[credit provider=”Aimee Groth, Business Insider”]
There are only a few cool bars on Fremont Street in downtown Las Vegas, and on the Saturday before Thanksgiving, Zappos CEO Tony Hsieh has hit up most of them. He made his way from Commonwealth, a pub that just opened, to Le Thai, where he shared a round of shots while talking to its owner. Now Hsieh, 39, is on his way to Downtown Cocktail Room (DCR), his favourite bar, on Las Vegas Boulevard.
Before he reaches the doors, a couple of young guys yell over to him, “Tony!” So does Jamie Naughton, Zappos’ Speaker of the House. Within a few seconds, there’s a small crowd circling Hsieh, not to mention those who were already bar hopping with him.
For Hsieh, it’s a regular night, except that he’s dressed up in a dark blue suit coat and bowtie, because he just returned from the Las Vegas Philharmonic, where he narrated Aaron Copland’s “Lincoln Portrait.”
DCR is packed this evening because there’s a huge birthday party for Augusta Scott, Zappos’ Life Coach and one of Hsieh’s close friends. She walks outside and Hsieh tells everyone they’re heading over to the Drink & Drag nightclub just around the corner in the Neonopolis. On the way over the founders of Tech Cocktail join the group, as does DCR owner Michael Cornthwaite, who along with his wife Jennifer, are good friends of Hsieh’s.
Everywhere he goes, he attracts followers. Some work for him. Others have received investments from him. Many were drawn from the other side of the country to Las Vegas, whether for a visit or to live there full-time.
Hsieh is investing $350 million of his own money to transform downtown Las Vegas. He’s been successful so far, but the billion-dollar question remains: Can the community survive without Tony?
TAKING 1000 VAN NESS TO VEGAS
Earlier this year, Zappos signed an $18 million deal to move its corporate headquarters and 1,500 employees from Henderson, NV into Vegas’ old City Hall.
“It was almost too good to be true that City Hall is a few blocks away from Michael’s bar and all of that,” Hsieh tells us. “Originally, we were just saying, any plot of land anywhere. We’ll just build our own campus like Google or Apple or Nike. Michael convinced us not to do that. Apple and Nike have great campuses for their employees, but they’re not integrated and don’t contribute to the community around them. They’re kind of like these little islands.”
Hsieh lives in the Ogden, a luxury apartment complex just a few blocks from City Hall and DCR. He leases 37 rooms in the building, which he rents out to Downtown Project and Zappos employees and the startups he’s investing in. Several rooms are used as “crash pads” for hosting guests and visitors. Hsieh has a huge apartment on the 23rd floor with stunning views of Las Vegas. It’s actually three apartments combined, with large-scale maps of Vegas, architect’s sketches and Post-Its on the walls with ideas for investments.
The Ogden is a lot like 1000 Van Ness, the San Francisco apartment complex Hsieh lived in just after he sold his first company, LinkExchange, to Microsoft for $265 million. At the time he was only 25, but he owned the penthouse suite, and he and his friends and family owned 20 per cent of the building. In his book, Delivering Happiness, he describes it this way:
I bought the 810 loft, not because I wanted to own more property, and not because I thought of it as a real estate investment. I bought 810 so I could architect our parties and gatherings. Owning the loft would ultimately enable more experiences. … I envisioned 810 as being the afterparty meet-up spot after a night out at a club, bar, or rave. And I envisioned converting 810 into our own private nightclub.
“In a way, he’s just taking 1000 Van Ness to Vegas,” says Erik Moore, an early Zappos investor who also lived at 1000 Van Ness. He met Hsieh in the elevator after a night of partying, where they shared a bag of Doritos. “What Tony is doing is out of the box, not typical, not normal,” he says. “Most people would wonder why he doesn’t ride off into the sunset with the amount of money he’s earned.”
Hsieh’s goal is to make Vegas the most “community-minded,” smartest city in the world. He also wants to make it a tech hub. These are hugely ambitious goals for a city that is run by casino tourism, and is famously a place, especially after the housing crash, where few people want to live. Hsieh says CEO Jeff Bezos of Amazon, which owns Zappos, considers his project “one big experiment.”
