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Holacracy or Hella Crazy? The Fringe Ideas Driving the Las Vegas Downtown Project.

Holacracy. Collisions. Serendensity. ?urious. And llamas.

Vjeran Pavic for Re/code

On Tuesday, moments after finding out about the layoffs and leadership upheaval at the Downtown Project in Las Vegas, I asked Tony Hsieh by phone why he stepped down as leader of the utopian startup city he had founded, and why he had continued act as head of the ambitious experiment in the desert despite having already handed over the reins to his lawyer and a team of executives.

After confirming that his position at the project had changed but disputing that he was ever the project’s leader, Hsieh explained: “It’s complicated. It’s Holacracy. Do you know about Holacracy?”

There is knowing about Holacracy, and then there is grokking it. I discovered this over a three-week period in July, when I lived with the entrepreneurs in this new startupville. At face value, Holacracy is a business philosophy in Vegas’s tight-knit Downtown community of entrepreneurs. There were no teams or bosses or jobs in Holacracy, only circles and links and tasks. The goal of this “social technology” is to turn the workplace into a flat task-oriented unity. And it has become a lifestyle.

But did I get how it worked? Not really. Nor, as I learned over time in Hsieh’s entrepreneurial Disneyland, did many of its practitioners. Among charges of mismanagement and greediness that I heard from people who had become disillusioned by the project, Hsieh’s fringe processes and wild ideas, which had worked so well at Zappos.com that he even wrote a book about it, either got in the way or exacerbated problems in the new setting.

Every generation has a vision for utopia, and ours looks like this startup city. Like other messianic figures before him, Tony Hsieh led his flock to a desert. The followers, in this case, were entrepreneurs. The goal was to construct a startup town out of nothing — startup medical clinics that are co-working spaces, a startup school that teaches toddlers how to build startups, startup startups. It was a little strange from the get-go. And two and a half years into the five-year project — which is backed by Hsieh’s $350 million investment — it is showing signs of strain.

To understand what happened we looked at three of Hsieh’s fascinations — Holacracy, ROCH (return on collisionable hours), and even llamas.

Holacracy

Holocracy is a peculiar business philosophy that even Hsieh’s followers have trouble explaining.

One night, over dinner with Hsieh and his friends at Carson Kitchen, a new high-end restaurant in what was once the rundown John E. Carson hotel for men, I lost track of the conversation, reached for a pork slider, considered sipping my Fernet shot, and suddenly realized they were fiercely debating how to explain to me a Holacracy concept called “circle elections.” The conversation had escalated.

“That’s not how I’d define it at all!” said one young Zappos employee named Alexis.

“What you’re saying is not Holacracy,” another responded.

Hsieh interjected: “If this were Holacracy, this would not be allowed.”

“Okay, I’m just going to finish this fucking sentence — Holacracy affords every person sacred space,” Alexis said. “There’s also a dark underbelly — it requires every person to be transparent with their tensions, which is often thought of as masculine. Like, if I think Don’s an asshole …”

“Wait, why me? I’m going to interrupt you right now,” said Don Welch, who runs Downtown Project’s small business team. “This is why Holacracy is the fucking best — it’s the best because it makes everyone responsible for themselves.”

From what I gather, Holacracy is what the office would be if nerds took over.

Holacracy® is a workplace management technique invented by software engineers as a non-hierarchical corporate system that seeks to eliminate employee and management egos. There are no titles, no chatter about personal life allowed, no bosses who can tell anyone what to do or when. It is a unified, organically evolving organization that moves toward a singular purpose.

Employees are “tension sensors,” in Hsieh’s interpretation of Holacracy. Tension is the sense of what a company should do, versus what it is doing.

“If you think of every employee as a human sensor of tension, everyone gets their tension processed,” the soft-spoken Hsieh told me one night over artisanal popsicles. “If you think of the organization as a giant ball of yarn — you can plan out how to untangle it — or everyone can draw out their own tension. That’s Holacracy.”

