The WOW Machine Stops (Pt 2)

man walking past on the sidewalk. The passer by stops to chat. They notice he's not wearing any shoes, his clothes are tattered, and his eyes are glass Perhaps they shouldn't have attracted his attention. What do you do, the shoeless man asks them. The friends exchange a glance. One guardedly volunteers that he works in recruitment. Oh, says the shoeless man. I'm recruiting people to come and live here in Park City. I'm building a community. I can offer

you a fee for everyone you bring in. Let me tell you my number. The friend politely takes down the number, then forgets all about it. The man seemed high and homeless. It obviously wasn't serious. The shoeless man might indeed have been high, but he wasn't homeless, and he was deadly serious. He was billionaire Tony Shay. This is the second of two cautionary tales about Tony Shay, who made his fortune with the online shoe retailer Zappos. If you haven't heard

part one, you might want to do that. Now we heard how Tony wrote a best selling book about employee happiness, then imposed a management fad that many employees hated. Tony loved ideas, the kind that sound wise in a Ted talk, but work in practice only if you really think the details through. In this episode, we focus on one wise idea that Tony really didn't think through community. In his book, Tony links happiness to connectedness with others. He tried to

build a community in Las Vegas. As we'll hear, that didn't go well. Now in Park City, he was trying again. He wanted to surround himself with people who'd make him feel connected and happy. Instead, his misjudgments led to his death. I'm Tim Harford and you're listening to cautionary Tales. Philip Prentice was delighted to be offered the job. The salary was over one hundred thousand dollars a year, pretty good for a newly qualified accountant in Las Vegas in October

twenty twelve. In today's terms, that I'll be near a one hundred and fifty thousand. He'd gets to options too. Prinice's new employer was a startup called Ecomom. As the name suggests, it sold a variety of eco friendly parent related products diapers, baby food, clothes, toys. It was doing well, or so it seemed. Its revenues were growing quickly. Just a few months earlier, it had raised millions in financing.

One of those investments came with strings attached. The investor wanted Ecomom to move from Los Angeles to Las Vegas. There's something to do with building a community. Ecomom's founder, a forty seven year old man called Jody Sherman, agreed to relocate and asked his staff to come with him. It was tough for Sherman. His wife had commitments in Los Angeles that she couldn't easily break, so Sherman had to leave her behind for now, along with his network

of friends. Philip Prentiss describes what kind of person. Jody Sherman was a great guy, outgoing, personable, enthusiastic, funny. I never heard him say a bad word to or about anyone. Prentiss loved coming into work. Morale was high, the staff were treated well. Prentiss was Ecomom's very first accountant. Up to now, Sherman had outsourced its payroll and invoices to an external provider. But the company had grown big enough to need someone full time in house, and something wasn't right.

Sherman didn't know what wasn't right exactly, but somehow or other, the figure in Ecomom's bank account kept going down. Prentiss recalls that Sherman used to have heated discussions with his VP of marketing. What are you doing? Sherman would ask, where's the money? Sales are great? The VP of marketing would reply, We're on track to hit all our targets, but where's the money. Sherman grew increasingly exasperated. I'm not

seeing the money in our bank. Jody Sherman was a great guy, said Prentiss, but he was not a numbers guy. Whenever Prentice tried to show him a sheet full of figures, he'd waved away, saying no one can understand this. He also approved everyone's spending requests with barely a glance Prentice noticed. Could this be the root of the problem. Prentice investigated. Nope, All the employees were honest. There were no inflated expenses claims,

no dodgy looking in voices. And yet when Prentice pulled together the figures for October, they showed Ecomom had lost over half a million dollars. November would be better, right, The Black Friday sales were clearly going well. In the ecomom office, someone rang a bell after every one hundred order. The bell rang more and more frequently, and yet when Prentice did the sums at the end of the month, he found that in November Ecomom had lost nearly a

million dollars. Higher sales, bigger losses. Prentice saw the problem. Ecomom had issued so many discounts and voucher codes that every sale was losing the money. An average order brought in sixty dollars but cost nearly ninety dollars to fulfill. It's not unusual for a startup to sell with a negative margin at first, but it's generally a conscious decision as part of a wider strategy for becoming profitable somewhere down the line. As far as Philip Prentiss could see,

Ecomom had no such strategy. Jody Sherman called a high powered management meeting, and Prentice prepared an analysis. If Ecomom were to stop selling anything he worked out, and all the employees simply sat around and played ping pong all day, they'd have enough in the bank to pay themselves for two more years. But if sales kept growing, they'd run out of cash in just three months. The management meeting, recalls Prentice, was surreal. Nobody asked him to present any

of the figures he had prepared. The only figure anyone presented was the year on year growth in sales, which looked amazing, as the VP of Marketing had said they were hitting all their targets. Still, Jody Sherman made it clear they had to do something better. But what the meeting discussed market strategies for selling the eco mom lifestyle, Prentice recalls it discussed expanding our email and customer base.