There is nothing like it on this scale in the US. “There’s Dan Gilbert in Detroit, and the analogs are pretty similar,” says Andrew Yang, founder of Venture for America. “Dan has taken 1,500 Quicken Loans employees and moved them into Detroit. But Tony and Dan are very different people. The biggest thing that separates Tony from others is his capacity to take on something as ambitious. It’s really the scope of his vision. It’s an extension of his work, trying to take culture from inside a company inside the walls of a city.”
THE MAVEN, CONNECTOR AND SALESMAN
In Malcolm Gladwell’s terms, Hsieh is a Maven, Connector and Salesperson — a rare combination. While he’s famously shy, people are drawn to him. His philosophy is “to invest a lot of time and energy upfront,” he tells us. “Once you’ve developed a meaningful friendship or relationship, then maintaining them is relatively less time consuming.” Throughout the course of night, Hsieh can expand a person’s network several times over. And these relationships aren’t just surface-level; often they lead to meaningful business and personal relationships, which has everything to do with the types of people he invites into his circle.
“It’s like magic,” says Amanda Slavin, who met Hsieh at Summit Series last January. He invited her to Vegas, and over a two-hour breakfast, he pitched her on moving there. “Tony always sees the bigger picture,” says Slavin, a partner at Paige Management Group. “I was totally intrigued.” Over the next few months she launched her events company, Catalyst Creativ, with funding from Hsieh’s Downtown Project.
The culture he is trying to curate in Vegas looks a lot like Summit Series, Burning Man and TED, while also keeping the vibe of downtown Vegas currently. Hsieh’s whole theory for building a real community in Vegas is about creating “serendipitous” interactions, or getting people to connect with each other and then collaborate. Slavin’s company is part of that vision. She’s in charge of Catalyst Week, a monthly speakers’ series where she invites creative thinkers from around the country to give talks and get to know the Downtown Project team.
Hsieh’s idea of success is getting smart people to come back, and visit often. As long as they’re creating “1,000 hours per year of serendipitous encounters,” he told the New York Times reporter Timothy Pratt, they’re helping grow the city.
This unique ability to create a community is why Hsieh has a shot at being the first person to save downtown Vegas. People want to follow Hsieh, literally, wherever he goes – whether on the streets of downtown Vegas today, or, going back a decade, from San Francisco to Vegas when he moved Zappos to Nevada.
But at the same time, this magnetism could also be his biggest obstacle.
Hsieh is the top motivator and chief architect for the transformation of downtown Vegas. He has tons of talented people working for him, and as much power as he gives them, he’s still at the centre of what’s going on. This is all amplified by the fact that it’s downtown Vegas, not New York City.
“He has a lot of admirers but he’s also very self aware,” says Alfred Lin, who co-founded Venture Frogs with Hsieh back in 1999 and is a partner with Sequoia Capital. “This is not a new phenomenon. The following of people who want to hang out with him all the time has gotten bigger and bigger in the past five, six years. But I haven’t seen him change.”
Hsieh’s hiring philosophy at Zappos is that he only hires people who he likes. It’s the same thing for Downtown Project. “He’ll only work with someone he’d want to have a drink with at the bar,” says Cornthwaite. But that poses its own set of problems. Researchers from the University of Michigan and Northwestern’s Kellogg School of Management say that this can lead to “biased strategic decision making.” At the end of the day, Hsieh is the reason most people have a job, whether at Zappos, Downtown Project or a small business or startup he’s invested in. He says that the difficulty is not so much about having friends as colleagues, but rather, him being CEO creates that barrier.
“People dance around him a bit,” says Jenn Lim, a longtime friend and CEO of Hsieh’s separate entity, Delivering Happiness. “But the reality is just be true to yourself. Because I went in with that kind of attitude, and that’s how I treat everyone, with that kind of realness, we connected. Once he feels he’s been put on a pedestal it’s more difficult.”
Her first impression of Hsieh wasn’t a good one. They met through mutual friends “in the late 90s during the first dot com, when there were tons of parties,” she says. “He was hosting one at 810, and it happened to be his birthday. The DJ said, ‘Let’s bring Tony up and all the ladies in the house.’ And I thought, too bad, he’s one of those guys. The second time I went back and he came up and was outside of his shell. I saw more of who he really was.”
