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Sin City Is for Startups

Las Vegas is a 24-hour city full of people already trained in customer service and call centers.

Vjeran Pavic for Re/code

“Working in a call center just wasn’t something that people in the Bay Area wanted to do.” — Tony Hsieh, “Delivering Happiness”

A few months ago, two U.S. Marshals banged on the door of a fugitive’s last known location: A run-down Las Vegas motel with a bad reputation.

A clean-cut young man opened the door, and when the marshals peered beyond him into the courtyard to see an urban garden with Edison bulbs strung across and fresh paint on the walls, they balked.

They had two questions: What exactly was happening here, sir? And could they have a tour?

Jonathan Jenkins, the affable Texan founder of supply-chain startup OrderWithMe, was happy to oblige.

Las Vegas, land of bachelor parties and divorce lawyers, is becoming an appealing, if surprising, choice for startup founders.

Why go to Vegas for anything but baccarat? For starters, there’s the cheap real estate — old dive bars, motels and seedy injury-law firms at pawn-shop prices.

It’s a 24-hour city full of people already trained in customer service and call centers (other comparable options in the U.S. are Atlanta and Phoenix).

And there is perhaps better international access in Vegas than any other city in the U.S. — if you’re a startup with three employees hoping to do international business, chances are that the people you want to meet with swing through Vegas at some point, or wouldn’t be too hard to convince.

Downtown Project founder Tony Hsieh recruits dissatisfied people from boring jobs and offers them a pretty classic deal: He’ll give them a loan for anything they want to do, and after they pay it off, they make a salary and 50 percent of the profits. Ownership of the small businesses are split in half between Hsieh and the founders. He described it to me as a mix of entrepreneurship and franchising.

It’s hard to refuse. Hsieh offers recruits some money to just come hang out and think with him in Vegas. That is followed by suggestions on how they could do something that he wants in his fantasy city. (A school! A movie studio!) And suddenly they’re loading up a truck to move to Tony’s world.

There’s something twee about it (the apothecary and flower shop, the artisanal donut shop), and it’s intentionally impractical. The Downtown Project’s small-business team, in charge of investing Hsieh’s funds, told me that they want “story-worthy” more than “useful.” But there’s also something wildly appealing about what’s going on here.

Hsieh’s not the only investor trying to lure startups to the desert. The extremely private Rob Roy, who runs Switch SuperNAP, the largest data center in U.S., is now building an incubator called the Innevation Center, a steampunk space in an office park off the Strip. Hedge-fund banker Kai-Shing Tao runs Remark Media, which has about a dozen startups, including swimsuit-lifestyle company Bikini.com (pop-up bikini shops at casino pools), and a hotel-booking service, Roomlia.

It’s certainly not a cohesive tech community: Hsieh described Roy as “having a lot of dolls in his office.” Tao described Hsieh’s project as “a cult.” And Roy won’t say much of anything.

Nor has it been easy to build entrepreneurship from the ground up. Few of their startups have taken off, and the ones that have — like robot-makers Romotive — moved to San Francisco for their next round of venture capital. Vegas tech investor Will Young said Sin City is the entrepreneur’s frontierland, and that founders should expect a challenge.

“It’s the trailblazers who move West — don’t expect this beautiful log cabin at the end,” he said. “We need people to chop down trees.”

It’s cheap here — and people love any excuse to visit

Jonathan Jenkins saw the old motel, and — despite the peeling paint, rundown courtyard and its history as a criminal hideaway on a quiet street of old Downtown Vegas — knew it was a perfect fit for a startup. Plus, the rent was $1 per square foot (and about 9,500 square feet). OrderWithMe has a staff of about 25, and each old bedroom became an office. He cleaned up the garden and put in some swinging lounge chairs and picnic tables. When I visited, he warned me that the conference table was made of Legos, so I should watch out. The floor of his office on the second floor of the motel was tiled in pennies.

Jenkins himself lives in the Las Vegas Country Club, “where the old mobsters lived,” he said, smiling.