I found this explanation confusing. Employees are tension sensors pulling out yarn?

“Yes,” Hsieh said.

http://www.youtube.com/watch?v=s1GvHZDOM8g

In Holacracy — which evolved from how software engineers prefer their workflow — employees have roles that may cut across traditional departments. “So let’s say you’re the head of social media, but you’re really bad at Twitter, but your accountant is great at it — that can be his role,” said Maggie Hsu, who is helping implement the philosophy across the Downtown Project.

Your lead link, which is kind of like a boss, can say you need to get from point A to point B, but can’t give you a deadline. And they actually can’t assign you a role, either. Or veto any decision. Which can get tricky.

“People will say, ‘I like these five roles, and not these five,’ and that’s perfectly in their authority to say that,” Hsu said. “So who does those other five?”

Holacracy also doesn’t address compensation and promotion — which is “like buying Microsoft Office without Microsoft Word,” Hsu said.

In general, it’s a good and efficient system, in Hsu’s view: “It’s less about people, and it’s more about the work,” she said. “It’s meant to be more impersonal.”

Very impersonal.

One night, I went to what the Downtown Project entrepreneurs called the “community dinner,” a weekly roving party in various startup offices. This week it was in the garage of a co-working office.

Adam Joseph, who works at the car-share startup Shift, said his company was “at a more advanced stage than most with their Holacracy.”

“In terms of conversations, it streamlines what you talk about,” he said. “Any time you talk, you have an objective. You don’t talk for the sake of talking. You will rarely hear someone give a general update. So, if, let’s say, he decides to talk about his divorce,” Joseph said pointing to his friend across the table, “I can cut him off and say, ‘Hey, that’s not relevant.’”

I wondered if this aspect of Holacracy was why Downtown Project leaders were not more articulate in the aftermath of the suicides. Over the last two years, three prominent Downtown Project affiliated entrepreneurs have committed suicide. I wondered whether this obsession with efficiency and streamlined speech may have made people feel more isolated.

Collisions

If it seems surprising that many of Hsieh’s small businesses don’t make money, it shouldn’t be. Hsieh is investing about $350 million — with small businesses, he gives entrepreneurs a loan and then a salary; they then pay him back the loan and Hsieh takes a 50 percent cut of the profits. But there was little talk about profits or models in front of me. Instead of focusing exclusively on petty things like ROI (return on investment), Hsieh’s team focuses on an ROI of a different kind: ROCH (return on collisionable hours).

The Downtown Project’s basic premise is that socializing (“colliding”) makes people more successful and more innovative. If this is true, then your time at the bar or walking down a crowded street or meeting someone for a date (Level 1, 2 and 3 collisions, respectively) can be mapped onto the profits of your startup. Their plan is: To track entrepreneurs, they will follow their movements via cellphones, and task the Downtown Project private police force (“The Rangers”) with monitoring body language and behavior (Did you wave hello? Did you hug or shake hands?). Your startup’s performance (How good were sales this month?) will be added to the data mix.

When I walked through Downtown with Hsieh, who brings the collision with him by typically traveling with a posse of 10 or so people, Hsieh told me he wants to “institutionalize return on luck,” and to emphasize “collisions over convenience.”

“We’re looking for something new or story-worthy, a coffee shop versus a bail bonds. We want to look for places that create collisions,” said Kim Schaefer, who does public relations and communications for the Project. “They might serve important functions, but they don’t create as many collisions.”

The idea is to turn this into money, maybe. “If you’re focusing on collisions and community, even though that might lose money, it’ll work out financially in the long term,” Hsieh explained. “We invest in people.”

So, if you have an hour-long event with 100 people, and it costs $100, then that event cost $1 per collisionable hour.

One night in July, I met Dylan Jorgensen, the co-founder of City Science, which is rolling out the ROCH program. He lives in the Gold Spike, an old casino converted into an entrepreneur dorm. Where there were slot machines, there’s now a large living room that is both co-working space and bumping bar at night for anyone who wants to stop by. His is a very collisionable life.