Hsieh is single and will hold meetings over cocktails at DCR at 11 p.m. on a weeknight and over brunch on Sunday mornings. “He’s like a ninja,” says Andy White, who manages the $50 million Las Vegas Tech Fund. “Sometimes I’ll think he’s been out all night and then I’ll get an email from him at 5 AM.” White doesn’t drink, but he’ll stay out late entertaining guests who are potential startup investments. “The early part of week is slowest for us, and it builds toward Friday and Saturday,” he says.
At the Drink & Drag, Hsieh heads to the dance floor with Scott and a few other friends. The night took everyone downstairs to another bar, where Hsieh met up with more friends, including a musician from the band Rabbit and his girlfriend, and he ordered a bunch of food for everyone.
“You can tell when Tony’s not in town by the energy,” says Scott. “You can feel the vibe and you see it. It’s like a movement when he’s in town.”
Back at the Ogden, a Downtown Project employee was DJing in his apartment that he shares with a colleague; and some of the Catalyst Week speakers stayed out until sunrise. A few hours later, Hsieh hosted a working brunch at a new restaurant, E.A.T., where DJ Dray Gardner, who’s also a yoga instructor in the Ogden, was mixing. For Hsieh, work and play overlap, and that philosophy extends to those around him.
Downtown Vegas, if it turns into what he envisions, will be his ultimate playground. In some ways, it already is.
‘PLAYING WITH BIGGER NUMBERS’
So far Hsieh has been incredibly effective at getting people to move to Vegas.
“Step one is convincing people to stay for a few days,” he says. “One of our best recruiting tools is offering a free crash pad. It’s pretty universal people leave having a completely different vision of Vegas. They visit regularly and let their network of friends know about it. And then a percentage of people end up living there. It’s just a matter of time. We’ve already seen that formula work. It’s just scaling.”
Over a bottle of wine, he convinced Zach Ware to leave his job as Zappos’ head of product management and spearhead the company’s move to City Hall, even though he has no background in urban planning. Hsieh also convinced his cousin Connie Yeh and her husband Don Welch to leave their Wall Street jobs and manage the $50 million education and $50 million small business funds, respectively. “Tony doesn’t just put you outside the box,” says Zappos’ Naughton. “He throws you outside of the box.”
Many small investments in local tech have also done wonders to grow the local community. “The tech community didn’t exist before Zappos,” says Lin. “Small bets are a great way to get people into the city, even if none become significant. You’ve got to start with developing an ecosystem.”
But even as things are going well, some people wonder if the grand experiment will work. In a recent PE Hub article, “Who Can Stand Up To Tony Hsieh?” reporter Connie Loizos interviewed Lin, who said that “I’ve always been concerned about Tony’s risk tolerance. But that’s what it takes to do what he does.” Back when Zappos was in its early days, Hsieh sold off a bunch of real estate, including the penthouse at 1000 Van Ness, to keep the company afloat.
“I’d say that if anything my risk tolerance has gone down,” Hsieh says. “We’re just playing with bigger numbers. But I don’t see what I’m doing as that risky. My personal lifestyle has pretty much been the same for the past decade. I’m not spending more now, but I have more capital for bigger projects. Maybe the difference is, even if I lost 99 per cent of it, my lifestyle isn’t going to change.”
Cornthwaite says that Hsieh has already hedged his bets by investing so much in tangible assets: “If he’s investing $350 million, and he still owns half of downtown Las Vegas, it will be worth twice what it is today in five, 10 years. He’s not holding a lot of debt service. When you’re investing in real estate in the centre of a metropolitan area, you’re mitigating quite a bit.”
PE Hub’s Loizos also argues that Hsieh is surrounded by too many admirers, and that Lin is one of few who can stand up to him.
Lin tells us that, right now, it’s crucial for Hsieh to be surrounded by an immediate circle of people he trusts. “Tony is in the creation process,” he says. “Of course there are thousands of reasons you shouldn’t do it. Founders and entrepreneurs get things off the ground by ignoring everything else.”
