Software engineer Zach Caceres writes the newsletter Startup Cities where he talks about startup cities: physical neighborhoods built by corporations. On this episode of Campfire, Zach and Jackson chat about the difference between startup and charter cities, the problem with grandiose city planning, the struggles with zoning rules, the social side of future cities, product vs. platform cities, and the tools needed for city operations.
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[00:00:00] Jackson Steger: Hi everyone. This is Jackson Steger, and you're listening to Season 2 of Campfire. Let's get it!
[00:00:09] This season of Campfire seeks to understand how to build new cities. Each week we are joined by experts and practitioners from different startup cities who will share the stories and lessons they have learned from experimenting with radical new ways of living. Cabin is building its own network city, which you can learn more about by visiting www.creatorcabins.com or by following us @CreatorCabins.
[00:00:30] Today's guest is Zach Caceres, a software engineer, writer, and technology consultant focused on early-stage companies. Ten years ago, he coined the term “Startup Cities” to describe neighborhoods and cities built by startup companies. From 2012 to 2016, he co-founded and led the Startup Cities Institute, an interdisciplinary research group at Universidad Francisco Marroquín in Guatemala City.
[00:00:54] Zach has spoken for venues like the Singapore National Library and the MIT Global Startup Workshop, and his work has been published or featured by outlets like Virgin Entrepreneur, The Atlantic’s CityLab, and NYU's Governance Lab. He is currently author of the www.startupcities.com newsletter, which focuses on how startups can build new neighborhoods and cities, which he does with an apolitical, non-utopian perspective.
[00:01:16] Our conversation today focuses on a few core themes. We outline some of the important language in the city building space, distinguished between product cities, and platform cities, and underscore the advantages and disadvantages to different approaches to city building. If you like this episode, you should subscribe to Zach’s newsletter. It's awesome.
[00:01:37] Zach Caceres, welcome to Campfire.
[00:01:39] Zach Caceres: Thanks for having me, Jackson.
[00:01:41] Jackson Steger: So, you've done a ton of interesting things, not just pertaining to startup cities, but in addition to a software engineer, you've had a number of other hats that you've worn throughout your career. I'm curious, is there a single thread that ties your career and your writing altogether?
[00:01:59] Zach Caceres: Yeah, I would say that there was a common thread, and I think of it as there's this concept called social technology, which is thinking of things that are femoral in civilization, like law and governance and education and urban design and all these things, but as technological systems. And I think that has been an idea that I've been interested in essentially since I was in university, and that's animated a lot of where I've chosen to put my time and attention.
[00:02:25] Jackson Steger: So, speaking of one of those social technologies, a place where maybe some people don't always think of it as being a tech first thing, you're credited with coining the term “startup city”, you write an amazing newsletter at www.startupcities.com, and I want to spend just 3 to 5 minutes here at the beginning talking about definitions. What is a Startup?
[00:02:48] Zach Caceres: Sure. I appreciate that. I frame Startup Cities as neighborhoods or cities literally built by startups. So, I take it in the sort of most literal way possible, but there's a lot of really big, like big ideas in the space and stuff about politics and my morality and like futuristic technologies and like all kinds of stuff. I'm not against any of those things. But for me, what I'm talking about is just the straightforward kind of entrepreneurial aspect, which is, hey, startups should build neighborhoods, and they should build cities.
[00:03:20] Jackson Steger: And is a charter city a startup city? Is a startup city a charter city? Can you help distinguish those two definitions for us? And are there any other varieties or sub-genres of these cities that an audience interested in city building should be familiar with?
[00:03:38] Zach Caceres: Yeah, there's a huge kind of that’s like nomenclature explosion and jargon explosion in the space, and I do think that can distract from what are a lot of the similarities.
[00:03:49] So, speaking of charter cities, charter cities, it's an old idea, if you consider that politically autonomous cities are an old idea, but in its modern form, it traces back to a TED Talk given by Economist Paul Romer, in 2009 I think is when he published that TED Talk. And the charter city, the real core of it, is it's really about legal and political and institutional reform. The idea is the city has a charter with some other political entity, and in negotiation in that charter, they're able to have this scope of autonomy and maybe have their own pleas or provide a different, say way of incorporating a business or finance their infrastructure differently, or have a different tax regime or whatever.
[00:04:32] So, I think of charter cities as there's this very specific species that's focused on essentially political reform and institutional change. Nothing about a charter city suggests that it must be built by a startup, of course. In fact, things that look like a charter city being built, for instance, by either, say corporations that are an offshoot of the state or the government itself, and then you also have privately-owned and operated special economic zones that are maybe closer to something like a startup city. You also have a lot of these unique sort of sub-genres that I think often bring a particular ideological lens. So, for a long time, people talked about free cities or free private cities, or these kinds of things float around still today in the space.
