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Downtown Las Vegas Is the Great American Techtopia

Tony Hsieh, the charismatic CEO of Zappos.com, is turning the downtrodden, recession-hit heart of Las Vegas into an entrepreneurial playground.

Vjeran Pavic for Re/code

In the new downtown Las Vegas, the medical clinic is also a co-working space. The church knows to step in when founders lose funding. A men’s hotel is now offices, a Bikram yoga studio and an artisanal donut bakery. The rundown casino with seedy upstairs rooms is reborn as an entrepreneur dorm.

And in the new preschool, which took over a church that had been a senior service center, entrepreneurship training begins at 6 weeks old.

How does that work?

“It’s mostly about teaching them that it’s okay to fail,” said Connie Yeh, a former derivatives trader at Citibank, and now the founder of the 9th Bridge School in downtown Las Vegas. Yeh said that one of her preschoolers already has a website.

If all that seems strange — if it comes across as a startup fantasia straight out of science fiction — that’s because it is.

Tony Hsieh — the enigmatic, shy yet hard-partying 40-year-old founder of Vegas-based shoe-sales site Zappos, which he sold to Amazon for $1.2 billion — could have a lot of toys. He chose a city.

Since buying 60 acres and promising a $350 million investment in 2012, Hsieh has turned the downtrodden, recession-hit heart of Las Vegas, the 109-year-old town that is 10 minutes off the more-famous Strip, into an experimental startup city, where residents — from the schoolteachers to the startup founders — are venture-funded entrepreneurs.

In a mix of franchising and entrepreneurship, Hsieh’s Downtown Project has 300 projects going on simultaneously, from new restaurants to tech startups to social science experiments — his small business founders make a salary and then 50 percent of the profit after paying their loans back to him. He said his inspiration was, in part, the immersive computer game Second Life.

In 2012, Hsieh took over City Hall to headquarter Zappos.

There’s a whimsy but also a danger to the charismatic-leader-driven development that could fall anywhere between Google-ish playfulness to Howard Hughesian eccentricity — Hsieh bought the swath of land in the shape of a llama — at first accidentally, and then intentionally, because, hey, he likes llamas. But there’s been trouble. There’s been disappointment. And there have even been suicides.

There are more than a dozen new bars in this new city within the old city, but not yet the long-awaited grocery store. Many of the new companies follow a business philosophy created by software developers called “Holacracy.” Importing tech and cocktails into Vegas, Hsieh is hoping to turn this startup city into a social-science petri dish, and has funded people to track residents and study “the ROI on collisions,” or the financial benefit of bumping into one another. If the project works out, he says, he’ll expand to other cities, like Detroit.

“[Downtown Las Vegas] is TED meets SXSW meets Burning Man, but as a lifestyle, rather than events,” Hsieh told me one night. “And we can scale this to multiple cities — you can see this as the MVP (minimum viable product).”

What’s happening here started with Hsieh, and it is growing around him in concentric circles. Now there are people who have never met him moving to town because of him.

“If I’m going to follow anyone’s vision, it’s going to be his, here, his philosophy,” said entrepreneur Amy Jo Martin, who is in her mid-30s and moved from Phoenix a few years ago, after reading Hsieh’s Facebook feed and seeing how his employees were tweeting so happily. “And I know that for the petri-dish experiment to work, you have to be in all the way. You’ll hate it otherwise.”

Building a tech utopia

For tech entrepreneurs, there are lots of good reasons to be in Las Vegas now. It’s a 24-hour city, with a robust customer-service and call-center economy. Because so many people come to the Strip for conferences or fun, there’s great international access — if you’re a three-person team trying to get a meeting with a major Beijing investor, chances are he or she may come through Vegas. There’s an excitement to being in a startup city devoted to startups, a sense of camaraderie. And, perhaps most of all, Vegas is relatively inexpensive, which makes for a much longer venture-capital runway than, perhaps, San Francisco’s Mission district.