It discussed expanding our marketing team. I can't remember exactly what else was discussed, but I can tell you for sure. The word margin and the word profit were never mentioned. In December, sales continued to go well, the number in the bank account kept on getting lower, and Jody Sherman became even more frantic. Prentice again tried to present his figures, and Sherman again waved them away. Phil. He said, just tell me how much we need to sell to break even.

He did not understand margin, recalls Prentice. He did not understand that increased sales resulted in increased losses. Sherman tried desperately to raise more money from investors. He asked Prentice how much longer the money in their bank account would last if he sacked half the staff, some of whom he was all too aware, had uprooted their own lives in Los Angeles to follow him to Vegas. I feel terrible about this, he said, and those weren't empty words.

Sherman was clearly feeling the pressure. He started saying things like I'm too old to start over. He handed a document to his secretary. That's my will, he said. He sent an email to other company founders in Las Vegas to propose a get together. Oftentimes, he wrote, I find myself with no one to talk to about the challenges I might be facing, the frustrations the stress. I thought, Hey, I know a bunch of founders who probably find themselves

in similar situations. I should hang with them. A meeting was arranged, but Jody didn't make it. Police found his body in his car in the mountains outside Las Vegas. Jody had taken his own life. The investor who had required Jody Sherman to move from Los Angeles to Las Vegas was, of course, Tony Say. After Amazon bought Zappos and kept him on as CEO, Tony committed three hundred and fifty million dollars of his own money to the

Downtown Project or DTP. He moved Zappos from its office in the suburbs to the old City Hall building in the heart of downtown. The area was ced and run down, but Tony was going to change that by buying up real estate and investing in businesses. He wouldn't measure the project's success through ROI, he explained, return on investment. He'd measure it through ROC return on community. He'd bring together

entrepreneurs like Jody Sherman, and they'd former community. He wanted to turn downtown Las Vegas into the most community focused large city in the world. And yet somehow, what Jody Sherman had need he did so desperately had been a sense of community, but it hadn't been there for him. Cautionary tales will be back after the break. When Zappo's employee Rob Ponte returned home from work, he was surprised

to find police tape across the door of his apartment. Inside, he saw that someone had been rummaging in his draws and poking around in his computer. He called the police department and asked what's going on. The police was surprised to hear from him. They said, we thought you were dead. They'd been in Ponte's apartment, they explained, looking for a suicide note and for details of his next of kin. Ponte later discovered they'd phoned his mum. Thankfully she didn't answer.

Ponte and the police pieced together what had happened. Someone who looked like Rob Ponte had killed himself. The dead man turned out to be a young employee of Tony Shay's downtown project. Less than a year had passed since Jody Sherman's suicide. A few months after that, another entrepreneur who had taken funding from the Downtown project took his own life. The Downtown project wasn't that big, just a few hundred people, so three suicides seemed like a pattern.

Were there underlying factors? What might they be? The journalist Nelly Bowles asked around. At an event. She sat down next to Tony and asked for his thoughts. Suicides happen anywhere. Tony said, look at the stats. Then he got up and moved to another chair. But others she spoke to did have some theories to share. In the last episode of Cautionary Tales, we met the idea of the profit

seeking paradox. The economist John Kay points out that the most profitable companies tend not to be those that focus directly on profits. But this is only one example, says Kay, of a wider principle he calls obliquity. Many other goals in life are best pursued not directly but obliquely. Another example happiness. The more you try to be happy, the more elusive happiness seems to be. This isn't a new idea.