[00:05:19] And a lot of that I think, again, it often is bringing a kind of ideological side where there's a particular conception of what political freedom is, and what a free economic system is, and what a free democratic or non-democratic system would be, and that sort of idea is, hey, we're going to build a city that will embody these pre-existing ideological ideas of – again, I don't really have anything against these conceptions, but my focus is on the startup aspect, which is specifically on the entrepreneurial creation and the process of entrepreneurially creating living environments for people.
[00:05:55] Jackson Steger: I love that context. I think in order to just help us, as an audience, understand a little bit better the difference here, do you have any examples of charter cities versus startup cities just to help? Like you said, the language is so important here. So, for the rest of the conversation, just to have a baseline to compare to.
[00:06:14] Zach Caceres: Yeah. So, for instance, in the charter cities conversation, you'll often hear references to Hong Kong. And Hong Kong is a special administrative region. So, it does enjoy very significant and important differences in its institutions, its legal system, legal traditions, and how those processes work. Many things about it are different from the surrounding area of China.
[00:06:38] Now, it was a colony, right? So, there is a somewhat, let's say, a mixed history associated with how it was that this charter came about. And people have very strong views about that because the sort of the world of colonies is a controversial world, but it does have a charter and there it is. Now, if you have Hong Kong on one side, and then on the other side, let's say you take a project like a Culdesac, who I think was recently on this very podcast, right? Now, they have 17 acres in Tempe, Arizona. And so, they're really right now a startup neighborhood, but their ambitions are to reach city scale. And in this case, obviously you don't have any kind of. major autonomy, or anything like that, although they did have to seek variances in city planning for the purposes of executing their design in this. So, in a way, there is a sort of light version of this charter thing happening. But they're ultimately just building, or they want to build positive places for people to live, walkable places where the car is not central to the user's experience of the lived environment.
[00:07:40] The second example, Culdesac, this is a startup, building a neighborhood. They're trying to own a user experience. They're venture funded, they're this kind of thing. And then on the other hand, you have something like a Hong Kong, which has unique political and administrative and legal autonomy and all of this, but it doesn't have this kind of startup dimension.
[00:08:00] There are examples, I think, that are somewhat in the middle. For instance, in Honduras, there are some projects now that are based on set of laws, called the ZEDE Laws, so Z-E-D-E, which is essentially a kind of charter city law, but the people that are actually building these cities are, they're really more like town scale right now, are private companies, and they are startups. So, either a legacy firm going and trying to do it, or there are actual startups in that space. So, you can see that as a sort of, it's a startup city with charter city elements in there.
[00:08:31] Jackson Steger: Yeah. That’s a really helpful context, and I appreciate you elaborating on those examples. So, I want to talk a little bit about your more recent Startup Cities’ career. And in 2012, you led the Startup Cities Institute, a group of researchers based at a university in Guatemala, which we were talking about a little bit before we’ve hit record, and there were economists and law professors, a few architects. You raised some money from Silicon Valley, you talked Culdesac being venture funded. What was the purpose of your fundraise and of the institute more broadly?
[00:09:05] Zach Caceres: So, originally, I think it's hard for people to believe because there is a lot of interest in the space now, but 10 years ago, in 2012, all this stuff was just totally crazy town. It was very fringe, that there were no venture funds, there were no like big events, there, you know, was like a very small number of people. And I would describe this space as like still quite small and still needing to grow a lot more, but it's massive compared to what it was 10 years ago.
[00:09:34] The Startup Cities Institute was something that was built in partnership with the president of university in Guatemala, Universidad Francisco Marroquín. The former president of that university had been involved in some of the Latin American reforms, such as the one that I mentioned related to Honduras, and he had a longstanding interest in whether or not these concepts of startups, buildings, neighborhoods, and cities could really improve urban life in Latin America. So, sort of details don't matter, but the point is that we ended up collaborating to say, hey, can we make this idea a bit less crazy and a bit more mainstream? And we did typical think tank stuff, where we published blog posts, I did interviews in magazines. We had some early events, which connected some of the main players that are in the space now that, you know, whose names you might know and all that. So, it was just trying to put some fuel on the fire.