Downtown Las Vegas, a small desert town with a lot of families and retirees and service-economy employees, has always had a distinct identity from the Strip, a world-famous 4.2-mile stretch of casinos and hotels, but Hsieh is drawing that line even deeper. I asked him how he makes a region known for bachelor parties into a startup destination, and he pointed out that the Strip is not even in Las Vegas proper. It’s in the unincorporated towns of Paradise and Winchester.

las-v-fullbleed-1760

Andy White, who is in his mid-40s and is helping distribute Hsieh’s $50 million Vegas Tech Fund, likened living so close to the Strip to living in Anaheim or Orlando, near Disneyland or Disney World.

“You don’t go there every day. You don’t even think about it. It’s awesome that it brings 40 million people here every year, but we know that’s one of our greatest liabilities — people already know Vegas. They’ve been here for the conference, they’ve been here for the bachelor party. Now? They come to see the Ogden, they come to see the Container Park,” White said, referring to a Hsieh-controlled condo complex and a new outdoor shopping area that includes a praying mantis.

As for the entrepreneurs, most didn’t seem to mind the Strip, except in that it “creates a lot of noise with Tinder,” because so many guys are just in town for a weekend.

“Friends will come, and be like, ‘I got a table at Marquee,’ and I’m like, ‘Oh, I just made dinner,’” said Fred Cook, the co-founder of a customer-service-focused moving startup called Moveline.

Founding this innovation-driven city has been hard. Though there are community dinners and trivia nights, and a sense that founders are part of making history, it can be a lonely place. In the last year, three of Hsieh’s most-high-profile entrepreneurs, including a very important Downtown Project employee, committed suicide as their companies went south. Entrepreneurship is a solitary life, and for the young founders who pack up and move to the desert with the promise of funding, one’s life and one’s company are very tightly intertwined.

“It’s the trailblazers who move West,” Will Young, a partner with the Vegas Tech Fund, told me one day. “Don’t expect this beautiful log cabin at the end. We need people to chop down trees.”

A new city in the husk of an old city, the Downtown Project’s Vegas is an odd place. There’s something about it that seems forced: “It’s like a scene in ‘Aliens’ where they try to imagine how humans act. It’s like a city, but a little off,” a visiting entrepreneur told me one night at the weekly community pizza party, held in the garage of a co-working space on a typically sweltering summer night.

The startup movement is isolationist and idealistic, with a sense that entrepreneurs can build their own, better communities; that founders need to be in a conducive, unfettered environment to innovate; and, most of all, that progress is achievable only by dramatic disruption rather than incremental change. Taken to its logical conclusion, this means building entirely new cities. And it’s not just theoretical — they’ve already started.

Hsieh and his cohort are attempting to build one of America’s first tech utopias — where every aspect of life is geared toward entrepreneurship and innovation.

And for three weeks this summer, I lived in it. In this five-day special series, we’ll explore what that was like, and what is really going on here in Sin City. Is Hsieh a visionary, and is his innovation city a model that will proliferate? Or is he just another charismatic leader guiding a flock of ambitious technocrats to a mirage in the desert?

Call centers and poker tables

Hsieh’s pilgrimage to the desert in 2004 wasn’t fueled by a grand vision to establish a tech paradise in his own image. His motivation was far more prosaic.

“People in San Francisco don’t really want to work in call centers,” Hsieh told me one afternoon, while we walked through Zappos headquarters. “In Las Vegas, customer service is already an industry. And it’s already a 24-hour city.”

So Hsieh moved Zappos from the Bay Area to a compound in Henderson, Nevada, a city just 15 miles southeast of Las Vegas, where he knew he’d have access to a larger pool of customer-service workers. Excellent customer service is something of a Zappos obsession. And Hsieh, a longtime poker player and fan of EDM-style music and raves, liked Vegas. Hsieh bought himself a mansion.