OrderWithMe is a supply-chain startup working with small businesses. Traditionally, a bike store would have 40 suppliers or so. OrderWithMe pools their orders so the customers get the product cheaper. And because OrderWithMe has plenty of cash, it takes advantage of the two percent early-pay discount that suppliers give to those who pay them back on time.

Jenkins, who started the company in China, knew that Vegas was the best fit for a few reasons: His Chinese suppliers — the guys making the bike pedals — pass through Vegas more often than San Francisco. And his customers, the small-town bike-shop owners — guys who buy the bike pedals — would rather have an excuse to visit Vegas, as well.

“When we say we’re in Vegas, people say, ‘No, no, don’t come to us — we’ll come see you, we’ll be there,’” Jenkins said.

His connections with suppliers in China were important and, again, Vegas: “For business in China, do you know how many Chinese come here to gamble?” he said. “The Chinese Consulate of San Francisco hosted their party in Las Vegas.”

He also thinks that being in an old town in the desert makes it a better startup situation for the kind of clients he wants.

“The problem I find in the tech world is the guys don’t understand the customers. Small-business owners look at the world in a different way, and talk different. It’s not just about a tech product,” he said. “Everyone’s always wondering how we get the little guys. This is how we do it.

“Middle America is the part that’s struggling. That’s who needs innovation,” Jenkins said. “We can’t compete if the only innovation in America comes out of a 100-mile radius around San Francisco.”

There’s already a startup neighborhood

When entrepreneurs first arrive in Downtown Las Vegas, they usually stay at one of Hsieh’s “crash pads” — free luxury apartments in a new building called the Ogden. These apartments are “Tony’s secret weapon,” said Will Young, who runs Hsieh’s Vegas Tech Fund.

When they graduate from the crash pads, the entrepreneurs might live in the Ogden for a bit, but it’s a scene for the whole startup community. The energy is somewhat akin to a college dorm. So many of them have moved slightly off-campus, as it were, and settled into something they call “Startup Block.”

Startup Block, in the neighborhood formerly known as the John S. Park Historic District, has a few big, dilapidated, communal entrepreneur houses, like “The Manor” and the disconcertingly named “Pit.” Down the road a bit from those is a house with a nice lawn and Tibetan prayer flags hanging outside. This is Tea House.

When I arrived, the Tea House residents were barefoot, drinking tea and listening to flute music. Tealet, their startup, is a marketplace for farm-direct tea — from China to consumers, via a startup in Vegas. They named their dog Bitcoin for the hashtag potential (40 percent of their revenue is in bitcoin).

After finishing 500 Startups, a Silicon Valley-based technology incubator program, Tealet founder Elyse Petersen wasn’t sure where to base the company’s headquarters until her mentor Thomas Knoll mentioned Vegas.

“He was like, ‘You guys should come to Vegas. They don’t even ask about your business plan, they just want you to stay,’” she recalled.

Their tea company has gone okay — they got about 500 orders during the holidays, though it’s been slower since. They’re thinking of opening a tea shop. But there’s no major rush — expenses are very low, and rent for the whole house is $1,100 a month. Petersen said her prime customers are startups, tea educators and tea clubs who do meetup groups.

“For us, we have to think of a backup plan. We’re sitting on a bunch of tea. If the company doesn’t work out, we can open a shop — coast is clear for tea in Vegas,” Petersen said. “We have one or two groups of people who come through the house every day. Especially during the big conferences, we’re really busy.”

It’s not all fun and games

Not all the Vegas startups are Downtown or part of the Hsieh empire — and many of them wouldn’t care to be.

At an office park off the Strip, Jim Ferguson, co-founder of hotel booking startup Roomlia, was talking about how casino gaming developers are actually great app builders, when someone came in to say that Hotel Mutiny, a nightclub in Miami, wants a bikini-clad lady on their homepage.

“No. Nonstarter,” Ferguson said. “Where was I?”

“The guys we love, their background is development in gaming, casino gaming and games gaming,” he said. “Developers here are obsessed with speed and performance and fun.”

