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At Zappos, Pushing Shoes and a Vision

Tony Hsieh, chief executive of Zappos, at the trailer park in Las Vegas that he both owns and calls home.Credit...Brad Swonetz for The New York Times

On a sizzling June morning in Las Vegas, 10 Zappos.com employees sat in an air-conditioned conference room decorated with “Star Wars” memorabilia and a mural of Darth Vader. They had gathered for a weekly meeting to discuss new internal software, the sort of routine get-together that keeps corporate America humming.

But like all meetings these days at Zappos, the online merchant best known for its shoes, this one followed a strict format determined by a radical self-management system called Holacracy. The goal of Holacracy is to create a dynamic workplace where everyone has a voice and bureaucracy doesn’t stifle innovation.

At Zappos, this means traditional corporate hierarchy is gone. Managers no longer exist. The company’s 1,500 employees define their own jobs. Anyone can set the agenda for a meeting. To prevent anarchy, processes are strictly enforced. At the June meeting, a trained facilitator, in this case a young bearded man wearing a blue baseball hat, followed the Holacratic method by asking attendees to “get here, get present, get now,” and encouraged everyone in the room to briefly check in.

“I’m a little sleepy,” said a wiry man.

“It’s warm out,” was the next reply. “I’m also sleepy.”

“I’m doing a Zumbathon for three hours this afternoon,” one woman said.

“My hands smell like oranges, so I’m a little distracted by that,” said Danielle Kelly, a former call center worker who is helping bring self-management to Zappos. “Also, I’m in this room for five straight hours of meetings.”

Next up was Tony Hsieh, 41, who has run Zappos for 16 years and is the person who insisted that the company adopt Holacracy. “I feel Danielle is being overdramatic,” he deadpanned. “But I prefer her being overdramatic to passive-aggressive.”

Mr. Hsieh (pronounced Shay) is a minor celebrity in the technology industry. A son of Taiwanese immigrants and a graduate of Harvard, he sold his first company, LinkExchange, to Microsoft for $265 million. He then invested in Zappos, became its chief executive and sold it to Amazon for $1.2 billion in 2009.

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A shopping area made out of shipping containers is part of an effort to enliven downtown Las Vegas.Credit...Brad Swonetz for The New York Times

Since then, Mr. Hsieh has managed to preserve Zappos’s reputation as a fun place to work. The youthful work force is heavily tattooed; the dress code is aggressively casual. Desks are cluttered with giant stuffed animals, and sound-emitting sculptures designed by the Blue Man Group line the walls. “Create fun and a little weirdness” is written in the Zappos corporate charter.

But as Zappos grew, innovation slowed. The staff expanded, more managers joined the ranks, and the freewheeling culture lost momentum. “We had gone from being a fast speedboat to a cruise ship,” one longtime employee said.

The boss felt it too. “A lot of people in the organization, including myself, felt like there were more and more layers of bureaucracy,” Mr. Hsieh said.

Mr. Hsieh knew his company needed a fix. But at Zappos, conventional team-building exercises would not suffice. He needed to get weird. After learning about Holacracy in 2012, he decided it was just the thing for Zappos.

At the same time, Mr. Hsieh embarked on another lofty project: an attempt to revitalize downtown Las Vegas, a dilapidated area miles from the Strip.

He has invested $350 million of his money in real estate, redevelopment, small businesses and venture capital funds. A former casino became a hangout for Zappos employees, stocked with board games instead of slot machines. A vacant lot is now a trailer park crammed with shiny silver Airstreams that are rented out to visiting computer coders. He moved into one trailer a few months ago and keeps a pet alpaca there. He calls the community Llamalopolis. It is the anti-Vegas.

Either one of these undertakings could be a full-time job for an idealistic multimillionaire. But Mr. Hsieh has fully immersed himself in both the transformation of his company and adopted city. “A lot of companies talk about work-life balance,” Mr. Hsieh said. “We’re more about work-life integration. At the end of the day, it’s life.”

These days, Mr. Hsieh has one other job as well: quelling the doubters.

Neither of his paradigm-changing projects has proceeded smoothly. Two years into Holacracy, Zappos is no workplace utopia. Downtown Las Vegas has some new shops and restaurants, but problems like homelessness and unemployment persist.

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A trailer park in Las Vegas. In addition to introducing a self-management system at his company, Mr. Hsieh is spending $350 million to revitalize the city’s downtown.Credit...Brad Swonetz for The New York Times

Mr. Hsieh has already proved he can build and run successful companies. He translated that experience into a second career as a business visionary, the author of the book “Delivering Happiness” and a motivational speaker. But now, while betting his fortune and reputation on his most ambitious visions to date, Mr. Hsieh’s hot hand appears to be at risk of going cold.