By 2009, the recession hit Las Vegas, a real estate boom-bust city, hard. It was a great American case study in development and disaster. Large tracts of homes and sprayed-stucco condos sat empty, crumbling, taken over by squatters or left as fire hazards.

Hsieh spotted an opportunity. Although he first went to Vegas to gamble and hire for the call center, he started to visit the crumbling downtown. He had especially liked the Downtown Cocktail Lounge, a local favorite tucked away from the discount-strip-mall vibe of the main attraction there, the honky-tonk Fremont Street Experience. It reminded him of the funky bars along San Francisco’s Polk Street.

Hsieh moved into three conjoining condos in the Ogden, a luxury apartment building in the heart of Downtown, where he lives today.

It’s not the first time Hsieh has tried to build tight-knit communities. In San Francisco, he wanted to create something similar to his Harvard dorm, so he bought up conjoining condos and hosted an almost constant party space in the enormous 1000 Van Ness Avenue building, which also became the office of his venture firm, Venture Frogs. At the Zappos campus, he inculcated a quirky culture with a chosen “king of Zappos” and synchronized employee tambourine dances.

But here in the desert, in the rubble of the recession, Hsieh was going to build what he called “a really big party.”

The Downtown Project takes shape

While it might not seem like a huge amount in San Francisco, $350 million in Vegas buys you quite a bit of land.

Hsieh’s Downtown Project spans roughly seven city blocks from east to west (from Las Vegas Boulevard to Maryland Parkway), and two blocks north to south (Carson Avenue to Ogden Avenue).

The view along Fremont East:

The southeast view:

An aerial map of the project: Green indicates Downtown Project-owned properties.

downtown las vegas map

No one quite has a number on how big the Downtown Project community is, but most people I met with estimated that approximately 300 entrepreneurs have flocked to the new city center.

Pied Piper

In his long career, David Gould, a former professor and associate director at the University of Iowa, had never seen anything like what happened when Tony Hsieh came to speak at the school.

Coming out of the recession in 2010, students — sometimes very strong ones — had been dropping out of the university at an alarming rate. Gould also noticed that many students who loved English or art history would convince themselves that in the bad job market they needed to be pre-med or pre-law, only to become increasingly unhappy. He would ask if they knew what they wanted to do with their lives, and they said they didn’t. So Gould created a course called Life Design, and sought out unconventional speakers to talk about their unconventional but fulfilled lives.

Hsieh was a natural fit, he thought. The eccentric Harvard grad and Bay Area native had quit a lucrative but boring job at Oracle after only a few months, and had founded LinkExchange in 1996, grown it until it wasn’t fun for him anymore, and sold it to Microsoft two years later for $265 million. And then Hsieh had invested in Zappos, becoming its CEO, and creating a famously wacky corporate culture from its headquarters outside Las Vegas.

Gould emailed Hsieh, who responded almost immediately and said he was actually driving from Omaha to Chicago, and could just stop by the class. The students hadn’t heard of him. Hsieh showed up and just talked about his life.

“Tony’s relatively introverted, kinda soft-spoken,” Gould said. “After the class was over, he stumbled and mumbled a bit about not knowing where to go in town to hang out, and I swear to you without even a discussion, 150 students packed their things in their backpacks and followed him out of the room. They ended up winding through the city, through the Sheraton, to a parking lot to where his bus was parked and started talking to him there.”

The kids were mesmerized.

“Students missed their next classes, they didn’t go to their jobs, they forgot about lunch,” Gould recalled. “And they stood out in this gravel parking lot across from the Sheraton Hotel telling him about their lives and their dreams. It was like a real live Pied Piper.”

Gould was also drawn to Hsieh. He proposed a class called “Reimagining Downtown.” He’d bring students to come up with startup ideas. He emailed Hsieh to ask about it.

“Tony wrote me three sentences: ‘Come to Las Vegas. Spend a week with me. Let’s talk,’” Gould said.