One hundred and fifty years ago, the philosopher John Stuart Mill observed that the happiest people he knew have their minds fixed on some other object other than their own happiness, on the happiness of others, on the improvement of mankind, even on some art or pursuit followed not as a means, but as itself an ideal end aiming thus at something else, said Mill, they find happiness, by the way, But is this observation true? In twenty eleven, researchers devised an experiment

to investigate. They got some subjects to read an article about how important it is to be happy, because happy people are more healthy and successful. Then they showed a video that should evoke feelings of happiness about a figure skater winning a medal and celebrating with her coach. Then they asked how happy do you feel? The subjects who had read the article on happiness were less happy than those in a control group who had watched the video

but hadn't read the article first. It seemed that being prompted to think about the importance of happiness made people's second guests themselves that video should have made me happy. Why am I not happier? That's disappointing People who weren't thinking about the importance of happiness simply watched the video and felt happy under certain circumstances. The researchers conclude valuing

happiness maybe self defeating. When he launched the Downtown project, Tony Shay had just published his best selling book on Happiness. He'd also be reading about what makes cities productive, including chance encounters between productive people, or what Tony called collisions. The bigger the city, the more of these serendipitous encounters you might expect. Tony decided that serendipity, like happiness, was a goal you could pursue directly. He invested in spaces

where collisions could happen, such as bars. He wanted to institutionalize return on luck. He came up with a metric maximizing collisionable hours per acre per year. All this piled expectations on the entrepreneurs who had moved to Las Vegas to get an investment from Tony. There's a pressure to socialize and go out, one told the journalist Nelly Bowls. There's a pressure to party. Everyone at the party's would be either another entrepreneur or an investor. People felt the

need to put on a mask. A counselor told Nelly Bowls and say everything's great. They knew they were supposed to be happy. If they weren't, they felt disappointed, even ashamed. They had no one to confide in when they had a bad day. The focus on happiness, says the counselor was not psychologically healthy. The irony is that the entrepreneurs might have had people to confide in before they moved to Vegas. Jody Sherman, for example, had left behind his

wife and friends in Los Angeles. In Vegas, he found himself with no one to talk to. Tony had seemed to think that you could simply bring entrepreneurs together in collisionable spaces and their former community. But community can't be forced, like happiness. You find it if you're lucky. While aiming at something else, Tony had launched the Downtown Project with big ambitions to turn Las Vegas into the most community focused large city in the world. As the project floundered,

Tony changed his mind. He was going to stop using the word community. He'd learned that it gave people the wrong idea. People expect us to address and solve every single problem that exists in a city, he said, for example, mental health. We're not the government. Instead Tony turned his attention to a different community, his own personal community that

he curated around himself. In his personal quest for happiness, Tony moved into an airstream trailer in an empty lot in downtown Las Vegas and moved some of his closest friends into other trailers. Because Tony believed in work life integration, those close friends tended also to be either his employees or business partners. Having them live around him meant he could call them in for work meetings at any hour

of the day. Airstream park had fire pits and a stage for musical performances, and shipping containers that housed laundry facilities and crates of Fernet branca, Tony's favorite drink. It had chickens, dogs, cats, and a pet alpaca called Marley. A journalist described his experience of a night at airstream park. A bearded man was doing a handstand, A high school girl earl sang and played guitar. I saw Tony pick up a tambourine. I gathered that this idyllic scene was

typical of life in Tony Shay's magical kingdom. Not every employee friend of Tony wanted to live in his trailer park id. Although Tyler Williams, who we met in the last episode, had grown close to Tony through his work as the fungineer at Zappo's, in charge of projects like the instant dance floor in the Zappo's lobby. Push a button labeled never push this button, and the lobby would pulster booming music, disco lights, and smoke from a smoke machine.

Tyler was Tony's drinking buddy, but Tyler's wife said, no, We're not living in a trailer Tony wondered if Tyler's wife might like to work for him like other residents of the trailer park. No. Said. When Tony started to experiment with ketimin and got Tyler to take it with him, Tyler's wife told him to stop. I don't like who you are when you take that drug. She told Tyler, You're not the same Tyler that I know. Ketimin seemed

to be changing Tony too. Tyler had access to Tony's Apple watchdata, and he could see that Tony hardly ever slept. Tony threw a party for a friend called Ryan, which involved Ryan being blindfolded bundled into a car handed a mysterious ice cold package and driven around Las Vegas before arriving at the party venue. The mysterious package turned out to be a frozen salmon. This all apparently made perfect sense to Tony, but not to anyone else. As Ryan put it to a fellow, guessed what the fuck is

going on? An old flame visited Tony was shocked by what she found and begged him to get some sleep. When he insisted he was fine, she began to cry. The next morning, Tony showed her a wall of post it notes in his trailer. Each note had the name of a friend and a number from plus to minus three. You were a plus two till last night, Tony told her. Now you were a negative one point five. You were judging me, and I don't like to be judged. Tony needed help, but it was hard to tell him that.

