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Business Report

Zappos CEO Bets $350 Million on a Las Vegas Startup Scene

Tony Hsieh believes the formula for innovation is more “collisions” and, occasionally, llamas.

Startup companies are becoming key to many cities’ efforts at urban renewal.

Tony Hsieh doesn’t really like sports, but he loves llamas and community gatherings. So once a month during baseball season, the CEO of the online shoe retailer Zappos holds a company-sponsored parade led by a llama named Cusco. The marchers get free baseball caps and noisemakers as they make the trek from Las Vegas’s Fremont Street to nearby Cashman Field.

Las Vegas
Dream street: The downtown neighborhood of Las Vegas, pictured at dusk.

For Hsieh, 39, the cheerful walk through a rough patch of the city is just one part of a very calculated attempt to revitalize downtown Las Vegas through an urban renewal effort called the Downtown Project, which he is bankrolling with $350 million of his own money.

Ben Milne
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The center of Las Vegas is a depressed area, full of tattoo parlors and empty lots, that visitors to the ritzy Strip usually don’t see. But Hsieh, an e-commerce entrepreneur who made a fortune when he sold Zappos to Amazon in 2009 and still runs the company, thinks that if he can lure creative and entrepreneurial people to relocate to the area, all kinds of startup companies will follow, from the next big thing in technology to simply a new ice-cream shop.

“Our big bet—which I don’t think is really a bet—is just getting lots of people from different perspectives and backgrounds together in a relatively small area with a bias toward sharing and collaboration,” he says. “Statistically, the magic will just happen on its own.”

Specifically, Hsieh thinks fostering innovation comes down to maximizing “collisions,” his term for any kind of encounter between people. Guided in part by Harvard economist Edward Glaeser’s book Triumph of the City, the Downtown Project has determined that it needs to increase the neighborhood density to 100 residents per acre (high density is an ideal put forth by Glaeser), from what it says is 14.5 currently. It also needs to get people out of their cars, because that will increase collisions, too.

“You can think about, ‘Well, if the flower shop takes up so many square feet, how valuable is that from a collisions perspective versus a restaurant or a bar?’ ” he says, adding, “It’s not the only criterion, but it’s an additional one that most people probably don’t normally think of.”

Zappos relocated from San Francisco to outside Las Vegas in 2004, in order to make hiring customer service agents more convenient. Now Hsieh is about to move Zappos again, this time into the old Las Vegas city hall. He lives in the neighborhood, too, in a sprawling apartment in the Ogden, a luxury high-rise where his Downtown Project leases two floors and offers free, furnished crash pads for visitors.

The Downtown Project plans to spend $200 million buying up buildings and land (it already owns 55 acres of downtown Vegas). Another $100 million is reserved to invest in small businesses and tech startups, and there’s $50 million for education, like a preschool that will open this year.

Some of Hsieh’s efforts are starting to show results. Elizabeth McVay Greene moved her startup Plovgh (pronounced “plough”) from Brooklyn to Las Vegas this February. She was drawn by the lower cost of living, as well as the hope that she’d find support for her website, which connects small farmers directly to customers.

While Greene is skeptical that there’s any “recipe” for innovation, she says, “I don’t know that I’ve ever seen innovation supported this way, with so much focus on the process.” Greene’s company is based at Work In Progress, an office space for startups that Hsieh has invested in. If she gets hungry, she can head over to Eat, a brunch place also financed by the Zappos boss.

One problem: Las Vegas is known as a driving town. The city’s density of 4,200 people per square mile is less than a fifth of New York’s and hardly more than that of Montana’s densest city, Browning. But Hsieh has a plan for that, too. Through a transportation initiative, he’s trying to encourage people to walk, bike, or share cars. A fleet of 100 Tesla electric sedans, now on order by the Downtown Project, sexes up this last option. Like urban planning, Hsieh says, a city needs “story planning”—the kind of excitement that, say, a fleet of Toyota ­Priuses or only 10 Teslas wouldn’t achieve.

There’s a long way to go, though. For one thing, there’s the question of what it means for Hsieh’s budding innovation cluster if what happens in Vegas doesn’t stay there, so to speak. One robotics startup, Romotive, recently left the area for San Francisco because, in the words of its CEO, further growth required it to “focus … on working in close proximity to strategic partners and hiring brilliant senior talent.”

Las Vegas has neither strong universities nor many heavyweight companies. Technology startups in particular could find it difficult to recruit skilled workers to the city, and it might be an unlikely site for the types of “collisions” that can lead to partnerships or acquisitions.

But Hsieh thinks innovation will start to happen if he takes care of the basics. On a wall of his apartment reserved for suggestions, people can leave Post-it notes saying what they think downtown Las Vegas still needs. One suggestion: a grocery store.

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