In 2012, Mr. Hsieh traveled to Austin, Tex., to give the keynote speech at the Conscious Capitalism C.E.O. Summit, a gathering of progressive executives. There, he heard a presentation that was strange enough to get his attention.

On the stage was Brian Robertson, who invented Holacracy at his start-up, Ternary Software. Mr. Robertson, a computer programmer with no training in human resources, let alone occupational psychology, seems an unlikely candidate to lead a workplace revolution. At Ternary, Mr. Robertson innovated his practices on the fly, testing his approach to self-management . The end result was what he refers to as an “operating system” for organizations.

After peppering Mr. Robertson with questions, Mr. Hsieh was convinced. Zappos would go Holacratic. The transformation began in 2013 in certain departments, but only in recent months has the entire company taken the plunge.

Nothing about Holacracy is easy to understand. In place of a traditional organizational chart are concentric circles of responsibility. Employees get to choose which circles they belong to and what projects they work on. The jargon is relentless. At meetings, “tensions” are resolved. People don’t have one job; they have multiple “roles.” “Lead links” are designated to communicate between circles. Everyone must use the Holacracy software, called Glass Frog.

Such self-management remains the exception in the workplace today, yet its advocates constitute a small but growing movement. Holacracy has other adherents, including the David Allen Company, a consultancy, and Medium, the blogging platform started by the Twitter co-founder Evan Williams, though none of the other users are as large as Zappos.

“I feel like I’m in control without being controlling all the time,” said Ruben Timmerman, who adopted Holacracy at Springest, a 25-person online education company he founded in Amsterdam. “The team is more efficient and more creative because of the sharing, and also more accountable. It has definitely helped us.”

At Zappos, Mr. Hsieh seems to regard Holacracy as a way to revive the close-knit community feeling that made the company so special 10 years ago, when it was just a few hundred people taking on the giants of e-commerce. “Once you have that level of friendship, there’s higher levels of trust,” he said. “Communication is better; you can send emails without fear of being misinterpreted; people do favors for one another.”

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The offices of Zappos are meant to encourage “fun and a little weirdness.”Credit...Brad Swonetz for The New York Times

If only it were so simple. Holacracy has been met with everything from cautious embrace to outright revulsion at Zappos, but little unequivocal enthusiasm.

“There’s no putting rose-colored glasses on it,” said John Bunch, who is leading the Holacracy push throughout Zappos. “We’re just taking baby steps.”

“It is really painful and slow at first,” said Christa Foley, a 10-year Zappos veteran.

Even Josh Pedro, who is in charge of managing Zappos’s public relations, doesn’t sugarcoat the situation. “It was a weird transition,” he confessed.

Ms. Kelly, the former call center worker, applauded Holacracy for giving even the lowest-paid workers a voice. “A person who just takes phone calls can propose something for the entire company,” she said. “It’s empowering everybody to have the same voice.”

But she said that the procedural formality of Holacracy, the ever-expanding number of circles and the endless meetings were a drain on productivity. “It’s taking time away from getting the actual work done,” she said. This was the same day as the software meeting, and as if still in disbelief, she said once again, “I have five hours of meetings today.”

Nonetheless, Zappos is pushing ahead with Holacracy.

Later in the day, Mr. Hsieh was back in the “Star Wars” conference room with a different group of employees. For the animating force behind a billion-dollar company, Mr. Hsieh is disarmingly understated. He wears a uniform of a black Zappos T-shirts and jeans, and speaks to colleagues in a soft monotone. He works for just $36,000 a year, forgoing a big salary or stock options in exchange for the autonomy to run Zappos however he sees fit.

The meeting’s agenda centered on compensation. As Zappos went Holacratic, employees were initially encouraged to keep doing their existing jobs, or roles, and assigned to circles with their colleagues. Salaries would remain the same for the time being, too. But two years in, employees are leaving their original circles and taking on new roles. Priorities are shifting, and no one, not even Mr. Hsieh, is sure how to pay people at a company with no job titles and fluid roles.

At the meeting, Mr. Hsieh wanted someone to investigate a new system that would allow everyone at the company to see how many hours any employee had worked on a particular task, in keeping with the Holacracy vision of radical transparency. No one volunteered.

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The offices of Zappos.Credit...Brad Swonetz for The New York Times

“This is not getting anywhere,” he said. “There’s no easy short- or medium-term answer.”

