the confidence to follow your heart, even when it leads you off the well worn path.”

Our goal at Downtown Project remains the same: We want to help create 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. Like any startup, the path to getting there hasn’t been and won’t be all unicorns and butterflies. But we remain steadfast in our belief that the willingness to make mistakes, the ability to learn, and our never-ending perseverance will eventually get us there, even if it involves some stumbling along the way.

— Tony Hsieh

This article originally appeared on Recode.net.

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