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October 1, 2014

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Is Tony Hsieh downtown Las Vegas’ savior or conqueror?

An in-depth, street-level look at the czar of Zappos

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Steve Marcus

Tony Hsieh, CEO of Zappos.com, talks about ideas for downtown redevelopment at a Zappos condo in the Ogden in downtown Las Vegas Thursday, June 7, 2012.

On a Friday afternoon in mid-December, Tony Hsieh’s people waited their turn inside a downtown tattoo parlor.

They call themselves Zapponians, a close-knit group connected to Hsieh, CEO of Zappos and the bold leader of a major transformation of downtown Las Vegas. Friends, co-workers and colleagues, they’re all here for a show of allegiance to Tony and the group before his 40th birthday party.

Everybody is getting a tattoo...

It’s an intense display of loyalty — getting inked for a boss generally isn’t part of corporate culture — and it exemplifies the concerns some Las Vegans have about Hsieh. His power and influence is such that even Las Vegas Mayor Carolyn Goodman says she is available “whenever he needs anything,” and the city has shown a willingness to craft policies to facilitate his vision. Along Fremont Street, many business owners fear questioning Hsieh publicly in case the Zapponians — including hundreds of workers Hsieh has brought downtown — retaliate with boycotts.

Hsieh’s grip has reached the point that when online tech publication Gizmodo recently sent a reporter downtown, the author said the entrepreneur’s empire “can feel cultish.”

The concerns, when they come up, have been obscured by the praise Hsieh has received for leading downtown’s turnaround. And make no mistake: the praise is well deserved. The stretch of Fremont Street east of the canopied Fremont Street Experience now draws thousands of people to shop, dine, play, work and start businesses after decades of decay. Without Hsieh, many people argue that never would have happened.

But back to the tattoo parlor.

On the afternoon before Hsieh’s party, the group received small, circular tattoos on their fingers, feet, hips, elbows or lips. The marks represent pixels, the digital dots that form the resolution of a computer screen.

Most grimaced when the artist pressed the needle to their skin. A filmmaker with a local production company captured footage from the party and later posted a clip to Vimeo.com under the title “Tony Hsieh’s 40th Birthday Pixel Party.”

“What are we doing? Getting tattoos to go to a party,” said Steve “Steve-O” Moroney, Hsieh’s 40-something personal driver who has tattoos running up both arms. “How epic is that, right? What do you do? You get a tattoo.”

A blonde woman got a black pixel tatted next to a black heart on her forearm: “I hope you have a very happy birthday, Tony, because we’re doing this all for you,” she told the camera.

Then it was Hsieh’s turn in the chair. He got an black pixel tattooed near his elbow. He said it felt like a flu shot.

“Guess I’m good for the season,” he said.

Critics say the pixel party is symbolic of something disturbing.

Many believe Hsieh, who sold his Zappos retail shoe and apparel company to Amazon for almost $1 billion but still works as its CEO, fosters an environment where devotion is rewarded and criticism isn’t tolerated. Downtown Las Vegas, they say, is becoming Tony’s Town, a place where either you follow Hsieh — and line up for a tattoo — or you’re deemed in the way.

Even Las Vegas’ mayor has boarded the bandwagon.

“I’ve been one of his biggest fans,” Carolyn Goodman said. “Whenever he needs anything, I’m here. ... He really has done a great job.”

Block by block, Hsieh is putting his mark on the neighborhood just east of the Fremont Street Experience. Not many are willing to stand in his way.

Zappos employs hundreds of call center workers who don’t earn enough to live in luxury apartments. So Hsieh’s downtown development project approached city officials with a plan to rip slot machines from the old Gold Spike and turn it into corporate housing.

During a city council meeting, planning director Flinn Fagg noted that the city doesn’t have a “corporate housing” zoning code. That wouldn’t be a problem, he said.

“The Downtown Project does things that are a little unusual sometimes, so we have to try to fit our code around that,” Fagg told Goodman.

The city approved the request.

The downtown makeover began in 2010 when Hsieh bought the vacated City Hall and announced plans to relocate Zappos’ headquarters and more than 1,000 employees from its hub in Henderson.

Then came the Downtown Project, Hsieh’s $350 million campaign to transform the area around his new corporate home into a respectable, moneymaking core of commerce and culture. The project plans to invest $200 million in real estate, $50 million in small businesses, $50 million in education and $50 million in tech startups through the Vegas TechFund.

Hsieh quickly captured the world’s attention with his vision, which is a radical departure from Las Vegas status quo.

Downtown isn’t about neon anymore. It is about a giant metallic praying mantis built for the Burning Man festival that noisily spouts fire from its antennae after sundown on East Fremont Street.

