How Zappos and Fernet Saved Downtown Vegas

Zappos founder and CEO Tony Hsieh built his company into the faded landscape of Downtown Vegas, revitalizing its streets, restaurants and bars. Wayne Curtis on how Hsieh saved downtown Vegas with Fernet Branca and his dream of elevator bars.

A couple of years ago, while visiting Las Vegas, I stopped into the apartment of the CEO and co-founder of a company that does more than $1 billion in sales annually. In what an earlier generation would call a rumpus room (typically a basement, where teenagers aged 15 to 80 could drink unmolested), I found a Fernet Branca dispenser sitting on a counter—a gift from his employees.

This didn’t come as a complete surprise. After spending a week in and around the offices on a writing assignment, I’d already noticed the whole company seemed to embrace Fernet. There were jokes about it at a company meeting. At another gathering, employees celebrating their one-year anniversary were called on stage to do a shot of Fernet with the CEO. And one night at the Downtown Cocktail Room—the employees’ de facto after-hours clubhouse—I was inadvertently billed for eight shots of Fernet I hadn’t ordered.

The company was Zappos. And the CEO was Tony Hsieh, now 40 years old, who sold his online shoe business to Amazon in 2009 for $1.2 billion.

In late 2012, a magazine flew me out to write about his efforts to revitalize long-moribund downtown Las Vegas. He had already put $350 million of his own money into this effort, and was in the process of moving his 1,200 employees from an office park in the suburbs to what used to be city hall in downtown—approximately a 15-minute drive north from the infamous Strip.

Hsieh and I met over a long breakfast at a restaurant one morning, and we dutifully discussed the thisses and thats we were obligated to discuss. But when I brought up my observation of a Fernet culture, Hsieh visibly brightened.

He informed me that his personal home was the fourth largest account for Fernet purchases in all of Las Vegas, behind two casinos and the Downtown Cocktail Room. He’d discovered the bitter Italian amaro over a decade ago, when living in San Francisco. (For reasons unfathomable, San Francisco has long been the largest market for Fernet in the nation.) He liked that it was a secret handshake between bartenders—a product so bitter that it was essentially an initiation rite in a glass.

“When new people come to town, we take them to the Downtown Cocktail Room and give their first introductory shot,” he said. “We just tell them it’s a tradition.”

Innovations often emerge from casual and unexpected interactions between people, he notes. As such, Hsieh seems to have a deep respect for the sort of serendipity that bar culture breeds. But for him it’s not just the drinks or the music. It’s the engineering of collisions, of ideas coming out of happenstance encounters and unpressured brainstorming.

Hsieh’s idea to move his company downtown and invest in its future had, in fact, been born at the Downtown Cocktail Room several years earlier. He had been talking to owner Michael Cornthwaite about creating his own campus-like headquarters for Zappos in the desert outside the city—following the route taken by Google and Apple and many other fast-growing companies. Cornthwaite asked him, essentially: “Why would you do that when you could move downtown and build your own culture?” It made sense.

At the time, Hsieh was studying connections and collisions, putting to work the theory that increased interactions between his staff might nurture an environment where ideas could ferment and flourish. Cornthwaite’s suggestion fit into what he’d been reading about cities’ productivity and their success in attracting creative young folks. “Cities inspire,” he said. (Hsieh uses the word “inspire” a lot.) He became a fan of Harvard economist Edward Glaeser, author of Triumph of the City, who, at book length, points out that the density of cities yields productivity, creativity and efficiency.

I sat in on one company-wide meeting where an employee asked what the Zappos brass was predicting for the next big thing—after all, they’d recognized the potential of using Facebook and Twitter for marketing before most others.

Hsieh took the mike and paused. “Well, there’s this thing called ‘downtown,’” he began. He wasn’t being facetious. If he could create an environment that would attract the brightest people and allow them to interact, he said, they wouldn’t have to find the next thing. The hive would find it for them.

Innovations, he notes, often emerge from casual and unexpected interactions between people. As such, Hsieh seems to have a deep respect for the sort of serendipity that bar culture breeds. But for him it’s not just the drinks or the music. It’s the engineering of collisions, of ideas coming out of happenstance encounters and unpressured brainstorming.

Likewise, a good bar isn’t about just the drinks either. It’s about people connecting. A well-conceived, well-executed bar can also be sly think tank. Just beneath the house beats and the idle boasting, ideas large and small arise and either flourish or die. Of course, a Fernet or two couldn’t hurt the idea flow.

Those sorts of meaningful connections and idea generations don’t happen on highways or strip malls, and random encounters are difficult to orchestrate online. As downtown’s residential development director Zach Ware put it, they were hoping to create “an ecosystem where people are doing interesting things. Once we see these kinds of collisions, I think we’ll see a lot of innovation.”

The image of dudes tinkering in a garage to create Hewlett-Packard or Apple prototypes is central to the origin myth of the tech industry. But in Las Vegas, Innovation 2.0 seems to be moving to another kind of iconic space—the bar.

Like coffee shops, they’re a “third place”—not home, not work—where people meet, collisions happen and ideas, even whole companies, emerge. Now that cities like Los Angeles, Dallas, Las Vegas and Houston—all metropolises that grew up around automobiles—are rediscovering their old downtowns and working to revitalize them, they’re realizing what an important part of the equation a good bar really is. What attracts people most? Other people. Thus, a healthy downtown, like a good bar, is self-propagating. Density is born from increasing the chance of random collisions.

Over breakfast, Hsieh and I drifted further into the theory. If bars and downtowns are where random collisions happen, so too are elevators. But elevators produce more awkward silences and averted gazes than innovation. So why not combine the two, Hsieh wondered aloud.

“If we ever build a residential building, we want to build it so the elevator is five or ten times the size of a normal elevator,” he said. It would be outfitted for hanging out, with a counter and seating. You could get a coffee in the morning, and a drink in the evening. Elevators would become social incubators and idea factories.  “If you just hang out in the elevator for three hours, you’ll meet everyone in the building,” he said.

Apple founder Steve Jobs was said to project a reality distortion field that caused everyone around him, eventually, to share his vision—enthusiastically—no matter how naïve or impractical. Hsieh’s got some of that. I left thinking about bars in elevators. And I’m thinking they’ll be the next big thing.