Layoffs Spark Backlash to Tony Hsieh’s Plan for Downtown Las Vegas CEO Hsieh Photograph by Charley Gallay/Getty Images

Is Tony Hsieh giving up on Las Vegas? That’s the impression you might get this week reading about layoffs at the chief executive officer’s Downtown Project, an ambitious and ballyhooed plan to revitalize the city’s downtown. The Las Vegas Weekly reported that Hsieh had stepped back from leading the effort and that the organization was firing 30 of its 300 employees. The newspaper spared no drama, citing anonymous sources calling the cuts a “bloodletting.” Then Hsieh posted a series of online statements countering news reports and trying to assure observers that everything was going according to plan.

Hsieh, who made his fortune when he sold online shoe retailer Zappos to, launched the Downtown Project in 2012, pledging to invest $350 million in real estate, startups, and small businesses. The goal was to create employers, housing, and cultural trappings that would attract high-skilled workers.

“We are not doing it to make money,” Hsieh told Bloomberg Businessweek’s Brad Stone at the time. At the same time, it’s not a charity project: Hsieh expected some return on investment, along with the trickier-to-measure benefits of increased social capital. The Zappos entrepreneur expressed these fuzzy notions in such lofty terms as “return on collisions”—serendipitous encounters—and “return on community.”

Since 2012 the project has invested in more than 300 businesses, which collectively employ more than 800 workers, according to the organization’s website. Those include tech startups, restaurants, a toyshop, and Downtown Container Park, an open-air shopping mall whose storefronts are fashioned out of repurposed shipping containers.

How significant is that? The year Hsieh got started, the U.S. Census counted 1,206 business establishments in Las Vegas’s 89101 ZIP code, which contains much of the city’s downtown neighborhood. The Census doesn’t yet have data for subsequent years, but putting money into 300 businesses is meaningful no matter how you cut it. The area, meanwhile, was struggling to support bars, restaurants, and retail shops—the type of small businesses Hsieh wanted to attract.

Downtown Las Vegas’s troubles look even worse when you compare it with the larger metro area, where retail and restaurant businesses have broadly been increasing, notwithstanding a recessionary dip.
Three years and $350 million seems like a drop in the bucket when it comes to transforming an urban area. The kind of change the Downtown Project is looking for is much harder and slower to come than the lightning-fast growth that some Internet startups experience. Hsieh wrote in one of his statements that he’s focused on a five-year plan that will get the project to “cash flow positive / sustainability” by 2016. That, he notes, would be faster than Zappos became profitable.

So why the sudden backlash? Layoffs always hurt, but critics convey the sense that Hsieh is backing away from his idealistic promises. In addition to supporting for-profit companies, the Downtown Project ran programs that were never intended to make money. David Gould, a disillusioned employee who resigned from the project this week in an open letter, says the pink-slipped workers include an employee hired to help incubate a live music scene and another tasked with developing activities for kids.

“You can think of it like a political campaign,” Gould says. “The politician makes a stump speech, and they believe in their visions, and it all sounds great. And then they get into office and they have to actually make things happen.” Laying off 30 people doesn’t mean the Downtown Project is a failure, or that Hsieh is giving up. But it’s a sign that reviving a city may be more difficult than he led people to believe.

    Before it's here, it's on the Bloomberg Terminal.