In Sin City, away from the Las Vegas casinos and illuminated hotels, an urban experiment is under way. One of the America’s best companies to work for is putting to test Edward Glaeser’s thesis – with a unique, lean start-up approach.

Las Vegas was founded as a city in 1905 on 45 ha of land adjacent to railroad tracks and was incorporated as a city in 1911. After the legalisation of casino gambling and deregulation of divorce procedures, many casinos and divorce offices were established, mostly along the Fremont Street stretching from the train depot (Brook, 2012: 4). To compete with suburbs, the downtown adopted a suburban-style zoning code that required new businesses to provide plenty of parking (Brook, 2012: 5), which, however, did not prevent the downtown from decay and pauperisation (Newman, 2014: 18). In 2012, “The Year of Downtown”, several public and private initiatives to revitalise the downtown began, most importantly Zappos.com’s move to the old Town Hall.

When a suburban campus inhibits the innovation

Zappos.com, for many years based in suburban Henderson, NV, expanded  over the years its business from footwear to clothing, accessories, and housewares, and developed their USP on excellent customer service (Zappos Insights, 2016). The fast growth of Zappos.com from its founding on had been reducing the productivity and innovation, the levels of workplace satisfaction, and consequently hindering its customer service (Gelles, 2015: 3). Moreover, the suburban position and the three-buildings architecture of the campus in Henderson, NV, discouraged interaction between management and other employees (The Aspen Institute, 2011).

Once townhall, today the new Zappos.com's HQ Source: gigaom.com

Once townhall, today the new Zappos.com’s HQ Source: gigaom.com

For several years, Zappos.com had been searching for a new place to relocate and simultaneously collecting proposals and ideas for new campus amenities from employees. Hsieh had been touring different campuses and according to himself, “they were actually really kind of insular and didn’t really integrate or contribute to the community around them” (The Aspen Institute, 2011: 4).

Investing in the company by investing in the community

In order to increase the innovation and radically change the workplace to raise the quality of customer service, Zappos.com needed an unconventional move that would change its work organisation. In 2013, Zappos.com moved its headquarters to downtown Las Vegas and started using a method of self-organisation called Holacracy, while Hsieh initiated the Downtown Project (Zappos Insights, 2016). “I would say that putting my time into the neighbourhood is actually the best thing I could be doing for the company right now” (Corbett, 2014), Hsieh stated.

One of the main inspirations for Hsieh comes from the Harvard professor Edward Glaeser who points out in Triumph of the City that as the companies grow, the levels of innovativeness and productivity are decreasing. In cities, on the contrary, the increase of productivity and innovation is accompanying the growth of the city. Downtown Project is, therefore, pioneering a “hybrid between the company and a city” (Witcher, 2012), focussing on collisions, community, and co-learning that will lead “to happiness, luckiness, innovation, and productivity” (Corbett, 2014). According to Hsieh, Downtown Project is unlike most real-estate redevelopment projects with short or medium-term cash flow ROI goals, but rather focuses “on maximizing the long-term ROC, return on community” and “ROL, Return on Luck” (The Aspen Institute, 2011: 6). The project’s main ambition is “to accelerate serendipity within the community and within the downtown area” (The Aspen Institute, 2011: 6) and generate new business ideas as a result of unplanned collisions.

”In this way, Hsieh is not just investing in property, but hacking together an urban algorithm that can be used anywhere in the world” (Hollis, 2014). This business model is indeed partially based on an assumption that 200 million dollars invested in the real estate will return as the value of the land will increase after the revitalisation process, but this explanation would be too narrow. Zappos.com is using the city and the urban as an innovative environment which is (as an urban externality) generating new innovative ideas and businesses that are internalised either through Zappos.com‘s R&D department or through Downtown Project’s fund.