Hsieh gave Gould $50,000 for the class to develop a startup for Downtown Vegas. The winning student startup was Sugarcoat — healthy desserts made with kale and honey. And then Hsieh recruited Gould himself. He said he wanted him to break the “boundaries of education,” that whatever Gould wanted to do he would fund, and that for the first three months of his stay in Vegas, Gould was to just meet people for coffee and get to know the town.

Gould has been in Vegas for a year now, and I’m not entirely sure what he does, but his title is “Director of Imagination.” He runs the Window, a community space and magazine library. He hosts visiting tours of students. He’s part of a group called Circle of Dream, in which artists — a Blue Man, an acrobat, a UNLV professor of film — gather to talk about their life dreams. He wants PhD students to come and do projects in Vegas, and in exchange, have their loans paid off. He’s bothered by community groups — like local school teachers trying to build a new theater — whom he sees as trying to take advantage of Hsieh’s generosity.

“The umbrella Tony has in his hand — only so many people can fit under that umbrella,” he said.

That University of Iowa class Hsieh came to was “magical,” Gould said. A “pivotal moment” in his life.

“I remember standing there and watching Tony, and watching my students engage with him. They had questions about their lives and told him stories,” Gould said. “And what I realized is that what my colleagues had assumed was lack of interest wasn’t that. What our students were missing was to be inspired.”

People close to Hsieh tend to describe him in spectacular terms: He has “power and pull.” He is “unknowable” but “generous.”

“People say Tony has this magic about him,” said Jennifer Chin, who is Hsieh’s first cousin, and whose startup Hsieh invested in. “And yeah, I’m in, where’s the Kool-Aid? What we do, we could go anywhere, but we chose Vegas.”

Startup founder Jonathan Jenkins said he doesn’t follow Holacracy, the business philosophy and way of life in Downtown Vegas. “We’re not the kind of people who drink the Kool-Aid just to drink the Kool-Aid.”

Or, as hedge-fund manager and startup-incubator founder Kai Shing-Tao put it: “I’m anti-Downtown. It’s a cult.”

It’s all pretty exciting for the locals

Hsieh’s work — and his infusion of energy — has had a profound effect on the town. Everyone from longtime Vegas residents to developers who have stayed away for decades have felt the impact.

Residents talk about how they couldn’t walk down this or that street before the project. And how there’s something for them to do at night that’s not the Strip. There isn’t the same level of resentment about the invasion of the nerds that has recently been seen in San Francisco because by the time Hsieh arrived, the locals were ready for just about anything but the status quo. Here is someone repainting the old buildings. Here is someone offering internships for the high-schoolers.

At Stitch Factory, a startup garment-making center with an eyebrow-waxing stand in the back, four local high school kids have gotten internships.

Franci, a 17-year-old high school senior whose father is a local pawnbroker, heard about it from her friend who does the brow waxing.

“My mom always thought it was cool, ’cause she wanted us to have a cool downtown like other cities,” Franci said, taking a break from making mood boards for the startup’s holiday flyers. “And I like fashion.”

Local developers have also benefitted from Hsieh’s arrival. Just a few minutes from Hsieh’s brightly painted Container Park, co-working space and fire-spitting Burning Man art, a group of developers is finally (after 23 years of trying) breaking ground on one of the largest new urban developments in the country, smack in the middle of suburban sprawl northwest of the strip, edging on the red rocks and the desert.

With a wink and a nod to the Downtown Project, they had renamed the project: The Shops at Summerlin became Downtown Summerlin.

Thomas Warden, a vice president at the development corporation behind the new Downtown Summerlin, took me on a tour: 36 square miles of development, up to 6,000 new units.

“Densities will reach serious urban concentrations — 100 units an acre,” Warden said, as we four-wheeled across the construction site (he assured me he does that regularly on weekends). “We’re building a downtown from tabula rasa, with the luxury of applying new urban philosophy.”

