At Zappos, Pushing Shoes and a VisionPhoto

Tony Hsieh, chief executive of Zappos, at the trailer park in Las Vegas that he bothowns 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 anair-conditioned conference room decorated with “Star Wars” memorabilia anda mural of Darth Vader. They had gathered for a weekly meeting to discuss newinternal software, the sort of routine get-together that keeps corporate Americahumming.

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

At Zappos, this means traditional corporate hierarchy is gone. Managers nolonger exist. The company’s 1,500 employees define their own jobs. Anyone canset the agenda for a meeting. To prevent anarchy, processes are strictlyenforced. At the June meeting, a trained facilitator, in this case a young beardedman wearing a blue baseball hat, followed the Holacratic method by askingattendees to “get here, get present, get now,” and encouraged everyone in theroom to briefly check in.

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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

“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 DanielleKelly, a former call center worker who is helping bring self-management toZappos. “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 personwho insisted that the company adopt Holacracy. “I feel Danielle is beingoverdramatic,” he deadpanned. “But I prefer her being overdramatic to passive-aggressive.”

Mr. Hsieh (pronounced Shay) is a minor celebrity in the technology industry. Ason of Taiwanese immigrants and a graduate of Harvard, he sold his firstcompany, LinkExchange, to Microsoft for $265 million. He then invested inZappos, became its chief executive and sold it to Amazon for $1.2 billion in2009.

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

But as Zappos grew, innovation slowed. The staff expanded, more managersjoined the ranks, and the freewheeling culture lost momentum. “We had gonefrom 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, feltlike there were more and more layers of bureaucracy,” Mr. Hsieh said.

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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 YorkTimes

Mr. Hsieh knew his company needed a fix. But at Zappos, conventional team-building exercises would not suffice. He needed to get weird. After learningabout 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 torevitalize downtown Las Vegas, a dilapidated area miles from the Strip.

He has invested $350 million of his money in real estate, redevelopment, smallbusinesses and venture capital funds. A former casino became a hangout forZappos employees, stocked with board games instead of slot machines. Avacant lot is now a trailer park crammed with shiny silver Airstreams that arerented out to visiting computer coders. He moved into one trailer a few monthsago 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 idealisticmultimillionaire. But Mr. Hsieh has fully immersed himself in both thetransformation of his company and adopted city. “A lot of companies talk aboutwork-life balance,” Mr. Hsieh said. “We’re more about work-life integration. Atthe 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 yearsinto Holacracy, Zappos is no workplace utopia. Downtown Las Vegas has somenew shops and restaurants, but problems like homelessness and unemploymentpersist.

Mr. Hsieh has already proved he can build and run successful companies. Hetranslated that experience into a second career as a business visionary, theauthor of the book “Delivering Happiness” and a motivational speaker. Butnow, while betting his fortune and reputation on his most ambitious visions todate, 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 theConscious 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 inhuman resources, let alone occupational psychology, seems an unlikelycandidate to lead a workplace revolution. At Ternary, Mr. Robertson innovatedhis practices on the fly, testing his approach to self-management . The endresult was what he refers to as an “operating system” for organizations.

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

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

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

Such self-management remains the exception in the workplace today, yet itsadvocates constitute a small but growing movement. Holacracy has otheradherents, including the David Allen Company, a consultancy, and Medium,the blogging platform started by the Twitter co-founder Evan Williams, thoughnone of the other users are as large as Zappos.

“I feel like I’m in control without being controlling all the time,” said RubenTimmerman, who adopted Holacracy at Springest, a 25-person onlineeducation company he founded in Amsterdam. “The team is more efficient andmore creative because of the sharing, and also more accountable. It hasdefinitely 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 itwas just a few hundred people taking on the giants of e-commerce. “Once youhave that level of friendship, there’s higher levels of trust,” he said.“Communication is better; you can send emails without fear of beingmisinterpreted; people do favors for one another.”

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

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

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

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.

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

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

But she said that the procedural formality of Holacracy, the ever-expandingnumber of circles and the endless meetings were a drain on productivity. “It’staking time away from getting the actual work done,” she said. This was thesame day as the software meeting, and as if still in disbelief, she said onceagain, “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-dollarcompany, Mr. Hsieh is disarmingly understated. He wears a uniform of a blackZappos T-shirts and jeans, and speaks to colleagues in a soft monotone. Heworks for just $36,000 a year, forgoing a big salary or stock options inexchange 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 samefor the time being, too. But two years in, employees are leaving their originalcircles 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 thatwould allow everyone at the company to see how many hours any employee hadworked on a particular task, in keeping with the Holacracy vision of radicaltransparency. No one volunteered.

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

Finally, Mr. Hsieh asked Mr. Bunch if he would look into it. Mr. Bunchdemurred, 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 incharge.

In 2013, Mr. Hsieh moved Zappos from a comfortable campus in the suburbs tothe 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 hisemployees.