Finally, Mr. Hsieh asked Mr. Bunch if he would look into it. Mr. Bunch demurred, saying he had too much to do. Mr. Hsieh pushed again, and Mr. Bunch relented. Zappos may not have a hierarchy, but it was clear who was in charge.

In 2013, Mr. Hsieh moved Zappos from a comfortable campus in the suburbs to the former Las Vegas city hall, in the center of the downtown mix of dive bars, weekly motels and vacant lots. This decision did not deliver happiness to all his employees.

But Mr. Hsieh had a vision. In the same way that Holacracy might get Zappos employees collaborating again, injecting bodies and businesses might revitalize a blighted neighborhood. Mr. Hsieh also had $350 million of his own money to spend on the idea.

While moving the company, Mr. Hsieh also founded the Downtown Project, allocating $200 million to buy about 60 acres of real estate. The remaining money was split into thirds, $50 million each for small-business investments, venture capital stakes in technology companies and support for education and the arts.

By 2013, new life was coursing through downtown. A few upscale restaurants sprang up. Then came a complex constructed out of shipping containers that is home to a salon, a bar, a toy store and a candy shop. Now there is an independent bookstore, a gourmet doughnut shop, a vegan restaurant, a sushi bar and a yoga studio. Foot traffic is up, and crime is down. Last year, Mr. Hsieh gave up his sprawling condominium on the 23rd floor of a luxury apartment building and moved into the trailer park.

Mark Guadagnoli, a kinesiology professor of the University of Nevada, Las Vegas, who also specializes in optimizing performance and communication in the workplace, has lived in the city for 20 years. “When I moved here, I would go downtown and be uncomfortable. Then it got worse and worse,” he said. “Now it’s a really fun place to go. It’s a destination. Anyone who says the Downtown Project has not made a significant and lasting impact on Las Vegas is crazy.”

Still, change in downtown Las Vegas is slow going. Homelessness remains endemic. Quality housing is in short supply. As a result, many Zappos employees are still living in the suburbs and commuting to work. Building street life in a city where the temperature routinely hits 100 degrees has its challenges. Shops and restaurants catering to a new creative class have opened, but few are brimming with business. Many are hemorrhaging money. Some, including a co-working space and a flower shop, have closed.

As for the start-ups funded by Mr. Hsieh — who personally lured many entrepreneurs to Las Vegas with pitches about starting a Silicon Valley in the desert — a few seem to be doing well, but several have shut down. And in a devastating blow to the community, three entrepreneurs funded by the Downtown Project committed suicide from January 2013 to May 2014.

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Tony Hsieh, center, has been the company’s chief executive for 16 years.Credit...Brad Swonetz for The New York Times

Last September, the Downtown Project fired 30 of 100 support staff employees, and Mr. Hsieh reportedly stepped away from his leadership role. That prompted David Gould, a liberal arts professor at the University of Iowa whom Mr. Hsieh had persuaded to move to Las Vegas for the Downtown Project, to write an open letter accusing his patron of incompetence and mismanagement. “We have not experienced a string of tough breaks or bad luck,” Mr. Gould wrote, just before he quit and moved back to Iowa. “Rather, this is a collage of decadence, greed and missing leadership.”

In late May, Mr. Hsieh took the stage at a Zappos all-hands meeting at a theater in downtown Las Vegas. These are usually jovial affairs featuring circus performers and the like, but this gathering was more reflective. By some measures, Zappos was thriving, Mr. Hsieh said, sharing business updates from the quarter. But he also acknowledged that the transition to Holacracy had not been going smoothly.

Six weeks earlier, Mr. Hsieh sent a 4,700-word email to the entire company with an ultimatum: Embrace Holacracy or accept a buyout. The financial terms were generous, and 210 employees, or some 14 percent of the work force, took the offer.

After many employees left, Mr. Hsieh acknowledged that some of the remaining staff members wanted him to resign from the company he built.

The brewing employee discontent reflects the paradox at the heart of any company’s move to Holacracy. For all of the talk of self-management and consensus building, the decision to go down this path was Mr. Hsieh’s alone.

Mr. Robertson, the Holacracy creator, frames this choice as the pinnacle of great management. “By heroically releasing authority into the system’s embrace, the leader paves the way for an authentic distribution of power through every level of the organization,” he writes in his book, “Holacracy.”

But at Zappos, it seems that many wish Mr. Hsieh had never made the choice. Some people want a boss after all.

Pressed for instances of Holacracy’s achievements at Zappos, employees could offer only pedestrian examples. Mr. Hsieh had shut the bridge connecting the office to a parking garage, hoping staff would experience more serendipitous encounters if they all used the same entrance.