The Downtown Project people have already taken to calling Hsieh “the mayor.” I dropped by the actual mayor of Las Vegas, Carolyn Goodman, to get her view.

“It’s confident, and it’s energizing, and it is very, very attractive … a puff of energy. From a PR standpoint, it is huge,” Goodman said of the Downtown Project.

Goodman, 75, is a big personality straight out of Las Vegas central casting — blonde bouffant hair and a square-tipped French manicure. I sat down, and right off the bat she asked me if I have kids. I told her that I’m not married, and she said that these days that hardly matters, before explaining that Hsieh has his parents to thank for everything — though his clothes (Hsieh favors a worn blue Zappos-branded T-shirt) are a problem for such a public figure.

“He doesn’t own a tie or a jacket, and were he my son, I would spank his behind,” Goodman snapped.

But she was impressed by how Hsieh treats employees. “You know, if you want to bring your snail or your turtle or your frogs or your gorilla to work, bring it. And now you’re tired? There’s a little hammock for you to sleep in,” she said. “I mean, you know, nirvana of employment.”

There have been issues, like lack of housing, for all the newcomers, which also include the legion of Zappos employees lured to downtown Vegas by Hsieh and his vision.

“There’s not enough housing,” Goodman said. “What do you do with 1,800 people that have moved into the downtown area that want to bike and walk and bring their pets and live downtown?”

The city is putting in bike paths, widening the sidewalks, adding medians and benches.

Goodman pointed out the window behind her and talked about some of the more traditional developments taking place: Medical campuses, condos, a new stadium.

“This entire area is new,” she said, enunciating: “Brick and mortar. Solid, here forever.”

Goodman reminded me and herself that Hsieh, who showed up suddenly, could leave just as abruptly.

“Tony, should he decide, could take off and flatten the entire container park,” she said.

Tony Hsieh loves a posse

You never talk to Hsieh alone. He travels with a posse five to 20 people deep.

I found him with the CEO of Whole Foods in the back of his “Learning Village,” a community space for visiting speakers downtown near the Container Park. Hsieh and I sat in folding chairs at the back of the room, and he talked with me in between greeting fans. He holds his body tightly, keeps his hands in his pockets. He purses his lips to smile.

“The mayor has been understanding, but they have a different approach: Let’s build this $500 million arena. It’s not my vision, a top-down master plan like a typical developer. My vision is more entrepreneur-focused. It’s more a philosophy, it’s not a plan. Most redevelopment projects depend on city subsidies. We haven’t taken any of that — we want to show that it’s actually a self-sustaining model. Zappos didn’t make money in [its] first three to five years.”

“If we show it can work in Vegas without special deals with politicians, it can work in any city,” he said. “We invest in people.”

At dinner, Hsieh showed up with another posse — visiting professors and co-workers. He ordered Fernet for the table. A somewhat bitter aperitif fetishized in San Francisco, Fernet is something he always orders. He also likes to drink beer in martini glasses with olives.

Hsieh loves to party, but he seems socially uncomfortable, at the center of the social energy but decidedly separate from it. He avoids eye contact, and then will have an intense gaze. He speaks in a quiet voice, mumbles, takes long pauses and often gives one-word answers or responds to questions with questions.

I asked him about Downtown Summerlin. “The outdoor mall?” he said.

“Three years ago, Las Vegas would have been voted least likely to succeed — it’s about creating an ecosystem,” Hsieh said. “Like Apple owns iOS. Here, the ecosystem is owning land.”

He compared Las Vegas to the fantasy game Second Life.

“This is, in a weird way, inspired by Second Life,” Hsieh said. “They sold land that was worth nothing, but then worth something because of user activity.”

He ordered bacon jam, root-beer sliders, empanadas, extra hot sauce and Fernet shots. And we all dug in.

This article originally appeared on Recode.net.