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Zappos CEO Tony Hsieh's 'Great American Techtopia' Is in Trouble

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In 2011, Tony Hsieh, the charismatic CEO of Zappos whose status in some tech circles is approaching that of a cult leader, invested $350 million to transform 60 run-down acres in Downtown Las Vegas, located four miles away from the better-known Strip, into a shining tech utopia.

His efforts have been well documented; we've checked-in with Hsieh, as has everyone else, from The New York Times to Wired, at various points along the way as he built his dream city – known as the Downtown Project – and filled it with a community of entrepreneurs.

But now comes news of trouble in tech paradise. It looks as if Hsieh's sweeping, deeply bizarre and intensely fascinating vision is in danger of imploding. For one, Hsieh is stepping down as leader of the project, passing the torch on to his lawyer, Millie Chou, Recode reports. In addition, the project recently laid off 30 percent of its staff, or about 30 people (this does not include entrepreneurs who live in the community and have received funding from Hsieh), calling into question the health of the enterprise's future.

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All of this comes amidst accusations of chronic mismanagement; one source "close to the project" told Recode that Hsieh's entrepreneurial utopia is, in reality, "bleeding money," while another was critical of his key hiring decisions, telling the outlet: "Tony is not always altogether the most wise judge of character. There's a lot of family. There's a lot of drinking buddies."

But what, exactly, was Hsieh's intent for the Downtown Project in the first place? Directly before news of the firings broke, Recode ran an in-depth piece that explored both Hsieh's vision for his startup community – a place, he said, that was partially inspired by Second Life -- and the weird reality he has managed to spawn in the Nevada desert.

Because it is deeply strange, at least according to Recode reporter Nellie Bowles. Bowles spent a few weeks in the seven-block 'tech utopia,' which houses approximately 300 entrepreneurs, multiple bars but no grocery store, and a preschool where "entrepreneurship training begins at 6 weeks." Here's more from Recode, on the preschool:

"It's mostly about teaching them that it's okay to fail," said Connie Yeh, a former derivatives trader at Citibank, and now the founder of the 9th Bridge School in downtown Las Vegas. Yeh said that one of her preschoolers already has a website.

In many ways, Bowles's account of the Downtown Project reads like some warped parody of the stereotypical Silicon Valley startup. Charismatic, deeply eccentric leader? Check. Party-heavy, pizza and alcohol fueled atmosphere? Check. Lots of sweeping mission statements that elevate inspiration over tangible details? Double check (Here's Hsieh on his model for the Downtown Project: "My vision is more entrepreneur-focused. It's more a philosophy, it's not a plan.")

The article also reveals a darker side, one that hints at pressures that also exist in Silicon Valley, whose laid back vibe often disguises its crushing competitiveness: "In the last year, three of Hsieh's most-high-profile entrepreneurs, including a very important Downtown Project employee, committed suicide as their companies went south," Bowles writes.

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More than anything, what the Recode piece illustrates is Hsieh's magnetic pull; again and again, those close to the Zappos CEO depict him as, essentially, a cult leader. (There are multiple references to Kool-Aid, and one to the Pied Piper).

One of his "followers" – up until this week, anyway – was David Gould, who left his job as a professor three years ago to become the Downtown Project's director of imagination. In an open letter to Hsieh published on Monday, he announced his resignation and spoke of the "decadence, greed and missing leadership" that led to the project's demise.

"Tomorrow, many of the people who merged their voices with yours will find themselves without a job," he wrote. "While their names have yet to be revealed, the disillusioned expressions I conjure up are keeping me awake at night."

Without Hsieh at its helm, it doesn't seem feasible that this isolated community, full of entrepreneurs creating "everything from new restaurants to tech startups to social science experiments" and preschoolers with websites, will continue on. Because in the end, what's a cult without its leader?

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