TuckCenter for Global Business and Government

Slaughter & Rees Report: America’s Startup City, Thanks to Tony Hsieh

May 18, 2015

Cities have been described as the world’s “greatest invention,” as the proximity of people to each other spurs innovation and expanded economic opportunity. Today, 54 percent of the world’s population resides in urban areas, according to the United Nations. Sometimes people flee big cities, however, when economic or social pressures build. This has happened in several U.S. cities over the past couple generations—perhaps most dramatically in Detroit, as we have written about here. When this happens, what can be done to revive them?

One ambitious—and highly successful—American entrepreneur has been working to answer that question in a most unlikely place: Las Vegas. Yes, “Sin City” is known as the country’s gambling mecca and as a haven for hedonism (the mischievous slogan for one of the city’s newer upscale hotels is, “Just the Right Amount of Wrong”). But there is another section of Las Vegas–known simply as “downtown”–that has been down on its luck for decades. It fell even further as the city’s real-estate sector collapsed following the financial crisis.

Enter Tony Hsieh. The visionary behind Zappos, the highly-successful online clothing retailer, Hsieh moved into a downtown Las Vegas condominium in 2011 and decided he wanted to bring new life to the area. Armed with the chutzpah that characterizes so many entrepreneurs, he chose to personally set in motion the project. In 2012 he announced a $350 million commitment of his personal fortune to achieve his goal for downtown: to help make it “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.”

Fundamental to his vision is creating an environment in which people living and working in the neighborhood are regularly seeing each other (“collisions”), learning from each other (“co-learning”), and communicating with each other (“connectedness”). Here is the memorable description of the area by a company head who has received an investment from Hsieh: “Imagine if Walt Disney ran Silicon Valley but everyone lived on the set of ‘Cheers.’”

Hsieh said he would devote $200 million to real estate development, $50 million to technology investments, $50 million to arts and education investments, and $50 million to small business investments. Most of this capital, in other words, is focused on for-profit ventures, and it goes a long way.

The “Downtown Project” Hsieh launched has invested in more than 70 ongoing or completed construction projects, 50 small businesses, and more than 100 technology startups. A recent study found that these investments have generated more than 1,000 jobs and nearly $119 million of recurring economic output. A number of the new businesses represent the usual assortment of restaurants and bars, but also boutique stores, a dog park and care facility (billing itself as a “canine social club”), an upscale grocer, a theater/conference space, a primary care health clinic, a social media firm, a pioneering park offering shopping and entertainment, and, importantly, a school. To underscore that the Downtown Project is about creating a different kind of Las Vegas, Hsieh is not investing in gambling (or, in industry parlance, “gaming”). “What you find on the Strip is really geared towards tourists,” he told NPR earlier this year, “and what we’re focusing on here is geared towards locals and this sense of community.”

A recent guided tour of the area taken by one of your columnists affirmed that the area targeted by the Downtown Project has become a beehive of activity—and a stark contrast to the dispiriting scene that’s found in the neighboring Fremont Street Experience area, which houses mostly down-market casinos and hotels. The park, in particular, was filled with a species that had become nearly extinct in downtown Las Vegas: families with children. Hsieh almost single-handedly revived the neighborhood’s upscale condominium building, The Ogden, buying multiple units to live in and many more that serve as “crash pads” for the local entrepreneurs. Even more important, in 2013 he had Zappos shift its headquarters—and its 1,600 employees—from a Las Vegas suburb to the city’s downtown and moving into what was previously City Hall.

The $350 million question is whether Hsieh’s formula for urban renewal can succeed. There are a few touchstones for any city looking to thrive. One is ensuring public safety and reducing crime; anecdotal evidence suggests there’s been a big improvement over the past few years (no doubt helped by the private “Downtown Rangers” who patrol the streets). Also important is quality schools, which help attract families and keep them there and also develop local talent. With schools in Las Vegas generally under-performing, this will be a long-term challenge. (One local company Hsieh invested in, focused on robots, chose to move its headquarters to San Francisco to attract the experts it needed.) Public policy matters as well. Las Vegas tends to be light on regulation, and the absence of a state income tax will certainly help attract people.

Any project this size and this bold is destined to face challenges. Carping from those on the sidelines has arisen when not everything has gone according to plan. Hsieh has modified some of his original plans, and he will no doubt make more changes. But, for two reasons, we encourage you to join us in commending Tony Hsieh’s vision and efforts. One is his understanding: he knows that cities tend to thrive when built on the foundation of innovative, high-paying, private-sector jobs. The other is his actions: in a world where some of the world’s global elite choose to spend $179.4 million on a painting, Tony Hsieh is choosing to invest in building greater opportunity for his fellow citizens. All the travails of the world today need less conspicuous consumption and more Tony Hsiehs. Good on him.

Articles © 2015 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2015 Trustees of Dartmouth College. All rights reserved.

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