While remaining positive on his post it wall, Ryan of the Frozen Salmon had a try your CEO of Zappo's, he reminded Tony, and Zappos is owned by Amazon. You might think you can handle the drugs, but what if Amazon disagree? They could fire you. You don't want that. There's a rehab place in Park City. You like it there, You go to the Sundance Film Festival every year. Ryan was persistent and persuasive. Tony checked himself into rehab, but after less than two weeks he checked himself out again.

This was, he decided, perfectly fine, but perhaps he had overlooked something. He asked Tyler to compile a list of the things that had made some of his friends think he needed rehab as we heard last time, like his ambition to become seven feet tall, recycle his urine inside his body, and solve world peace. He saw nothing on Tyler's list to worry about, but he decided that he wasn't going back to Vegas. Things hadn't been working out there,

and he'd learned lessons. He would apply those lessons to build a new community in Park City. Cautionary tales will be back in a moment. Tony invited some of his friends to join him in Park City, not all of them, though not Frozen Salmon Ryan, for example, Ryan had manipulated him into going to rehab when there'd been nothing wrong with him. One lesson he had learned from Las Vegas was to cut off the people who tried to hold

him back, Ryan was no longer welcome. It was early spring twenty twenty when Tony left rehab in the COVID lockdown. He seemed to thrive. He was drinking less. He seemed to be off the ketamin and the psychedelic mushrooms. He took long hikes in the mountains outside Park City. He looked fit and healthy, but he wasn't always making sense. He asked executives at Zappo's to abolish organizational calendars and instead get all employees into a collective state of flow.

If they were all in the same flow state, he explained, they wouldn't need calendars. They just know where and when to turn up for meetings. As the lockdown east and restaurants reopened, Tony came up with a new idea called ten X. Participating restaurants in Park City would give members of the ten X scheme unlimited food and drink on Sundays. Tony would put the bill. Membership of ten X would cost just ten dollars. How could this possibly work for Tony?

Everyone shrugged. He was a billionaire. He'd probably thought it through. Ten became Tony's watchword from his experience in Vegas. Tony had drawn the lesson that he hadn't been ambitious enough. Everything in Park City would be ten times bigger and happened ten times faster. Tony offered members of his entourage a ten percent commission for spending his money in the ways he asked. He started buying property in Park City. Whoever closed the deals for him got ten percent of

the price. He started recruiting people to join his community, offering them a salary to well to do whatever they wanted, pretty much as long as they agreed to be happy. Whoever recruited these new community members would get ten percent of the salary Tony paid them. Tony bought a fleet of buses and asked an assistant to arrange a luxury makeover. It cost three point six eight million dollars. The assistant

pocketed three hundred and sixty eight thousand dollars. In June, Tony invited some friends to go on a road trip in one of his luxury buses. Among them was Tyler Williams, who was still living in Las Vegas and working as the Zappo's fungineer. When Tyler arrived in Park City, he realized that he didn't know many of the people who now surrounded Tony. One of them, he learned, had only just met Tony and had immediately offered her ten million

dollars to start a business, any business she liked. Tony got on the bus for the road trip wearing pajamas and carrying a box of crayons. He took a shower and stayed there till the water tank ran dry. He explained that they were all trapped in an Ai simulation and proposed that he breaked them free by setting fire to the bus with everyone inside. Then he asked for more mushrooms. After the bus trip, Tyler messaged Tony's dealer.

Please don't sell Tony more drugs. He wrote, I know I can't match whatever Tony is offering, but I'll give you everything I have in this life. Tyler's phone pinged It was Tony, with a screen grab of Tyler's message to the dealer. The dealer had shared it with him. You went behind my back, said Tony. Tyler never heard from Tony again. In August twenty twenty, Tony invited the focusing a duel to visit his ranch in Park City. Tony had met Jewel a few years earlier at a

retreat on the entrepreneur Richard Branson's private island. They'd become friends. Jewel found that Tony's ranch was filthy. Old food and dog feces littered the floor. Signs said not to clean up. Tony thought it was natural to leave trash lying around. Candles burned everywhere, dripping wax onto carpets and countertops. Tony had become fascinated by fire. All the taps were running in all the bathrooms. Tony liked the sound of running water.

