Downtown Project Q&A:
Tony Hsieh’s Statement
From Tony Hsieh
9/30/14 Downtown Project Q&A
TL;DR: there are a lot of misleading headlines flying around out there…
Headline 1: “30% Layoffs at Downtown Project, Downtown Project is failing, Downtown Vegas is too.”
Response 1: “We eliminated 30 positions from our corporate support staff. We directly employ more than 300 people, and through our investments there are over 800 people working in our porfolio of companies in downtown Vegas. Later this week we are adding about 30 positions when we open up The Market and we plan to continue to grow our total job count.”
Headline 2: “Tony Hsieh steps down as CEO/leader of Downtown Project”
Response 2: “I am the CEO of Zappos.com but I’ve never referred to myself as the CEO of Downtown Project, and I’ve never considered myself as being in “day-to-day management” of Downtown Project. My role continues to be as an investor, advisor, and equivalent of a board member that sets high-level general direction and strategy but is not involved in day-to-day management of people or projects. My level of involvement at Downtown Project is the same as it was 6 months ago.” FYI, here is my DTP priority list: https://www.evernote.com/l/ABCVukKSorFAMoEEBnPy-i-K5yTLm75ixho
Today we announced a restructuring and refocusing of our corporate support staff at Downtown Project, which impacted about 30 employees. We originally decided to issue a short statement:
Since January 2012, Downtown Project has been working to help revitalize downtown Las Vegas through several hundred investments and initiatives. At this time, we are focused on streamlining our operations as we continue to execute on our plans. Doing so requires that we restructure our operations and focus on follow-on investments. We continue to evaluate all of our initiatives in terms of those that achieve the right balance of both ROI (return on investment) and ROC (return on collisions).
We remain focused on the long-term plan and the evolution of the downtown area. As such, we have restructured our support team. This change has affected approximately 30 positions, the majority of which were based in our corporate office. We continue to directly employ more than 300 people across our various operations in downtown Las Vegas.
We are optimistic and confident about the future of downtown Las Vegas and the continued growth of our entire portfolio of investments.
As news spread, we found that some of the local press jumped to their own incorrect conclusions and included many inaccuracies in their reports, which then the national media picked up which then led to an avalanche effect of a combination of incorrect facts and incorrect conclusions due to a combination of misinformation, lack of due diligence, and lack of proper context or history.
We’ve decided rather than answer questions one person at a time, we’d put together the questions we’ve received so the answers are available to everyone, straight from the source. As additional questions come in, this document will continue to be updated.
First, for proper context, many people often assume that Downtown Project is a single company, when it is in fact a collection of over 300 companies and legal entities. This includes small businesses, tech companies, food and beverage operations, a hotel, a school, real estate, a health clinic, a music festival, as well as many other investments in other categories.
Downtown Project was officially launched in January 2012. Here’s a quick background on the history and our expected timeline (when we launched, we roughly had a 5-year plan):
Year 1 – 2012 – acquire/assemble land and start making tech, small business, and other investments
Year 2 – 2013 – fund/experiment – fire a lot of “bullets” (make a lot of investments) in a lot of different areas, and see which ones hit
Year 3 – 2014 – focus on optimizing core while finding the top winners to pick as “cannonballs” to double down our bets on (in terms of additional follow-on investments, resources, and time) while streamlining our other operations
Year 4 – 2015 – continue to streamline and scale operations
Year 5 – 2016 – get to cash flow positive / sustainability
I based the 5-year plan on my experience and history with Zappos. We actually were not profitable or cash flow positive for at least the first 5 years at Zappos. With more capital and experience, we believed that we could get to cash flow positive status within 5 years for Downtown Project. So far, I would say that Downtown Project has been moving at roughly twice the speed of Zappos in the early days, and just like any startup, has gone through the same range of ups and downs that we went through at Zappos — just twice as quickly, so therefore the highs and lows can oftentimes appear to be twice as intense.
At Zappos (which was founded in 1999), we originally had a 10-year plan to get to cash flow positive and profitability. In 2008, we hit $1 billion in gross merchandise sales and we’ve continued to grow over the years. When Zappos was acquired by Amazon in 2009 (valued at $1.2 billion on the day of closing), my share worked out to be roughly a third of that, which is where the $350 million budget for Downtown Project originally came from.
Now that we are in year 3 of Downtown Project, we are owners and/or investors in over 300 businesses and legal entities which collectively employ more than 800 people. For many of our small businesses and tech companies, we are co-owners with the entrepreneurs that founded those companies. For operations that are 100% owned and operated by Downtown Project-affiliated entities, we directly employ over 300 people.
Here are examples of companies that we are investors in and co-owners of (how we are counting the 800 number):
Here are examples of businesses that are 100% owned and operated by Downtown Project-affiliated entities:
Now, given that background and context, here are the answers to various questions we’ve been asked by the media as well correcting some of the misinformation that is continuing to spread:
“Tony is the founder of Zappos”
No, this is one of those memes that never seems to die. I am the CEO of Zappos, but not the founder. I joined Zappos in 1999 about two months after Zappos was founded, originally as an investor and advisor, and eventually became CEO. Although we were acquired by Amazon in 2009, Amazon has allowed Zappos to remain independent with our own separate culture, brand, and way of doing business. I am still the CEO of Zappos today.
“Is Tony stepping down as the CEO of Downtown Project?”
“Has Tony stepped down as the lead of DTP? What is Tony’s role? Is he an advisor?”
At Downtown Project, I have never referred to myself as CEO or really used any title except maybe investor and advisor. I’ve never even used the term “founder”, partly because there were so many people involved from day 1, and partly because as mentioned earlier I think of Downtown Project as a collection of several hundred businesses and legal entities, not a single company.
From the beginning, I’ve never been involved in the day-to-day management or operations of Downtown Project. I’ve literally been inside the Downtown Project office less than 10 times ever because I prefer being out and about and spending my time walking around and hanging out at the various properties downtown. My involvement is at a very high level as an investor and the equivalent of a Board Member, and I also have veto power over any investment. Here is a document (that I haven’t publicized before) that lists my DTP priorities:
Is Millie Chou the head of DTP?
We don’t have a head; we have a 6-person day-to-day management team that includes Millie (but does not include me).
How many people were laid off?
We have restructured our corporate support team. This change has affected approximately 30 positions, the majority of which were based in our corporate support offices. We continue to directly employ more than 300 people across our various operations in Downtown Las Vegas. And as mentioned above, across all of our investments, there are over 800 people employed.
Does this affect the opening of the Market [new grocery store at 611 Fremont St.] in October?
No, it does not. We are excited about the opening of our new grocery store downtown. The Market is still projected to open on October 9th and we will employ about 30 additional people there.
Does this affect the opening of The Perch [new restaurant inside Downtown Container Park] that just opened?
No, it does not. Perch is now open to the public and we employ about 35 people there.
What prompted this?
Since January 2012, Downtown Project has been working to help revitalize downtown Las Vegas through several hundred investments and initiatives. At this time (in year 3), we are focused on optimizing our core by streamlining our operations as we continue to execute on our original 5-year plan. Doing so requires that we restructure and optimize our core operations and business investments and focus on follow-on investments. We continue to evaluate all of our operations and investments in terms of those that maximize the right balance of both ROI (return on investment) and ROC (return on collisions).
Is the Learning Village going away?
We plan to keep the Learning Village open as a space for events, meetings, and gatherings of all types including the Downtown Lowdown and other neighborhood events and classes.
Is The Window going away?
The Window will continue to exist as a coworking and nonprofit event space at the Learning Village, and that space will continue to be free for 501c3 nonprofits to use for their meetings and gatherings.