Downtown Project aimed to bring 10,000 upwardly mobile, innovative professionals to the area over the five years (Newman, 2014: 16). In only one year, it had set up 30 real estate companies, purchased more than 15 buildings, and started work on 16 construction projects, while 15 tech start-ups had committed to relocating to the downtown (Newman, 2014: 16). In the past three years, Downtown Project has been the owner and/or investor in over 300 businesses and legal entities which collectively employ more than 900 people. In many cases, Downtown Project is the co-owner with the founding entrepreneurs, while “Operations” are fully owned and operated by Downtown-Project-affiliated entities (Downtown Project, 2016).

Operations include the Gold Spike community and co-working space, the Downtown Container Park shopping park, a variety of meeting and event spaces, The Market grocery market, the Oak & Ivy  cocktail bar, the Perch restaurant, Learning Village, an incubator for non-profit and community-focused businesses, the Oasis boutique hotel, the Las Vegas Hostel, etc. (Downtown Project, 2016). Small businesses range from special effects company LiveSpark, media and event organisation company Tech Cocktail, dry cleaning and laundry service Mint Locker, education event organiser CatalystCreativ, the Mexican restaurant La Comida, dog park Hydrant Club, BBQ bar Big Ern’s BBQ, gourmet hot dog stand Cheffini’s Hot Dogs, camera shop Las Vegas Camera Club, studio and co-working space Stitch Factory, movie production company Silver state Production Services and Downtown Films, travel organiser Wellthily, bookshop and publishing company Writer’s Block, all-media studio Fremont East Studios, fitness studio Bikram Yoga Downtown, community-based restaurant Vegenation, boutique jewellery company Anna Bee Jewelry, seed investment fund VegasTechFund, early childhood/elementary school 9th Bridge School, membership doctor’s office Turntable Health, community and event complex Inspire Theater, etc (Downtown Project, 2016). Out of the 350 million dollar fund, 200 million dollars were dedicated to buying real estate, 50 million dollars to small businesses, 50 million dollars to the TechFund that invests in technology companies, and 50 million dollars to education (Corbett, 2014).

The attention from business and the general public that Zappos.com and Downtown Project have received due to their unique culture and business has opened a new source of revenue for Zappos.com. Through its Zappos Insights department, it is offering tours of the Zappos Headquarters, Q&A sessions with Zappos leaders, a Zappos Insights content membership, full Zappos culture immersion with live training events, and custom events (Zappos Insights, 2016). With this, Zappos.com and Hsieh are pioneering a model of internalising urban externalities, created by their own activities.

Disclaimer: We are not solving all the problems of Las Vegas

Zappos.com is continuously being named as one of Fortune’s 100 best companies to work for (Zappos Insights, 2016) and is known for its community-orientation, high workplace satisfaction, self-organisation management, and non-hierarchical organisation. The company’s USP is based on excellent customer service, stemming from the good working conditions and satisfactory workplace of employees. Downtown Project can thus be seen as an extension of the care for good workplace conditions and as an attempt to create community feeling and increase productivity and innovation within the company.

Zappos.com's CEO Tony Hsieh giving lecture on city as a startup_Source_sharable.net

Zappos.com’s CEO Tony Hsieh giving lecture on city as a startup_Source_sharable.net

Out of 350 million dollars, 50 million dollars of investments were designated to education initiatives (Downtown Project, 2016). Downtown Project is partnering with Teach for America to improve the quality of education in the city and downtown Las Vegas. Together with Teach for America, Downtown Project invested in the Clark County School District by exploring innovative ideas, pedagogic insights, new techniques in teaching, and is developing a private or charter school in downtown Las Vegas. Downtown Project is also supporting Venture for America, a programme for college graduates who wish to become entrepreneurs and want to relocate to downtown Las Vegas. Moreover, Downtown Project is opening an early childhood centre that is gradually becoming a K12 school, teaching creativity and entrepreneurship (The Aspen Institute, 2011: 11).

However, it clearly states that it is neither charity nor non-profit, and notes that “due to limited resources, [they] unfortunately aren’t able to address and solve every single problem that exists in a city” (Downtown Project, 2016). Services offered within the portfolio of Downtown Project may thus address some social and public needs, but are provided as for-profit services and products on the market.