Kai-Shing Tao, who managed a hedge fund before getting into tech, led me on a tour of the seven startups that are incubating in his Remark Media space, set off from the Vegas Strip.

Were they tempted to move Downtown?

“We’re obviously rooting for them,” said Mike Reichartz, co-founder of the Tao-backed Roomlia.

Reichartz and other Remark Media entrepreneurs went to the Downtown Project events and happy hours, and tried their best, but felt left out. They suspected it was because they were in the hotel business, which seems somewhat related to the Strip. (Hsieh goes to great lengths to separate himself and his project from the Las Vegas Strip.) Entry to the community seemed to be predicated on a series of nightly bar hops and pizza parties. When they tried to set up important meetings, people suggested that the founders just come “hang out,” and they’d all “bump into each other.”

“At a certain point, I have to work,” Reichartz said.

They had more concerns, but didn’t want to go on the record voicing them.

Tao popped into the office and reiterated what he’d told me over drinks a few weeks earlier: “I’m anti-Downtown,” he said. “It’s a cult.”

The Remark Media startups do, indeed, take advantage of the famous Strip. Roomlia is a more hotel-friendly version of the popular same-day-booking service Hotel Tonight. “Training a customer to wait till the last minute is the worst thing you can do — it’s a perishable good,” Reichartz said. There are 150,000 rooms in Vegas, and the Roomlia founders consider it an incubator for a global rollout.

Tao led me to the next office, a converted conference room where a group of young women were tapping away at computers. This was Bikini.com, which he had bought and flipped from a Maxim-lad style site to a ladies lifestyle site.

“Beachwear has become a lifestyle as fashion trends have grown increasingly casual,” he said. “The bikini business is an $18 billion industry. Girls are embarrassed to wear the same bikini three days in a row.”

And Vegas — specifically the casino pool parties — is the perfect test site.

“Where else do you get a captivated audience for five hours in the afternoon and seven hours at night, all thinking the same thing, eating the same thing?” he said. “Within the EDM (electronic dance music) world, the uniform of choice is the swimsuit.”

Shannon Follansbee runs Bikini.com, and described her concierge client: “Some people come to nightclubs dressed for dinner,” she said. “They go to the casino, spend $2,000 on dinner, then see a beautiful pool, and it’s hot and the misters are on, and they want to get in.”

At Bikini.com’s little pop-up cabana shops, couples can pop in for bikini fittings for the after-party.

“They usually don’t go in the pool,” she said. “They have jewelry and makeup, so it’s more of a look.”

Tao invited me to a foam party at Encore Beach Club to see the new shop.

I tell them I’d be going to a startup dog park that night back in Tony Hsieh-land, and that I’d be asleep by 10 pm, which is my bedtime.

“That’s not part of the bikini lifestyle,” Follansbee said, a little concerned.

The local economy is already based on service

The Moveline office looks and feels like a pretty typical startup, at first. But then there’s something strange: The open-plan space has been broken up with blue foam walls. The computers each have little video cameras that have blinders attached. There are a lot of headsets.

I had never been to a startup call center before, and it was interesting to see the mix of startup fare (snacks! bright colors! hangout rooms!) and corporate call center.

When Kelly Eidson and Frederick Cook founded Moveline, a startup that helps you estimate the cost to ship your stuff and find movers, they knew it would be a customer-service-focused company, and they needed to move someplace where they could hire a lot of people. “Thousands,” Cook said.

The options were Atlanta, Memphis or Phoenix. And then there was Las Vegas, a bit of a wild card. But Downtown Vegas appealed to them. They met Hsieh. It sounded like an adventure, and they could be part of an entrepreneur-fueled city.

They had 96 employees when I got there.

“Being able to build a culture of hospitality — New York is not the place to do that,” Cook said. “Vegas is kind of the extreme — a 24-hour city. The casinos and the gaming companies — people are trained from the beginning of their career to put people at ease.”

Hiring was easy, mostly because conditions at call centers are typically dismal: “We hired people who worked in call centers or casinos, paid them more, created a very different culture than anywhere else,” Cook said. “I think that’s what Downtown is going to be in a couple of years, a better place for people to work.”

