Cleveland Hustles: The Hustle Continues

Zappos CEO Tony Hsieh shares what he would have changed about his $350M downtown Las Vegas project

It was an ambitious gamble — even by Vegas standards.

In 2013, Zappos CEO Tony Hsieh relocated his Amazon-owned shoe company to Las Vegas' downtown district, taking over the building that was once city hall in the rundown area north of the Strip.

A year earlier, Hsieh had launched the first half of his bet: the Downtown Project, a $350 million revitalization effort to turn the neighborhood into a mecca for entrepreneurs. He invested his own money, hoping Vegas would become "the co-learning and co-working capital of the world."

Nearly five years into the project, results have been mixed. Critics point to a less-than-robust tech scene, layoffs and shuttered businesses as major stumbling blocks, while others applaud the community's transformation.

Hsieh told CNBC he's still invested in the project's success, but if he could go back, he'd do a few things differently.

Tony Hsieh, CEO of Zappos
Tony Hsieh, CEO of Zappos

"One is we're just now starting construction on an apartment building," he said, referring to the separately funded, 231-unit Fremont9 apartment building, which broke ground in May. The building aims to address a problem business owners often cite: a lack of consistent foot traffic.

"Maybe we would have waited until year three to start the new apartment buildings instead of waiting until year four."

It's the chicken-and-egg dilemma of investing $50 million in downtown destinations like bars and restaurants to show would-be residents what downtown has to offer before having a place for them to move.

"The other thing that we would have done differently, knowing what we know now, is really made our goals much more explicit," Hsieh said.

For example, he would have put "collisions" — serendipitous encounters between individuals who can drive innovation — ahead of co-learning, connectedness and even return on investment.

Hsieh intentionally set lofty goals for the project. Speaking at the Aspen Institute in the early days of the project, Hsieh compared the legacy he hoped his Downtown Project would have to the phenomenon of the four-minute mile.

For years runners tried and failed to break the mark, which was long thought to not only be dangerous but impossible. In 1954, Roger Bannister was the first to make history, but Hsieh noted others quickly followed suit until the four-minute mile became all but routine.

"We want Vegas to be the four-minute mile of the world," he said. "If we can make downtown Vegas a place of inspiration, creativity and entrepreneurial energy and discovery and so on, in probably the place people would least expect it, then there's really no excuse for any other community or city."

Visitors stand in Container Park across from a construction site where an owner- independent of the Downtown Project- hopes to open a new two-story Indian restaurant.
Mary Stevens | CNBC
Visitors stand in Container Park across from a construction site where an owner- independent of the Downtown Project- hopes to open a new two-story Indian restaurant.

Hsieh's Downtown Project will turn 5 years old in January, and there are signs of progress. The spark he provided is starting to spread beyond the businesses he originally funded — a key benchmark laid out in the Downtown Project's original five-year plan.

Business owners independent of the project are moving into the neighborhood now famous for the project's outdoor Container Park, built from repurposed shipping containers and featuring a giant fire-breathing praying mantis that Hsieh adopted from Burning Man.

"To see kids and families walking around in a place that was previously pretty dangerous, that's progress," Hsieh said, "and [I'm] pretty happy about that."

Built in 2013 using repurposed shipping containers, Container Park houses about 30 small businesses and boutique stores.
Mary Stevens | CNBC
Built in 2013 using repurposed shipping containers, Container Park houses about 30 small businesses and boutique stores.

Some of the original investments the project made are also paying dividends.

For example, a few years ago Chef Natalie Young was planning to leave Vegas, the city where she had worked her way up the culinary ranks, when she met with Hsieh. After seven business plans and a $225,000 loan, she was instead planning the design of her new Vegas-based restaurant, Eat.

Chef Natalie Young opened her restaurant Eat in 2012 with help from Tony Hsieh’s Downtown Project. It’s now a multimillion dollar business.
Mary Stevens | CNBC
Chef Natalie Young opened her restaurant Eat in 2012 with help from Tony Hsieh’s Downtown Project. It’s now a multimillion dollar business.

Only a year into business, Young was able to pay Hsieh off in full, the first of any Downtown Project-funded business.

"I was raised that's what you do if somebody gives you something and you agree to pay it back," Young said. "You sacrifice, and that's what I did."

She paid herself only what she needed to get by: $66 a day for about the first two years of Eat's existence.

Now Hsieh is a partner in her second venture, Chow, a fusion of fried chicken and Asian cuisine. But more important to Young, it's her way of giving back to the community.

She launched an apprenticeship program for the at-risk youth of Las Vegas, Chow to the Core, offering mentorship and a chance to learn and find employment nearly four years after Hsieh took a chance on her.

"Somebody gave me the opportunity, so I believe it's my responsibility to give someone else the opportunity," she said. "And I have the best example on the planet in Tony Hsieh."

While Hsieh and the Downtown Project say they are done actively seeking to invest in entrepreneurs like Young, they plan to focus on the profitability of existing bets, as well as a "return on collisions."

"The whole idea of thinking about return on collisions is something that I think will play out and actually make financial sense, but it's just a longer time horizon," Hsieh said.