Actual Facts and Thoughts about Las Vegas’ DownTown Project’s recent bad press
As this is a topic of much interest, and cause of controversy. As the public opinion of this is quite polarized, I did some digging to see if I could find the facts of the situation. After spending some time reading through the different publications, I want to share a few thoughts:
First, some links to the bad news:
1. The “3 suicides” of DTP: http://recode.net/2014/10/01/the-downtown-project-suicides-can-the-pursuit-of-happiness-kill-you/
2. Tony Hsieh “stepping down” from leadership: http://recode.net/2014/09/30/tony-hsieh-steps-down-from-lead-role-at-las-vegas-downtown-project/
Then the response:
1. DTP’s official statement: http://downtownproject.com/statement/
2. Tony Hsieh’s evernote of DTP Priorities: https://www.evernote.com/shard/s16/sh/95ba4292-a2b1-4032-8104-0673f2fa2f8a/e724cb9bbe62c61a
We will begin our analysis at the media root source — the reporting down by re/code, since everyone else just copied their news (honestly, this picture is a little sickening — everyone just picks up and broadcasts the news without secondary source confirmation)
1. Some counting problems
Recode: Hsieh’s move comes as the project has laid off about 30 percent of its staff, or 30 people,
DTP statement: # of people employed: 300 (Caveat: unclear the division of full time and part time people in this count).
Analysis: Either there is a different census of how people count staff headcount, or weird non-decimal based math going on.
2. Layoffs are normal in a business.
What gets me more then the numbers, is that, for anyone remotely involved in a business enterprise, they should not be surprised that the overall health and focus of the company is the paramount thing of importance to those running the company. Between the happiness of an employee, and the survival of the enterprise, the concerns enterprise should (and mostly does) always win. Restructuring is a natural part of the business cycle. Here’s the plan that DTP put on their statement (Caveat: that I have not seen this plan elsewhere before, so it could have been put together after these events):
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
So we are now in year 2014. Consolidation time! Time to see what to reap from the shotgun seeds. If that means closing a few places that were “bleeding money” and “being run by kids” (comments from re/code’s sources) — then why does that not seem like the smart and prudent thing to do? Why are we so intent on giving DTP flak for this?
Analysis: Experimentation phases are followed by evaluation phases, to see what worked and what didn’t. To allow companies that are not profitable, or properly managed, continue to operate and burn cash, is the irresponsible choice here.
3. Suicides: When I first heard about the suicides, in verbal conversation, I was pretty shocked. Coincident suicides is usually a good way to identify cults. In temporal order, the 3 suicides are (from re/code):
In January 2013, Jody Sherman, the 48-year-old founder of Ecomom, one of the most prominent Vegas tech-funded startups, shot himself while in his car. His company had been going south.
In January 2014, 24-year-old Ovik Banerjee, who was part of the first Venture for America group in Vegas and an integral member of the Downtown Project team, leapt from his Town Terrace apartment in downtown.
In May 2014, Matt Berman, the 50-year-old founder of Bolt Barber was found hung in his room.
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Its worthwhile to take a closer look at the story behind the suicides. For example, Jody‘s story had in depth reporting. The summary is that Ecomom, the e-commerce startup that “sold affordable goods to parents and was loved by its customers” — had a sales model of heavy discounting that resulted in negative margins.
Here’s Phillip Prentiss , an internal comptroller hired 3 months before the company collapsed, on what he saw happen:
“Our discounts are meant to be one time only, but we can’t limit them by customer so every order ends up sold 50% off,” Prentiss explains. “Said another way, for every additional $60 average order shipped our variable cost is $89 and we lose $29. Said another way, the more we sell, the more we lose. Said another way, if we cut all our sales to zero and sat around and played ping pong all day we could continue to pay ourselves handsomely for two more years while at the current sales rate we’ll be out of cash in three months. Said another way, now would be a very good time to pull the fire alarm.”
More reporting from BI : “One week before Sherman’s death, Sherman asked Prentiss to draw up a forecast of what the company’s financial situation would look like with half the staff laid off and inventory filling the empty space instead of sitting in a warehouse. Prentiss remembers the last few meetings with Sherman. It included Sherman making “morose comments” such as “if you want to fire me that’s ok” and “I’m too old to start over.” Prentiss also says Sherman drew up a will one week before he died and gave it to his secretary.”