Eidson said that as the Downtown Project has grown, the energy is shifting from a Hsieh-focused community to a more sustainable one.

“When we first came in April 2013, Tony was the story then. It was still ‘Daddy Warbucks has his grand plan,’” Eidson said. “The fun part is that it’s gotten bigger than that. People here might now have second- or third-degree connections to Tony.”

As I left, the Temptations song “Just My Imagination” was blasting down Fremont Street, the discount tourist mecca.

I returned to Las Vegas a few weeks later to take pictures of the Moveline office. The night before my appointment, Cook called sounding shaken, near tears. I couldn’t come by. They were doing layoffs. He was so sorry.

Faces of the Downtown Project

“No matter what your past has been, you have a spotless future.” Tony Hsieh, “Delivering Happiness”

You would never know that Cathy Brooks — at the moment wearing jeans shorts with dog-poop bags sprouting from her belt — spent her career in tech public relations. Nor that Jason Miller, the founder of a startup film studio, was a longtime buyer at Nordstrom. And who would guess that Connie Yeh, who is launching a preschool focused on “entrepreneurship and creativity,” and is talking about toddlers learning to pivot, was an equities trader for Citibank until just a few months ago?

Here are a few of the many faces of the Downtown Project who invited me into their world for a few weeks this summer.

Connie Yeh and the 9th Bridge School

When I arrived at the “entrepreneurship and creativity” 9th Bridge School, founder Connie Yeh said she only had a few minutes to talk. The building — a 20,000-square-foot structure that used to be a church and is now a pre-K and elementary school — was quiet. I walked past a room with women in rocking chairs holding babies. She took me on a tour — long, empty wings with rooms that will be classrooms, a half-finished gym for when there’s a middle school.

Hsieh had recruited her to start the entrepreneur school.

“When the idea came up — ‘Why don’t you do education and schools?’ Tony brought it up. I was like, ‘That’s crazy, I didn’t study education in school. It’s just crazy,’” said Yeh, who is Hsieh’s first cousin and a former Citibank trader.

“Tony said, ‘Don’t worry, you’ll work hard, you’ll figure it out.’”

The plan for 9th Bridge is to create a school built on the principles of creativity and entrepreneurship. Opened in August 2013, the school starts at six weeks old and goes through kindergarten. It’ll expand as the oldest class moves up. To build it, Yeh said she’d reached out to experts from three fields — people from think tanks, the world of positive psychology, and educators — and had asked them what their perfect school would look like.

She led me past a classroom, and showed off the observation nooks, so someone on the outside can listen with headphones and watch while the teacher works.

What makes it an “entrepreneur school?”

“It starts with the social emotional skills — like, it’s okay to fail. We give them the freedom to try things, to collaborate, to pivot,” she said. “What makes people successful entrepreneurs is based in social-emotional learning, and it can be taught.”

Entrepreneurship for babies? Yes.

Yeh talked about “project-based learning” and “learning to pivot” and to “take risks.”

“We have a farmers’ market and Wealthily [a local startup], who will come to speak on wealth and wellness,” she said. “There are so many businesses, so many entrepreneurs, and our students can learn from those.”

She cited a 6-year-old student who is now a professional artist — a painter-preneur — who sets up her startup along the monthly art walk.

“And now she has her own website,” Yeh said proudly.

Cathy Brooks and the Hydrant Club

Cathy Brooks, in a beret and hiking boots, looks completely at ease at the dog park at the heart of old downtown Las Vegas.

In 2012, she was at the AllThingsD conference (now the Code Conference), “wanted out of tech,” and had been asking people, “If you could pick the perfect job for me, what would you pick?” She was standing in a parking lot with Truman, her labradoodle, when she met Hsieh.

“I said, ‘Tony, I’m lost, what should I do?’” Brooks recalled. “He said, ‘Come visit me in Vegas. Serendipity will be your guide.’”

