A front-row seat at a failed business experiment

Author: 
SMM

Downtown Project (DTP) is Zappos CEO Tony Hsieh’s effort to rebuild Downtown Las Vegas into the most community-focused large city in the world. He invested $350 million of his own money, started recruiting entrepreneurs in 2012 and put a five-year timeline on the project.

Business journalist Aimee Groth lived through the first three years of Hsieh’s “community as a startup” experiment. Her book, “The Kingdom of Happiness: Inside Tony Hsieh’s Zapponian Utopia,” is a tell-all revelation of what it’s like when a billionaire has the charisma to recruit hundreds of people into his grand experiment, yet ultimately lacks the leadership to help anyone achieve the overall objective.

SMM: The story is fascinating. The book is a fun read. We don’t have the space to cover everything here, but talk a bit about how you got pulled into Tony Hsieh’s somewhat cultish world after meeting him at a New York speaking engagement.

Groth: Tony is very effective at pulling people into his orbit. If a billionaire tells you that you can be an entrepreneur and he’ll support you with that, it’s very compelling. As a millennial, I think I reflect the stereotype of that generation. I am driven more by a purpose than a paycheck, so I was drawn equally to his charisma and the mission. I was thinking I could be part of something larger than myself. I was seeking something different and Tony has a knack for attracting people who are at transition points in their lives. He got me at the right time and his pitch was powerful.

SMM: You quit a job at Business Insider and moved to Las Vegas to research this book. Did you think there would be seed money available from Downtown Project? You never received any money and you pretty much couchsurfed in Las Vegas off and on for three years while you reported for the book.

Groth: This actually happened to a lot of people. Tony is an effective recruiter. He’s known to be won over by loyalty. I thought it sounded likely that he would commit to this. He had already committed access, and that was a huge deal to have access to someone like that. I thought I could probably make it work without his financial backing, but I actually thought he would come in and he didn’t. There are many stories like that, and a lot of folks who moved downtown were first-time entrepreneurs. A lot of people entered into contracts, whether on paper or just a handshake, based on limited information. There was just a general sense of trust in Tony. His track record is phenomenal: he is a two-time successful entrepreneur; he successfully sold two companies, one for over a billion dollars, so people really trusted this person – that he would fulfill his end of any bargain or handshake agreement.

SMM: Was there a point where you started wondering if there was any leadership in the project?

Groth: I remember this clearly. I had been working on the book for about a year when there was a third (DTP-related) entrepreneur suicide. I had just left Silicon Valley when I heard about it. My friend, who lives in Silicon Valley, reached out to me about the event, but no one in Downtown Las Vegas reached out to me, and I had lived there for a year and knew a lot of people. Essentially, the event was just covered up. It occurred to me pretty quickly that Downtown Project wasn’t what I thought it was.

SMM: You’ve been a business journalist for 10 years now. Have you ever seen an environment like this or met a business leader like Tony Hsieh?

Groth: I haven’t. Tony develops a lot of personal relationships with the people who work for him. His family members and close friends all work for him. I’ve never seen this kind of a gray area. I don’t get the sense from what I read about other tech moguls that there is the sense of cult personality around other leaders. There is something different about Tony and that is this unique set of traits that he has that attracted so many people to uproot their lives and move to Las Vegas.

SMM: Tony’s self-imposed deadline for Downtown Project was January 2017. He doesn’t comment much about it, but when he does he doesn’t admit its failures. You make it clear in your book that you feel it failed on several fronts. Can you explain?

Groth: The original mission was to create the most community-focused large city in the world in five years or less. Downtown Project, by far, missed the mark on that. That said, DTP upgraded Downtown Las Vegas. There has been a cosmetic upgrade. There are new bars and restaurants. There is a new shopping and restaurant area called Container Park that drives a lot of families downtown. There is an improved quality of life, and that’s an important thing. But for anyone like me, who was there early on and saw what it was supposed to be and what it could have been, DTP has fallen far from its aspirations. With new investors who may come in, it may be able to accomplish its mission in 10 years or 20 years. Five was very ambitious.

SMM: Many writers, including yourself, have spoken of the culture that Hsieh builds, whether at Zappos or Downtown Project, as a cult-like environment. Do you feel he fosters this or does he take the approach that he is who he is, and how others relate to him is out of his control?

Groth: I’ve struggled with that question a lot. Even to this day, I try to figure out what is really going on here. I’ve determined that it’s both. There are a lot of codependent relationships between Tony and all of the people working for him and with him. He rewards loyalty. He rewards people who spend time at the bar with him and the other leaders. There is very much a sense of, “The closer you get to me and the more you sacrifice for me in terms of spending time with Downtown Project leaders, the more access you’ll have to capital and the more access you’ll have to me.” At first, I thought that’s interesting. Maybe that’s just how it is in the Silicon Valley culture. But then I realized that this is different. It’s more extreme and it’s even actually dangerous. A lot of people are burned out after years of trying to accommodate him and living in that way.

SMM: “Culture” is a big buzzword in any business setting these days. The demand to be a cultural fit in Tony’s world seems to require work hard and party hard. The Zappos “all hands” meetings for employees are notoriously boozy affairs. There are a lot of talented people who just don’t have that mindset. Does Zappos and did Downtown Project lose out on a lot of talented people because of this demand for that type of personality?

