Tony Hsieh Transforming Downtown Vegas

Zappos founder and CEO Tony Hsieh is deep into a $350 million project to transform decaying downtown Las Vegas into a magnet community for the city’s hip young professionals, reports the New York Times.

What began in 2009 as an effort to lease bigger work space for about 1,200 Zappos employees in the old city hall building has evolved into a large-scale urban renewal project that Hsieh says will create “the most community-focused large city in the world”. That seems a farfetched ambition for an area filled with cheap motels, liquor stores and streets strewn with the homeless and the intoxicated.

But over a year into the project now, Hsieh’s people are spending $200 million to buy land and buildings, $50 million to create the kinds of eateries and retail businesses suitable for a yuppie haven, $50 million to fund tech firms to help revitalize the area and even $50 million to re-educate the people who will populate the community.

After buying Zappos in 2009 for $1.2 billion, Amazon CEO Jeff Bezos has wisely insisted that Hsieh, 38, remains the visionary behind the innovative online retail site that has become the new standard in e-commerce customer service. The Downtown Project is the centerpiece of Hsieh’s vision for Zappos to serve as the seed of a new urban culture that seems highly improbable for the decaying core of a city whose real action has long shifted south to the strip along Las Vegas Boulevard.

But it is totally consistent with Hsieh’s philosophy that mind-blowing service must come from mind-blowingly happy staffers who can only come from being part of a mission much larger than selling shoes; it can only come from transforming human civilization as we know it, to hear Hsieh.

Because 75% of the human race will be living in cities within our lifetimes, “if you fix cities, you kind of fix the world,” he says.

That statement is maybe the ultimate expression of the holistic vision that has been spreading out like water ripples since Hsieh began thinking about the need to move much of his workforce out of its cramped space in Henderson, a small city immediately south of Las Vegas.

“I first thought I would buy a piece of land and build our own Disneyland,” Hsieh told the group in charge of the Downtown Project. But his thinking quickly evolved, leading him to conclude that “it was better to interact with the community.”

So after signing a 15-year lease for the city’s old city hall in the heart of the most derelict part of downtown Las Vegas on Fremont Street, Hsieh decided that rather than merely moving 1,200 workers into the space, it would be far better to create a community that will foster the kind of “serendipitous interactions” that has become Zappos’s corporate culture.

“We wanted the new campus to benefit from interaction with downtown, and downtown to benefit from interaction with Zappos,” says Hsieh’s top aide Zach Ware.

Hsieh believes transforming downtown Las Vegas will “ultimately help us attract and retain more employees for Zappos” while helping to “revitalize the economy”. The ultimate aim of any Zappos initiative is to “inspire,” Hsieh has said time and again. If nothing else, the Downtown Project seems to have inspired the emergence of the cosmic-scale visionary in Hsieh.

Turning opportunities into businesses empires seemed to come naturally to Tony Hsieh. At the age of 12 he sealed photos between a sheet of plastic and a metal disk and advertised his “button-making” business in a kid’s directory. While other kids were spending their allowances on action figures, Tony was earning several hundred dollars a month of his own money.

As a Harvard undergrad Hsieh sold whole pizzas out of his dorm. Harvard peer Alfred Lin was Hsieh’s No. 1 customer. Lin bought two whole pizzas from Hsieh, took them upstairs and resold them by the slice. Lin was destined to become CFO of Zappos.

In 1995 Hsieh graduated with a B.A. in computer science and went to work as a software engineer at Oracle. The entrepreneurial itch soon got the better of him. He started up LinkExchange so small websites could advertise for free on thousands of other web sites. In 1998 24-year old Hsieh sold LinkExchange to Microsoft for $265 million.

A year later, Hsieh met Nick Swinmurn who, while walking through a mall in the search for a pair of shoes, was struck the idea for an online shoe store. But Swinmurn had one major problem—no investor would touch it, not even good-friend Hsieh.

“I almost deleted the voicemail,” Hsieh says of Swinmurn’s pitch. “I didn’t think consumers would buy shoes sight unseen, and Nick didn’t have a footwear background… But right before I hit delete, Nick mentioned the size of the retail shoe market—$40 billion.” Hsieh initially climbed aboard as an advisor. In two short months he found himself investing $500,000 in ShoeSite.com, which was later changed to Zappos.com.

From the outset Zappos aimed to become the largest online footwear retailer. But two or three years in, Hsieh and Swinmurn dug deep and reevaluated their initial goal. They decided to make Zappos a customer service company “that just happens to sell shoes.” They expanded the warehouse to 77,000 sq. ft. and stopped having manufacturers ship directly to customers. “It was a scary time,” recalls Hsieh. “Drop shipping was 25 percent of revenue.”

In 2006 Swinmurn left and Hsieh became Zappos’s CEO. On July 22, 2009 Amazon.com announced the acquisition of Zappos.com in a $1.2 billion deal. Hsieh made the unusual choice of staying on at Zappos.

Zappos’s service-first strategy demands that it run the warehouse 24/7 so shoes can ship quickly. There have been reports of products arriving at the customer’s doorstep 8 hours after the order was placed. Zappos has a virtually unmatched 365-day return policy with free shipping both ways. And if a customer is looking for a pair of shoes that isn’t in the Zappos stock, employees help customers find what they are looking for at competitor websites.

To Hsieh company culture is the most important part of the Zappos brand. In January 2004 he decided to move the customer service headquarters to Las Vegas. “We were having a hard time finding good customer service people in San Francisco,” he explained. “Las Vegas has a lot of call centers and lots of people who want to do customer service as a career.”

“We want people who are passionate about what Zappos is about—service. I don’t care if they’re passionate about shoes.” Hsieh claims he had to turn down some major players because they didn’t fit in with the Zappos culture. A list of ten core company values reminds employees what it means to be part of the Zappos team. A few examples: “Create Fun and a little weirdness”, “Be adventurous, creative, and open-minded”, “Deliver WOW through service”.

With their slogan “Delivering happiness at Zappos”, the “do whatever you can to please the customer” mentality has given employees allowance to go above and beyond—for example, sending a bouquet of flowers with a customer’s order. Even though Hsieh recognizes this extra expense, his aim is to win over repeat customers with the Zappos “wow” service, while attracting new ones by word of mouth.

This generous spirit is shown toward employees as well. Free lunch is provided for all employees to encourage interaction. Karaoke competitions are held during break. Dance Dance Revolution is available in the lobby. Zappos is so proud of its working culture that free tours are offered to the public at the Las Vegas location. Email Hsieh beforehand and he will even arrange to have a Zappos shuttle pick you up from the airport.

Hsieh firmly believes that a focus on excellent company culture is the fix for all corporate problems. “Businesses often forget about the culture, and ultimately, they suffer for it because you can’t deliver good service from unhappy employees.”

But Hsieh doesn’t want Zappos to be known as the shoe retailer forever. In its quest for constant expansion the company has already branched into clothing and other merchandise. He hopes to soon offer the Zappos customer service to cater to needs outside of merchandise retail. Don’t be surprised if you see a Zappos Airlines in the next twenty years.

“For me part of it is about seeing what we can accomplish here at Zappos, but also seeing what we do here that can change other businesses and the world in general—whether its through inspiring other companies to deliver better customer service or to focus on their own company culture.”

Making Fortune’s “Best Companies to Work For” list, along with Google, has given Hsieh’s philosophy a measure of validation. In 2010 Hsieh published Delivering Happiness: A Path to Profits, Passion and Purpose (2010) to explain how a Harvard grad found happiness and meaning in a business-oriented world.