She had responded: “I’m trying to figure out the third act of my life, and you’re telling me ‘serendipity?’ My entire life has been planned since I was 2 years old.”

Soon after Brooks arrived in Vegas, she immediately noticed something — unruly dogs. “Not 24 hours in the Ogden, and I saw dogs that didn’t have social skills,” she said. “Dogs lunging at the leash and hiding behind their humans.” She proposed a high-end, members-only startup dog park. Hsieh said, ‘Sure,’ and Brooks moved from her apartment in San Francisco’s Pacific Heights neighborhood and into the Ogden in Downtown Las Vegas.

Dog parks, Brooks said, are ripe for innovation.

“The city of Las Vegas has 12 dog parks — arid, desert landscaping, unmonitored. You’re reimagining everything else — city, school, startups — why not imagine a different kind of dog space?” she said. “All of those dogs have been through 30 to 60 minutes of behavioral assessment.”

The park opened last year on Dec. 21, with the unveiling of a 15-foot fire hydrant — the world’s largest functioning fire hydrant (Vegas loves “world’s largest” things) — built to withstand the 50 mile-per-hour gusts of wind that blow through. For $75 a month, dog owners get unlimited access to the park.

She ran and grabbed Bruce, a Boston terrier nicknamed Sir Humpalot. “We’re working on his dominance issues,” Brooks said, removing and examining an unidentified object from Bruce’s mouth. She took a seat on a wire chair and held Honey Badger on her lap. Badger is a tiny, white fluffy creature coming to terms with her first day at the dog park. Brooks described one dog as being “wound tighter than a $3 watch, because — how do I put this delicately — that’s his pack behavior.”

Bruce, whom she identified as a “Zapponian terrier,” climbed on her lap along with Honey Badger.

She is drawn to the egalitarian community of dog owners: “The dog park is a place where it doesn’t matter your politics, how rich you are,” she said. “If you pick up your dog shit, you’re all good.”

And, to Brooks, this work feels a lot more honest than what she was doing before: “Someone saw me picking up poop one day and said, ‘Wow you deal with a lot of shit.’ And I was like, ‘For 22 years, I dealt with a lot of shit. At least this now is honest.’”

She is now launching the “Fur, Feather and Scales” animal hotel, with cage-free boarding.

And she’s taking over the old social club next door to the park. On the front, it reads: Independent Order of Odd Fellows and Rebekahs. She’s changing it to the Independent Order of Dog Fellows and Rebarkas.

“If you had said to me, ‘Cathy, you will be a resident of the Silver State of Nevada running a dog park,’ I would have laughed at you,” she said.

Jason Miller and Downtown Films

By the time I got to Jason Miller, who runs the production studio Downtown Films, I was prepared for him to tell me just about any background — from former masseur to fighter pilot. The truth, as it was for most of the reinvented careers Downtown, was more mundane. He was a buyer for Nordstrom, dealing in Oakley sunglasses. Sick of the grinding bore of their jobs, both he and his sales rep quit. Miller now runs the sassy startup film studio, and his former colleague (now a roommate in the entrepreneur apartment building, the Ogden) started a Mexican joint called Nacho Daddy.

Miller started Downtown Films with baby steps — a production service company renting out lighting and grip. They made their first commercial for the Downtown festival Life Is Beautiful. And people liked it. Now they’ve doing commercials for the D, the Grand, Caesars Palace and Health Plan of Nevada. Their film-production company, Lola Pictures, just finished its first feature — an untitled film about roadies — starring Zoe Kravitz and Dakota Fanning.

Much like Yeh, Miller had balked at the idea of running a film studio when Downtown Project executive Fred Mossler had suggested it.

“I was like, ‘Dude, I don’t know film,’” Miller said. “He was like, ‘I don’t care.’”

In a pink checkered shirt, slicked-back grey hair, and a short, scruffy beard, Miller paced through the studio to a funky old kitchen in back. He poured some black coffee.

“My main driving force is that I want to be part of history,” he said. “My grandkids will look back on downtown Las Vegas.”

This article originally appeared on Recode.net.

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