A surfboard was propped up against the window to Tony's room. Tony didn't like using doors. Jewel had met some of Tony's other friends in Las Vegas, but she didn't recognize anyone here. These people were new. Tony's doing great things. The new people told her, Tony's going through a creative metamorphosis. He's finding himself. Tony's a genius. Jewel found Tony sitting in underpants, surrounded by empty canisters of nitrous oxide. He looked thin and gaunt. He showed Jewel a post it

note on which had scribbled some numbers. This, he said, is the algorithm for world peace. Jewel tried gently to engage Tony in conversation about a project she was working on a project about addiction. Tony told her, I'm the one percent of people people that can use these substances and they become good, they become a skill. He added, I've gotten rid of anybody who doubts what I'm doing. Jewel began to subtly interrogate everyone on Tony's ranch. What's

your purpose here? Somebody assumed that Jewel must be after Tony's money and helpfully explained how to get it. Just write your project and a dollar amount on a post it note and ask Tony to sign it. Not too much or his lawyers might raise questions. Anything up to a couple of millions should be fine. Others took Jewel to a quiet corner and whispered, I want to help, but I don't know how I saw what happened to Ryan and to Tyler. Jewel had agreed to sing some

of her hit songs for Tony and his guests. Who save your soul? She sang, if you won't save your own? Tony wasn't there to hear her. He'd stayed in his darkened room surrounded by candles. After her visit, Jewel couldn't get Tony to return her calls, so she wrote him a letter. She addressed it to someone at the ranch who she thought would make sure that Tony read it. He did. I am going to be blunt, Jewel wrote, I don't think you're well and in your right mind.

The people you're surrounding yourself with are either ignorant or willing to be complicit in you killing yourself. If the world could see how you're living, they would not see you as a tech visionary. They would see you as a drug addicted man who's a cliche. Please get it's sober. I say this with love and as possibly the only person in your circle who is not on your payroll. It's a long letter, but Jewel could have summed it up in a line, who will save your soul if

you won't save your own. Tony died three months later in November twenty twenty, in a fire. He was forty six years old. It's not completely clear what happened. He'd locked himself in a shed with nitrous oxide candles, post it notes, and a propane heater. By the time the fire brigade got the door down, Tony had inhaled too much smoke. Tony was killed by his addiction, but also

by his ideas about community, connectedness and happiness. He'd thought he could make a community by gathering entrepreneurs in collisionable spaces. Then he'd thought he could pay people to surround him in Park City and feel connectedness that would make him happy. He hadn't understood that genuine connections arise obliquely. You could only put yourself in situations where that might happen and recognize if it does. Tony didn't recognize which kind of

connections to cherish. The kind where you can speak the truth and hear the truth. The kind of connections Jody Sherman tried to find too late when he emailed other founders in Las Vegas. I find myself with no one to talk to about the challenges I might be facing, or the kind of connection Tyler Williams had with his wife when she told him, I don't like who you are on Ketamin. You're not the same Tyler that I know. And he listened and stopped. She knows who I am,

Tyler later recalled, and she will check me. Tony had people who knew who he was and tried to check him like Jewel and Ryan and Tyler himself. Tyler later said that he often wonders if he hadn't had that connection with his wife, who would I be? Perhaps like Tony a drug addicted cliche. We all need someone who knows who we are, but they can only save our

soul if we let them. Key sources for this episode were Happy at Any Cost, The Revolutionary Vision and Fatal Quest of Zappo's CEO Tony Shay by Katherine Sayre and Kurston grind and wander Boy Tony Shay, Zappo's and the Myth of Happiness in Silicon Valley by angel O Young and David Janes. For a full list of sources, see the show notes at Timharford dot com. Cautionary Tales is written by me Tim Harford with Andrew Wright, Alice Fines,

and Ryan Dilley. It's produced by Georgia Mills and Marilyn Rust. The sound design and original music are the work of Pascal Wise. Bend A. D Afhaffrey edited the scripts. It features the voice talents of Melanie Guttridge, Genevieve Gaunt, Stella Harford, Messea Munroe, Jamal Westman, and rufus Wright. The show also wouldn't have been possible without the work of Jacob Weisberg, Greta Cohne, Eric Sandler, Carrie Brody, Christina Sullivan, Kira Posey,

and Owen Miller. Cautionary Tales is a production of Pushkin Industries. If you like the show, please remember to share, rate, and review. It really does make a difference to us and if you want to hear it, add free and receive a bonus audio episode, video episode, and members only newsletter every month. Why not join the Cautionary Club. To sign up, head to patreon dot com slash Cautionary Club. That's Patreon, p A, t R e o N dot com Slash Cautionary Club