Downtown Project leaders preach a gospel in which spontaneity is key: Zappos employees in company-themed hoodies leaving work to explore restaurants and bars within walking distance of their cubicles.

When the sun begins to set, “we get a drum circle together,” one Downtown Project employee said.

Hsieh says he imagines the city as a startup company. Fielding ideas from around the world, his downtown brain trust plans to start one project a month in the first half of this year alone. Those projects could include high-capital ventures or small-business investments.

Serendipity is key.

When somebody suggested building a temporary ice skating rink at the renovated Gold Spike, Hsieh green-lighted the project.

Said Richard Florida, an American urban studies theorist and occasional Hsieh adviser: “It’s quite organic and quite bottom-up.”

The man at the top can be seen in the restaurants and nightspots near his business but getting an appointment with him can be difficult.

Request an interview, and you could be asked to tour the Downtown Project’s real estate holdings and Zappos headquarters just to get access to Hsieh.

Reporters have had better luck running into Hsieh at Atomic Liquors or the Gold Spike, his favorite downtown hangout, than scheduling a meeting. (Hsieh refused to be interviewed for this story.)

A native of the San Francisco Bay Area, Hsieh has been described as mild and elusive. His corporate message is he’s out to build a strong sense of community and an inclusive environment — a culture of happiness, if you will. He’s even invested in small local businesses that fit his political style.

But not all of his employees leave feeling good about the company.

“Very cult-like in the way that they hire, train and operate,” one ex-worker wrote on the post-employment website Glassdoor.com, adding that managers were watchful “to see how you interact with other employees to see how loyal you are to the company. I feel like you really have to drink the Kool-Aid to make it through training.”

Some downtown business operators and residents feel like Hsieh and his followers are pushing them aside. That group includes low-income workers and blue-collar business owners who pioneered downtown years before Hsieh’s transformation began.

The most vehement critics, like Las Vegas tech startup owner Joshua Ellis, see little justice in what he calls the Downtown Project’s “hideous” image-driven mission.

“A lot of Vegas scene makers are just happy to have chic watering holes where, unlike the big Strip places, they’re fawned upon and feel important,” he said of the small businesses Hsieh has invested in. “Meanwhile, all the people who were using their fingers to barely hang on to the world — the transients and near-transients, the addicts, the scum — are being pushed yet further afield.”

Other critics aren’t willing to go public.

One successful Fremont Street business owner once believed he had a good relationship with Hsieh. Then things suddenly changed. Zappos employees and Downtown Project soldiers stopped frequenting his establishment.

The owner believes Hsieh shut him out because he somehow fell out of favor, possibly because he didn’t reach out to Hsieh enough.

“He has a kiss-the-ring attitude,” he said.

Whatever the reason, he’s careful with whom he discusses his concerns, and he definitely doesn’t challenge Hsieh publicly.

“I’ll have to remain anonymous,” he said. “I’ll have so much hatred from his team.”

At speaking events, Hsieh often preached the “three C’s”: community; collisions, spontaneous meetings of people and ideas; and co-learning, a virtuous cycle of collaboration and inspiration.

The idea has been to make downtown a primordial soup in which idealistic people collide and create a diverse flora and fauna of businesses, arts and culture.

But his rhetoric concerning “community” eventually caused enough confusion among local residents to force Hsieh to substitute the word with “connectedness.” The Downtown Project even eliminated every reference to a “return on community” from its website.

The mogul told VEGAS INC he found many people misinterpreted the Downtown Project’s goals and intentions. To be clear, he said: The Downtown Project is not a charity.

“We found that when we used the word ‘community,’ there were a lot of groups that suddenly expected us to donate money to them or invest in them just because they lived in the community or because it was for a good cause,” Hsieh wrote to VEGAS INC. “People would be upset if donating or investing in them did not happen to fit in with our priorities and business goals, and they would refer back to our use of the word ‘community.’”

Despite the drastic change, city officials such as Las Vegas Councilman Bob Coffin said they’re on board with however Hsieh wants to pitch his project.

“I don’t think his motives matter,” Coffin said. “This is a town that fosters gambling. This is a town that unfortunately allows totally unregulated prostitution. So if Mr. Hsieh wants to come and push his philosophy of business. ... Geez, this is the last town to say ‘we don’t know if what you’re doing is right.’”

But Ellis, a startup enthusiast who began visiting downtown Las Vegas because of the Downtown Project’s promise of a better community, said it seems Hsieh’s sudden swap illustrates a classic “bait-and-switch” — first selling the city on a project aimed at community, then switching its focus to business.