I met Jorgensen by a fire pit and an airstream trailer behind the Gold Spike. He was wearing Ralph Lauren Polo-branded pajama bottoms and a T-shirt, and said he was a little zonked because that day he had stopped using Soylent, his preferred food, because it was sold out and too expensive on eBay.

Jorgenson explained that he was in charge of categorizing collisions and figuring out interesting ways to measure them. He said he had chosen a Defcon military-ranking system for socializing. A Level 2, for example: If two people stop within an eight-foot radius for 15 seconds.

He thinks that through collision studies we can come to understand how healthy this new tribe is. “Groups working together functioning correctly are immensely rational — it’s the reason humans evolved in tribes. We can, as a city, get a sense of how rational the city is, how good it is as a whole.”

The tools, and the access to residents’ information, will be remarkable, and I suggested that this could be dangerous.

“We can have access to more data than any other city, because there’s this trust when you’re part of the project,” he said.

Isn’t this pressure to collide a little intense? And what if you’re antisocial, like a few of the nerds I know?

“You have to be more plugged in than the average city,” Jorgensen said. “It’s a curated culture. A lot of the philosophy around the investments is around less whether something will make money, and more on the person. How kind they are, how well they make friends.”

On the wall of his room, Jorgensen had pasted various words with punctuation plays: sm;)e and ?urious and !dea.

Daily llamas

Tony Hsieh built the city just like he wanted it, and he wanted it full of llamas.

Llamas show up at Zappos headquarters, in what was formerly Las Vegas’s City Hall. Llamas led a Zappos parade through Downtown. For Hsieh’s 40th birthday last December, when many of his friends got matching pixel tattoos in his honor, one of them brought a llama to the party. There is a Llama Parking Lot and a neon motel sign that says “Llamas Stay Free” Downtown. And the entire $200 million property-buying apparatus, building the infrastructure of his startup city, is instructed to stay inside … a llama-shaped swath of land, about 60 acres.

There is a map of this land-llama, and I saw it once.

It was an image of downtown Las Vegas with a white outline of the domesticated South American camelid, and it was in the Downtown Project headquarters. Afterward, I asked for a copy.

“We don’t provide the llama map for publication at all,” Schaefer, who handles communications for the project, wrote back.

Is it four legs, or two? Does it have a hair tuft atop its head, represented by parks, perhaps?

I can’t answer these questions because I don’t have that llama map. But I do know that Hsieh and his friends take it seriously.

I asked Hsieh why he loves these particular animals so much. He looked confused, and asked me if I’d ever met a llama. I had not.

The people around Hsieh have absorbed his love of llama.

Will Beam, who is one of the Downtown Project’s investment fund leaders, put the real estate development plan succinctly: “Tony keeps it tight, keeps it within the llama.”

After the buzz of the layoff news faded, I meditated on the llama. When I had asked Beam whether any of these nontraditional businesses like artisanal doughnut shops will work or whether he was worried, he gave me a perplexed look.

“Some will, some won’t, but the value of the real estate,” he said, pausing for emphasis, “it’s a safety net.”

The llama is 60 acres of Downtown Las Vegas bought dirt cheap in the years after the crash of 2008, which had devastated the city. Sixty acres of real estate, whose value is rising fast.

This exciting project and the llama-shaped real estate drew international attention and attracted hundreds of people to uproot their lives and migrate to the desert. They’re developing new businesses and properties in what was a neglected dump.

Vegas has always attracted big-talking P.T. Barnum-style showmen. From Bugsy Siegel to Howard Hughes to former mayor Oscar Goodman, who brought showgirls to press conferences. It is, after all, a land of flash and mirages.

Let’s put all the jargon, all the theories of startup utopia aside for a moment. I think I finally grok the llama: Tony Hsieh might just be making one hell of a real estate play.

This article originally appeared on Recode.net.

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