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John Bunch is leading the adoption of Holacracy at Zappos. The company acknowledges that it has been a bumpy transition.Credit...Brad Swonetz for The New York Times

But that meant employees had to venture onto the seedy streets to get to and from their cars, leaving some, especially those working late shifts, feeling unsafe. So one employee proposed that the bridge be reopened, a motion that was accepted by the circle that controlled campus operations, essentially overriding the C.E.O.

Or as a Zappos spokesman described the process, using Holacratic terms: “An employee (unknown) brought it to the road block role with safety being the tension. The road block role then took it to the grease and disrupt circle where it went through the process and was eventually passed with no objections.”

In another case, a shuttle bus driver was able to add an agenda item to a meeting, requesting that employees not leave trash on the bus. So far, however, no one could point to any innovations that have improved customer service or increased sales. Critical issues like how to hire, fire and pay people in a company with no job titles have emerged as sticking points.

Mr. Hsieh and his acolytes remain adamant that self-management will unlock the potential of Zappos employees, allowing them to be productive and creative. “We believe that, over time, the ability for people to be empowered and entrepreneurial will make people happy,” Mr. Bunch said.

A tinge of defensiveness in Mr. Bunch’s answers was understandable after a wave of negative press coverage, with headlines like “Holacracy or Hella Crazy?” “Banishing the Bosses Brings Confusion,” and “A Holacracy of Dunces.”

And even Mr. Robertson concedes that his operating system for the organization is not easy, at least not at first. “All the negatives? Those are all true,” he said. “It can be a long moment of pain and agony.”

But he emphasized that learning Holacracy was like learning a sport — it would take years to get good at it.

Mr. Hsieh expressed impatience with questions about Holacracy’s rocky start at Zappos, repeating Mr. Robertson’s mantra that the transition would take time. “Imagine 10 or 20 aboriginals and you gave them a football rule book,” he said. “It’s going to take them a while to understand the game.”

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Danielle Kelly said the self-management system could be both empowering and a drain on productivity.Credit...Brad Swonetz for The New York Times

After a long day of Holacracy meetings, Mr. Hsieh was relaxing in a temporary aboveground swimming pool at Llamalopolis, not far from a chicken coop. The alpaca, named Marley, lingered nearby. (Mr. Hsieh has an affinity for llamas but says alpacas are friendlier.) With the sun still hanging above the palm trees, the temperature hadn’t budged, but the heat and daylight didn’t dissuade Mr. Hsieh from getting the party started. Out came a bottle of Fernet-Branca, a bitter herbal liqueur, and everyone present took shots out of tiny plastic cups. As he soaked, the Holacracy sales pitch continued.

“The main thing is that everyone’s voice is heard,” he said.

The idea that all voices in an organization are equally valuable is antithetical to the way most companies are run. Inexperienced employees, the conventional wisdom goes, should learn from managers who know what they’re doing.

By contrast, Mr. Hsieh and other proponents of Holacracy argue that by marginalizing large swaths of the organization, important issues go unresolved and potential goes untapped.

Similarly, he hopes that with a little economic stimulus, the people of Las Vegas can create vibrant civic life.

But Mr. Hsieh can’t succeed alone, even with all his money. For Holacracy to work, he needs buy-in from the 1,500 Zappos employees who chose to stay. For downtown Las Vegas to thrive, he needs buy-in from the city, from real estate developers, from the neighbors.

There are glimmers of hope. One Zappos team member said that after months of torturous meetings, her circle, which promotes Zappos culture, was running more efficiently. A couple of small businesses were opening up downtown without funding from Mr. Hsieh.

Just up the street from Llamalopolis was an abandoned motel. Mr. Hsieh had bought the property and was hoping that Virgin Hotels or the Ace Hotel group would take it over. He bought another parcel a few blocks farther down the road, where he hoped to erect housing. Ideally, Zappos employees would move in, then spend their salaries — whenever they figure out how to pay themselves — at businesses backed by the Downtown Project.

Mr. Hsieh is a high-stakes gambler, and shooting for the moon is what he does, said Mr. Guadagnoli, the University of Nevada, Las Vegas, professor, who has worked with Mr. Hsieh over the years. “These are pretty crazy experiments, but it’s Tony,” he said. “Sometimes he says things that don’t make any sense, but a few years later, they make sense. Maybe this is one of those.”

Maybe.

A version of this article appears in print on  , Section BU, Page 1 of the New York edition with the headline: Pushing Shoes and a Vision . Order Reprints | Today’s Paper | Subscribe

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