For example, in 2012, Downtown Project started a project called Project 100 that would combine bike sharing and car sharing into a single app, and suggest users the best transport options. Within this project, this transport-as-a-service start-up bought one hundred Tesla cars that were available to users of the app as a shared resource (similar to city bikes). Eventually, the project was aborted as “it didn’t stick”, i.e. was not profitable. Moreover, a “Hydrant Club” dog park was created in 2013. However, the park was only open to members that paid a subscription/membership fee that ranged from $40 to over $200 a month (Newman, 2014: 27).

HR par excellence

Downtown Las Vegas is becoming an important asset for Zappos.com in attracting young and motivated workforce to Las Vegas, a city that does not have a reputation as a “place to work”. Downtown Project has thus succeeded in creating the experience of living in an inspiring and dreamy city/community: “People seem ready to drop everything and move to Vegas, as if pulled in by a tractor beam, lured by Hsieh’s below-the-radar charisma, his enormous ambitions, and an ethos that combines the idealistic, artistic communalism of Burning Man with the can-do workaholism of 21st-century digital entrepreneurialism” (Corbett, 2014).

Container park, city-as-a-startup playground Source: publicbroadcasting.net

Container park, city-as-a-startup playground Source: publicbroadcasting.net

No plan, no responsibility a.k.a. urban pivoting

Unlike regular procedures, the large redevelopment project done by Downtown Project has no master plan and does not tackle issues holistically and with a long-term perspective (Walker, 2014a). Downtown Project functions as a start-up and is based on pivoting – constant adaptation of business models, try-and-error approach and attempts to disrupt the markets (Hollis, 2014). Hsieh says that “downtown Las Vegas is one enormous in-progress brainstorm, a fantastically bankrolled exercise in municipal free association” (Corbett, 2014). Despite praising participation and self-organisation, Downtown Project is based on cruel market conditions – giving chance to a very diverse range of business ideas, but shutting them down as soon as they prove to be economically nonviable despite their social effects (Corbett, 2014). And exactly this seems to be happening now.

Bibliography:

Brook, D. (2012) ‘From Sin to Sim City: Can Zappos CEO Tony Hsieh Reinvent Downtown Las Vegas?’ Forefront, 1 (2).

Corbett, S. (2014) How Zappos’ CEO Turned Las Vegas Into a Startup Fantasyland. Available at: http://www.wired.com/2014/01/zappos-tony-hsieh-las-vegas/ (Accessed 28 March 2016).

Downtown Project (2016) Downtown Project. Available at: http://www.downtownproject.com (Accessed 28 March 2016).

Gelles, D. (2015) At Zappos, Pushing Shoes and a Vision. Available at: http://www.nytimes.com/2015/07/19/business/at-zappos-selling-shoes-and-a-vision.html (Avalable at 28 March 2016).

Hollis, L. (2014) Why Startup Urbanism Will Fail Us. Available at: http://www.shareable.net/blog/why-startup-urbanism-will-fail-us (Accessed 28. March 2016).

Newman, N. H. (2014) Viva Lost Vegas: Downtown Project, Corporate-Led Redevelopment and the “Tradition of Invention”. Washington: The George Washington University.

The Aspen Institute (2011) A city as a startup: Zappos and Downtown Project. Available at: http://www.aspenideas.org/sites/default/files/images/AIF-Pages/A%20City%20as%20Startup%20Zappos%20and%20Downtown%20Project.pdf (Accessed 3 March 2016)

Walker, A. (2014) You Can’t Build a City Like a Startup: What the Downtown Project Missed. Available at: http://gizmodo.com/you-cant-build-a-city-like-a-startup-what-tony-hsiehs-1641185238 (Accessed 28 March 2016).

Zappos Insights (2016) Zappos Insights. Available at: http://www.zapposinsights.com (Accessed 28 March 2016)