Full account: https://www.scribd.com/doc/137629166/Ecomom-Post-Mortem
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Something that makes me uneasy is that the re/code article was written 10/1/2014, almost 2 years after the first suicide.
Even the most recent suicide was 5 months after the article was written. The temporal offsets suggests seems to me elements of conscious selection for story-telling then breaking news.
There is some valid critique here of DTP not having a strong support system- but they have started to take the first steps and hired a psychiatrist. As I think we can attest to the founders that we know or first hand experience, starting a company is no joke. The lives of your employees rest on your shoulders. You undergo the most amount of stress, outside of war and natural disasters, and for sustained periods of time.
[update]: A friend pointed out to me that my reasoning of founders managing their own support circles was not complete. In moments of depression, one is not thinking rationally, and already cast in a cycle of self-doubt, having the capacity for consciously asking for help is not a given.
The narrative of people feeling like they need to have a mask of “happiness” while living in DTP might also have some merit. In Silicon Valley, there is a analogous term of “crushing it” — that as the founder of a company, you have to constantly be on, and not be vulnerable. As next steps, creating a community that allowed people to feel comfortable being vulnerable, and being able to trust and confide in each other, would go a long way to creating a stable bedrock for the entrepreneurial ecosystem. The “lessons learned” startup talks in SV or FailCon might be good examples.
I couldn’t easily find stats on the per capita suicide rates in Boston, NYC, Silicon Valley and DTP. If anyone has the numbers on hand, that would be valuable for a cross comparison.
4. What is Tony Hsieh “stepping down” from?
This is a HUGE point, and the biggest evidence of irresponsible reporting in my opinion. Attached again is the screenshot of news headers- this is probably the most publicized, yet also the most vague and inconclusive piece of the entire reporting:
If you read Tony’s Evernote, he gives an itemized breakdown of all the things he is responsible for, and the things that he is not.
While, from the ‘canonical’ re/code article, instead of a full transcript, the one quote we have to go off of is
“[Hsieh] said, ‘I see myself as adviser and investor, but I’m going to appoint someone as our strategy implementation lead,’” one source who attended the meeting said.
Does that sound like stepping off his throne? Objectively, without the surrounding editorial hoopla, this sounds like self-awareness of his own role, and potential short comings of responsibility in the existing roles of the exec team to me. It does not sound like he is giving up, throwing in the towel and being utter defeated, which is what “stepping down” from his role sounds like. Without a clear before-and-after comparison, the media usage of the ambiguous “stepping down” is just targeted for instant repeatability and not real thoughtful investigation.
Now, the fact that Millie Chou, the strategy implementation lead, is also his legal counsel could raise some eyebrows — maybe there is fallout that Tony wants to avoid. However, we can do our own research. Looking again at the evernote doc:
Millie is also lead for Shift (previously project 100 — the tesla 100 car project)
Roceteer-related decisions are owned by Millie
It seems like Millie has been involved in other substantial parts of the DTP, and is not just a parachuted in lawyer.
Conclusion: tl;dr
1. There are some big holes in the media reporting that was then fanned out verbatim on all the media channels. Questions like: compare Tony’s role before and after the report, when did the suicides happen, accurate representations of lay-offs.
2. The people who are in DTP, outside of Tony, are not sheep. If they are entrepreneurs, they are used to creating their own reality — so complaints about lack of community infrastructure, while valid, is not ultimately defensible.
3. Business restructuring is a necessary part of adapting to new information as a company. It is not bad or surprising. DTP was just very high profile.
4. Without new information, DTP seems like to me to be focusing its energies. My current hypothesis is that it will actually do better after this period of time. The people who are turned away because of the surface level media reversal should not be going there anyways.
5. On the topic of suicides — I don’t mean to say that we should have no sympathy for the friends and family of the entrepreneurs who were lost. No, in fact, I think we should have the opposite — we should recognize that being entrepreneur is one of the most difficult things that one could take on. And for those who choose to begin this journey, we hope that they are concious of this as well.
As another successful entrepreneur once said:
‘Starting a company is like eating glass and staring into the abyss of death’.
Sometimes that’s not metaphor.
