Tony Hsieh, the soft-spoken CEO of Zappos, has been extraordinarily successful throughout his career.
Everyone in Silicon Valley knows the story. In 1996, fresh out of Harvard, Hsieh cofounded the Internet advertising network LinkExchange. In 1999, at age 24, he sold it to Microsoft for $265 million. Hsieh then cofounded the incubator and investment firm Venture Frogs with his college pal (and LinkExchange’s CFO) Alfred Lin. Among the pair’s very smart bets were investments in TellMe, OpenTable, and AskJeeves. They also backed the online shoe seller Zappos, which Hsieh soon joined full-time as CEO, turning the fledgling company into an e-tailing powerhouse. When Zappos sold to
Microsoft Amazon in 2009 for $1.2 billion, Hsieh owned 38 percent of the company.
Hsieh is now endeavoring to do something more ambitious than ever before. He’s trying to transform 1.5 miles of arid, dust-caked downtown Las Vegas into a bustling entrepreneurial center, using up to $350 million of his own money.
The question is whether he can pull it off without someone to simply say, “no.”
I flew to Las Vegas to meet Hsieh two weeks ago, and it was impossible not to be awed by the scale of what he’s trying to accomplish. Hsieh says he will invest up to $100 million in land, $100 million in property, and up to another $150 million in startups, small businesses, and education to create a community. Nearly all of it will reside in the immediate few blocks around Las Vegas’s old City Hall building, where Zappos is moving its new headquarters next October. Almost none of it exists today.
Hsieh says the plan was born of “wanting to ensure [downtown Las Vegas] is a great environment for Zappos employees,” many of whom will be relocating from suburban Henderson, where Zappos has been based since 2005. But Hsieh is also hoping the region will become a “replicable model for cities of all sizes.”
Former Las Vegas mayor Oscar Goodman, who helped draw Zappos downtown, has called what Hsieh is attempting a “perfect fit” for the city. But Hsieh’s vision remains unimaginable even to some of his supporters. “You never know if it will happen or not,” says one owner of several high-rise properties downtown, who asked not to be named. “But you see that there really is a lot of political involvement behind it, and different restaurants and stores are moving into a lot of places that were empty.”
“Tony can’t do it all himself,” adds Keller Rinaudo, CEO of the year-old robotics company Romotive, which moved to downtown Las Vegas soon after receiving seed funding from Hsieh. “But we share in Tony’s vision. We like building things from scratch.”
Hsieh seems masterful, indeed, at starting from zero.
But history also suggests that Hsieh could benefit from someone who sees the opposite side of the coin, someone like Alfred Lin, who not only worked with Hsieh at LinkExchange and Venture Frogs but also joined Zappos as COO and CFO in 2006.
Seemingly, Hsieh’s “Downtown Project” doesn’t involve anyone likely to push back hard. Zach Ware, a Vanderbilt grad who joined Zappos in October 2010 as a user experience product manager, is managing Hsieh’s $100 million real estate fund. Andy White, an entrepreneur who met Hsieh last year, shortly after he sold his startup to the educational company Blackboard, is running Hsieh’s $50 million tech fund. Meanwhile, Hsieh’s cousin, Connie Yeh, and her husband, Don Welch, are handling Hsieh’s education and small business initiatives. (Both previously worked at Citigroup in New York.)
Left to his own devices, Hsieh is willing to bet the moon and lose. For example, while at Venture Frogs, Hsieh began day trading, eventually losing so much money that the brokerage Charles Schwab sent him an alarmed letter, according to Lin. Hsieh also bought real estate at the height of San Francisco’s housing market and had to sell some of his property at a loss to support Zappos.
At one point, as Lin was raising money for Zappos from Sequoia Capital, partly to execute on a secondary share buyback, Lin said to Hsieh, “Should we do this now or later?” Hsieh, who had less than $40,000 in his bank account at the time, “didn’t care,” recalls Lin.
Of course, $350 million is an awful lot to gamble. And this time, Lin doesn’t have Hsieh’s back. Though Lin says that Hsieh has asked him “multiple times” to join him in Las Vegas, he says it’s not the right fit. “We work well together, but it doesn’t mean I’m the right person for this,” explains Lin, who is currently a venture capitalist at Sequoia. “I’m not passionate about turning Vegas into one of the most connected places in the world. I like Las Vegas, but I don’t love it.”
I ask Lin if he thinks Hsieh can pull off such an ambitious project. I also ask if he’s concerned. “As a friend, I am concerned,” Lin says. “I’ve always been concerned about Tony’s risk tolerance. But that’s what it takes to do what he does,” he says.
Besides, Lin notes, “Tony has been right more often than not.” And if this time, Hsieh happens to be wrong, well, that’s probably okay, too.
“Tony’s view is: I can lose it all, [because] I know I have the brains and friends and network to start it up again. To him, that is success, and I think he thinks that he has that.”
Correction: The original version of this story incorrectly stated that Zappos was sold to Microsoft.
Look for a broader profile on Downtown Project in the December issue of Venture Capital Journal.
Images: photo of Hsieh, courtesy of Crunchbase; picture of some of Hsieh’s downtown Las Vegas property by moi.