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

But Mr. Hsieh had a vision. In the same way that Holacracy might get Zapposemployees collaborating again, injecting bodies and businesses might revitalizea blighted neighborhood. Mr. Hsieh also had $350 million of his own money tospend 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 remainingmoney was split into thirds, $50 million each for small-business investments,venture capital stakes in technology companies and support for education andthe arts.

By 2013, new life was coursing through downtown. A few upscale restaurantssprang up. Then came a complex constructed out of shipping containers that ishome to a salon, a bar, a toy store and a candy shop. Now there is anindependent 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 luxuryapartment building and moved into the trailer park.

Mark Guadagnoli, a kinesiology professor of the University of Nevada, LasVegas, who also specializes in optimizing performance and communication inthe workplace, has lived in the city for 20 years. “When I moved here, I wouldgo 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 theDowntown Project has not made a significant and lasting impact on Las Vegasis crazy.”

Still, change in downtown Las Vegas is slow going. Homelessness remainsendemic. Quality housing is in short supply. As a result, many Zapposemployees are still living in the suburbs and commuting to work. Buildingstreet life in a city where the temperature routinely hits 100 degrees has itschallenges. 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 manyentrepreneurs to Las Vegas with pitches about starting a Silicon Valley in thedesert — a few seem to be doing well, but several have shut down. And in adevastating blow to the community, three entrepreneurs funded by theDowntown Project committed suicide from January 2013 to May 2014.

Last September, the Downtown Project fired 30 of 100 support staff employees,and Mr. Hsieh reportedly stepped away from his leadership role. Thatprompted David Gould, a liberal arts professor at the University of Iowa whomMr. Hsieh had persuaded to move to Las Vegas for the Downtown Project, towrite an open letter accusing his patron of incompetence and mismanagement.

“We have not experienced a string of tough breaks or bad luck,” Mr. Gouldwrote, just before he quit and moved back to Iowa. “Rather, this is a collage ofdecadence, greed and missing leadership.”

In late May, Mr. Hsieh took the stage at a Zappos all-hands meeting at a theaterin downtown Las Vegas. These are usually jovial affairs featuring circusperformers and the like, but this gathering was more reflective. By somemeasures, Zappos was thriving, Mr. Hsieh said, sharing business updates fromthe quarter. But he also acknowledged that the transition to Holacracy had notbeen going smoothly.

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

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

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

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

Mr. Robertson, the Holacracy creator, frames this choice as the pinnacle ofgreat management. “By heroically releasing authority into the system’sembrace, 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 couldoffer only pedestrian examples. Mr. Hsieh had shut the bridge connecting theoffice to a parking garage, hoping staff would experience more serendipitousencounters if they all used the same entrance.

But that meant employees had to venture onto the seedy streets to get to andfrom their cars, leaving some, especially those working late shifts, feelingunsafe. So one employee proposed that the bridge be reopened, a motion thatwas accepted by the circle that controlled campus operations, essentiallyoverriding the C.E.O.

Or as a Zappos spokesman described the process, using Holacratic terms: “Anemployee (unknown) brought it to the road block role with safety being thetension. The road block role then took it to the grease and disrupt circle whereit 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 ameeting, requesting that employees not leave trash on the bus. So far, however,no one could point to any innovations that have improved customer service orincreased sales. Critical issues like how to hire, fire and pay people in acompany with no job titles have emerged as sticking points.

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

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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

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

And even Mr. Robertson concedes that his operating system for theorganization is not easy, at least not at first. “All the negatives? Those are alltrue,” 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 atZappos, 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.”

After a long day of Holacracy meetings, Mr. Hsieh was relaxing in a temporaryaboveground swimming pool at Llamalopolis, not far from a chicken coop. Thealpaca, named Marley, lingered nearby. (Mr. Hsieh has an affinity for llamasbut 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, abitter 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 tothe way most companies are run. Inexperienced employees, the conventionalwisdom goes, should learn from managers who know what they’re doing.

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

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

But Mr. Hsieh can’t succeed alone, even with all his money. For Holacracy towork, he needs buy-in from the 1,500 Zappos employees who chose to stay. Fordowntown 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 monthsof torturous meetings, her circle, which promotes Zappos culture, was runningmore efficiently. A couple of small businesses were opening up downtownwithout funding from Mr. Hsieh.

Just up the street from Llamalopolis was an abandoned motel. Mr. Hsieh hadbought the property and was hoping that Virgin Hotels or the Ace Hotel groupwould take it over. He bought another parcel a few blocks farther down theroad, where he hoped to erect housing. Ideally, Zappos employees would movein, 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 hasworked with Mr. Hsieh over the years. “These are pretty crazy experiments, butit’s Tony,” he said. “Sometimes he says things that don’t make any sense, but afew years later, they make sense. Maybe this is one of those.”

Maybe.