“The rhetoric when they first started was definitely, if not completely explicit, to improve the community at large,” Ellis said.

Now Hsieh claims the Downtown Project is nothing more than a startup venture with good intentions, but due to limited resources, it can’t solve every single problem that exists in a city.

That’s OK with city leaders.

“I don’t expect him to run a charity,” Coffin said. “I hope he runs a nice tidy profit from his investments because he’s brought a lot of spirit and confidence back to the city.”

Coffin, who grew up in Las Vegas, thinks of Hsieh like a modern Howard Hughes, the man often credited with changing the face of Las Vegas.

Many people outside Hsieh’s circle fear his vision could harm downtown’s potential.

What could have been a groundbreaking community like San Diego’s Gaslamp District or New Orleans’ Bourbon Street has been transformed into Hsieh’s personal bubble, where it’s either his way or get out of the way, critics say.

“What made the Gaslamp District and Bourbon Street great is you had such diversity,” one Las Vegas business owner said.

Downtown Las Vegas, many complain, has turned into Hsieh’s exclusive domain.

Examples of Hsieh’s character dot the town. An outline of his real estate holdings viewed from Google Earth is said to resemble the shape of a llama’s head. Hsieh’s favorite animal, a llama made an appearance at the opening of Container Park. Zapponians also have been known to spout the phrase, “Llamas live!”

Hsieh’s swank apartment at the Ogden is the size of three apartments combined. Inside, his pad is a jungle-themed party room filled with bottles of booze and Hsieh’s go-to drink: Red Bull.

For those in his inner circle, it’s easy to find the action. Hsieh owns the building, which he uses to host out-of-town friends and house key employees.

But Hsieh’s good times have been marred by tragedies.

Jody Sherman, the 47-year-old co-founder of Ecomom, one of the first tech companies Hsieh recruited to Las Vegas, was found dead of an apparent suicide in 2012 on Mount Charleston.

In early January, authorities found a 24-year-old Downtown Project employee dead outside his apartment building. The Clark County Coroner’s Office declared the death a suicide.

Gizmodo author Alissa Walker, who was in town at the time of the most recent death, described how the loss affected Hsieh’s feel-good culture: “I could very tangibly feel that something was wrong.”

Gizmodo has referred to Hsieh as the mayor of downtown, but Walker described the area as Hsieh’s version of Disneyland — a personal playground.

“I like a lot of the same thing(s) Hsieh likes, so I enjoyed being there,” Walker wrote. “But there are some people, including longtime downtown residents, who won’t like it. … If you’re an asset to what they’re doing, you’ll feel like you’re being recruited with the heavy sell.”

Walker’s sense was that the atmosphere wasn’t welcoming to outsiders.

Hsieh’s supporters say his portrayal as a domineering overlord is preposterous.

Has he attracted lock-step followers? Sure, they say, but that’s a product of his being charismatic and influential. Does he press his agenda with decision-makers? Yep. That’s called being an audacious leader, something desperately needed downtown.

Coffin calls the dissent pure envy of a multimillionaire with national status. Vanity Fair magazine recently listed Hsieh as one of the America’s top cultural influences.

“Generally, you don’t hear much griping from the big guys,” he said. “It seems the Downtown Project is doing a pretty good job.”

Certainly, the Downtown Project’s work has been a success by virtually all measurable means. There’s more investment, more commerce, more foot traffic, more construction, more renovation and remarkably less blight downtown now than a few years ago.

In what once was a vacant lot where dirty syringes and empty beer bottles might have been found, children now play in a two-story tree house at Container Park while shoppers sip wine and browse in shipping containers-turned-boutique stores.

Next door, a private school developed by the Downtown Project sits on a lot once wracked by urban corrosion. To the east is a refurbished bar.

But as the renaissance happens, Hassan “Gino” Massoumi watches from the outside.

For more than a decade, the auto repair shop owner worked across the street from what is now Zappos’ former-city-hall headquarters. Then Hsieh’s real estate partners bought the building and refused to renew Massoumi’s lease.

Now the blue-collar businessman sees the young Zappos crowd walk past his former shop, talking about new projects in which he has no role.

“It’s like a religion you can’t stop,” he said.

Others say Hsieh is a bored billionaire with a frat house mentality who is building his own Neverland, or “Never Graduate Land,” as one person called it.

And how do you build Hsieh’s Xanadu? You hire the most willing and able to do your bidding, critics say.

“You have a very smart group of people who were given the resources to (transform) a city,” tech startup owner Ellis said. “They are very excited by this sandbox Tony has given them, and now they can play with their toys.”

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