Groth: I believe so. There is a lot of conversation among former Zappos managers that Zappos seeks to hire B and C players who will be loyal and who are seeking this party culture instead of A players who would may go home to their families. For Zappos, it works because it’s mainly a call center job. You can party and still get back on the phone the next day. But Downtown Project was seeking to create an entrepreneurial ecosystem, and being an entrepreneur is really hard. If you’re getting whoever you can get out to Las Vegas and giving money to people who don’t know what to do with it, that’s not a recipe for success. I think the Downtown Project lost out on bringing in top talent because a lot of people who would have moved didn’t because they didn’t fit the set of traits that Tony was looking for.

SMM: Throughout the book, you talk about a lack of communication and even honesty among these DTP entrepreneurial community members. One line I remember is, “You were crushing it until you weren’t,” and the two could be a week apart. Was there a larger void of clarity and communication than in other business environments you have covered?

Groth: Tony’s vulnerabilities as a leader came through in the past few years in ways they had not been seen earlier. To his credit, he took on a very big endeavor with a lot of different pieces. It would have been hard for anyone to manage. But his vulnerabilities did reveal themselves under pressure, one of which is he is nonconfrontational. That was very much on display and it proved to be a major liability, because to get Downtown Project off the ground required a lot of tough conversations. He would steer them to someone else, have them well after the fact or avoid the conversations. At the same time, a lot of the folks who are around him are not empowered enough to act without his approval. It’s very interesting to me to see someone who wrote this guide to creating a great corporate culture (Tony’s book “Delivering Happiness: A Path to Profits, Passion and Purpose” was published in 2010), not be able to apply the same principles to Downtown Project.

SMM: You came into his world after Zappos had recently been acquired by Amazon. Did you talk with him about (Amazon CEO) Jeff Bezos? They seem to have opposite personalities.

Groth: When I asked him about Bezos a handful of times, Tony would say, “I see him once in a blue moon at shareholder meetings or other corporate functions.” He didn’t offer much in terms of that. I asked other people around him what that relationship was like and everyone bowed out. I reached out to Jeff to comment for the book, but he declined. What I gather is that Jeff Bezos likes having a leader like Tony as part of the Amazon brand because Tony is experimental and Jeff is as well. Amazon is watching Zappos to see what works for them and what doesn’t work. Zappos is this much smaller entity that can fail. Even if Zappos doesn’t hit its numbers, that’s not going to make a major dent in Amazon’s numbers. Now that Zappos has gone through this negative experience, I wonder how long Tony has to experiment. I’m curious to see what’s going to happen in the next few years. [Editor’s note: Zappos introduced an experimental management system called Holacracy in late 2013 that essentially eliminates managers. By all accounts, it has created more chaos and unhappy employees than anything else.]

SMM: You were interviewed on Nevada Public Radio earlier this year. They reached out to Zappos for comment on the book and the response they received was that Hsieh and others have reviewed the book and found “over 100 pages that we believe contain inaccuracies, misrepresentation or flat-out false statements.” What’s your reaction to that?

Groth: During the fact-checking process, the communication [with Zappos] essentially broke down when they realized the book was more skeptical than they thought it would be. Whenever I asked, they couldn’t provide any specifics about anything that was wrong. I actually saw Tony in January in Vegas right before the book was off to the press and even at that point he couldn’t name anything specific that he felt was wrong. I actually got a sense of subtle approval from him during our conversation. But I gather that he and Zappos can’t endorse my book no matter what. That’s not surprising, but it is disappointing to me, as someone who did invest so much into this, to see them come out with that statement.

SMM: You asked Tony a lot of questions over the three years you spent researching and writing your book. You talk about breaking into tears in a down-and-out bar with him at one point over your frustration at never being able to get a straight answer from him. You may never get a straight answer from him, but at this point what would you like to ask Hsieh if you could?

Groth: I would ask him if he could weigh in on the successes and failures of Downtown Project in a candid way. I would love to hear more of his thoughts about why certain things didn’t work. I’d love to know if he would point to events, circumstances, certain environmental factors that I have not considered.

SMM: Is Tony Hsieh a strong leader?

Groth: Tony is a visionary more than he’s a leader. He has been very successful as a visionary because, historically, he always had a strong counterweight in the form of COO/CFO Alfred Linn. Alfred is a big reason for all of his success. Alfred left and he was never replaced. A reason Downtown Project broke down was because I didn’t see a counterweight.

SMM: You told the Nevada NPR interviewer that your life is better for having participated in Downtown Project. Why?

Groth: It was a life experience. I would say without having met this person who encouraged me and others to pursue our dreams and act as an entrepreneur, I don’t think I would have done it. No matter what happens with the book going forward, I consider it a success to have gotten it out there. A lot of people have called DTP a personal growth incubator. I think that’s about right. We all kind of learned on our own without any kind of support. That was a tough lesson, but it’s life. It’s interesting, years later, people are still scratching their heads around the questions, “What did I do?” or “Why did I join that?” and everyone goes to this place of, “I’m more knowledgeable. I’m wiser and stronger.” How did this experience affect the hundreds of people who participated in it? We’ll see that in years to come – what people do with their lives and their jobs. I’ll be curious to see where some of these people are in five years.