THE OPPORTUNITY AND BURDEN OF BEING A BILLIONAIRE*
One evening in New York City, Hsieh met up with Slavin, Moore and Greg Besner, another friend and Zappos shareholder, at the Ainsworth near Gramercy Park. They took the upstairs room, and Hsieh ordered drinks and every food item off the menu. The night took everyone to the Ace Hotel, where more friends, and friends of friends, gathered over by the bar in the main lobby. It was a diverse group, including celebrity chef Todd English, Golden Glove boxer and fashion designer Jillkerry Ward, and two young entrepreneurs who are opening another branch of their West Village pizza shop, Slice, in downtown Vegas. Next door at the Breslin restaurant was “Arbitrage” director Nicholas Jarecki, whose premiere Hsieh attended that week.
Ward met Hsieh a few years ago while at a party in Vegas. “We were two-step line-dancing, and Tony was the last one at the table. I finally pulled him up to start dancing.” Now Hsieh features Ward’s clothing line on Zappos.com, and he’s asked her to create a brick-and-mortar shop in Container Park, which is set to open in downtown Vegas in 2013. “But I’m such a New Yorker,” she says. “Tony invites his favourites to move to Vegas.”
And that’s what he does, everywhere he goes.
“Tony is both simple and phenomenally complex,” says Moore. “Most people see a building. But Tony sees above, around and behind the building.” Earlier at the Ainsworth, he and Hsieh were talking about the merits of getting eight hours of sleep. Hsieh says that you can sleep much less and still be productive. “It’s basically the number of sleep cycles you get,” he says. “The average sleep cycle is 90 minutes. You need about five sleep cycles, and there’s a thing where you can take a 20 min nap every four hours. Your body learns to dive into deep sleep.” That’s for the most part impossible for any working adult to pull off, but he says he tries to take naps during the day so he needs less sleep at night.
He also has a meta perspective on the order of the universe, which influences how he builds communities in Vegas, and anywhere he goes. “People have different definitions of religious or spiritual,” he says. “I don’t really use either of those terms. Instead, I believe that there are emergent properties that come out of things such as a flock of birds. From a distance it seems like it’s a single organism instead of a lot of individual birds, so the same type of thing probably happens amongst humans or the entire planet that we as humans can’t perceive, just like the cell in the human body doesn’t necessarily perceive the entire human.”
Lin says that “Tony is a creative genius and a mad scientist in a way. He’s very detail- and data- driven. He can see the world through a completely different set of eyeballs than most people in the world. And it’s very positive. If you have that view of the world, it’s magnetic.”
Having this separate view of the world can be a barrier for Hsieh; so can the opportunity and burden of being a billionaire.*
“Money is just a way for Tony to get to his endgame,” says Moore. “Money just doesn’t matter to him. If he only had a million dollars left, he’d spend $999,999 to make Vegas work. He would be just as happy with a dollar in the bank and being around people he cares about and care about him.”
Hsieh tells us that he has no plans ever to leave Las Vegas. But success will be defined by exactly that: the moment he can leave and people still want to move there.
* Tony Hsieh emailed us after this article was published to say that he is not, in point of fact, a “billionaire.” We were using this term loosely —to describe a person of dynastic wealth rather than to pinpoint a particular net worth hurdle — but we apologise for implying that Tony actually possesses $1 billion. In our defence, although Tony does not disclose his net worth, he has been frequently referred to as a “billionaire” in the press (see this 2012 article in Time, for example, which is entitled, “The Billionaire Who Wants To Remake Downtown Las Vegas”). Tony also sold his company, Zappos, to Amazon in 2009 for $1.2 billion, a purchase price that was composed of a modest amount of cash and around 10 million shares of stock. At the time, Amazon’s stock was trading at about $90 a share. It is currently trading at about $260 a share, an increase of nearly 3X. The Amazon stock that Zappos shareholders received, therefore, is now worth about $2.5 billion. We don’t know how much of Zappos’ stock Tony owned, or how much of Amazon stock he has held on to. We also don’t know what Tony’s net worth was before he sold Zappos. But assuming Tony owned a significant minority of Zappos (say, 40%) and kept much of his stock, he is probably almost a billionaire. Regardless of precisely how much he’s worth, moreover, he is a phenomenally successful businessman who has made more money than most people can even dream of. So we’ll stick with the general description!