[00:10:30] One thing that we did realize though, which I think is what everyone sees, is that if you can crack open an opportunity to build one of these things, it's potentially also a very valuable business opportunity. Right? Very difficult and complicated, but also potentially valuable. So, we did end up, did raise some money, and I took the idea actually to Y Combinator, where we were rejected in the final round as being a bit too, it was a bit too weird, and I get it. And honestly also we had no idea what we were doing, so I don't blame them at all. But the focus there at that time, I thought, was to go to an existing American city and to go to a land bank to have a whole bunch of different – basically land banks accumulate blighted properties in a city, go to the land bank and try to buy the largest contiguous piece of land possible assembled from many small pieces in the land bank's portfolio, offer them above-market or even equity in the final outcome in this. And there were actually land banks quite interested in this, but the layers of permissions that a person has to go through to really make this kind of thing work, it's very challenging if you don't have an in with the city.
[00:11:38] And at that time, I was a random 23-year-old that lives in Guatemala showing up and being like, hey, can I get all this stuff and do this super weird thing under a different zoning regime. And so, you might imagine the sort of skepticism that you encounter. And so, anyway, we ended up not pursuing it. I couldn't make it happen, and it was disappointing. I've always viewed this as a very long-term sort of thing.
[00:12:00] Jackson Steger: Sure. I appreciate sharing this. I can relate to that 23-year-old facing zoning barriers. So, I appreciate you sharing. You've written how the more time you've spent living and working in poor countries, like Guatemala, the more conflicted you became and how near total focus on governance was perhaps too one-dimensional, and you shut down the institute in 2016 to work with Startup Cities full-time. You wrote that the Startup Cities space is full of overhang technologies, ideas, and concepts, where theory outstrips practice, we need way more founders and technologists building neighborhoods in cities or we’ll drown in white papers, but never know what works.
[00:12:42] And so, imagine 10 years later you have all of this credibility that you've built through your newsletter and a bunch of other avenues, and imagine that Jeff Bezos, and Bill Gates, and Elon Musk, Oprah Winfrey, a few dozen other extremely wealthy people we're listening to this pod, and they go, hey Zach, like we heard you on Campfire, we thought you were awesome, and here is a trillion dollars and all of our connections. You, as the steward of this project, what would you do? What would your first tangible steps be as like someone carrying a Startup Cities idea forward be?
[00:13:25] Zach Caceres: Wow! I suppose that's the, probably you've outlined everybody's fantasy in this space, is the convert the billionaire sort of thesis, right? You got a lot of people, I think, out there trying to do that, and some projects like the City of Telosa that are maybe this version made real. We'll see. But yeah, honestly, I would turn down the overwhelming majority of that money and actually raise a very modest (00:13:47) seed round. I would take the socio-capital collections though absolutely.
[00:13:53] So, from my perspective, well there's a lot of challenges, and one of the big challenges is actually in some way having this kind of unlimited budget constraint. It invites way too many indulgent ideas and decisions. So, if you have a trillion dollars, you're going to try to build this thing that's just trending so hard right now, Neom “The Line”, which is it’s supposed to be this like city, that it is a line rather than a square or a circle like a traditional city, in the middle of the desert in Saudi Arabia, and there's like giant mirrors on the side and like autonomous drones that deliver everything and all this. And it's just, my worry is that, when you have a trillion dollars in the bank, that's how you think in this extremely grandiose, top-down way. And there's nothing wrong with the dream, but I would say that a lot of problems in cities, and also honestly in the Startup Cities space, come from this kind of really grandiose thinking.
[00:14:47] Concretely, the kinds of problems that I think you're trying to solve is where can I find a large enough parcel that is either already permissioned with the kinds of rules that I need to build, or that's just far enough outside city limits that I don't have to deal with those permissions, but also close enough to city limits that I benefit from the kind of, say, growth of a municipality rather than being in the middle of the desert and trying to bootstrap the demand for that place from zero. It's crafting a value proposition for the environment. And I don't really think, it's not if you build it, they will come. There needs to be a reason for people to live there. You have to understand who that customer is and why it is that they would live there. If you're building outside of metro, you need to understand what it is that you're going to build that's going to make maybe their commute times worth it.
[00:15:33] There's a lot of operational questions, right? Who takes out the trash? What is the upfront cost of infrastructure? Can you piggyback on an existing municipality’s infrastructure? Do you have to build it all your own? What I would do is, again, you want a modest amount of capital that allows you to proceed to the next rational stage of taking on something that is this complex and ambitious. You don't want all the capital upfront because you want to do this in a disciplined way. You want to use the social capital that the sort of the billionaire dream team is bringing to the table, and you want to use that to essentially kick open the doors of permissions that you need from cities and other kinds of partners that are essentially between you and being able to build. So, there's obviously a lot that you could do with that kind of social capital, which would be fantastic.
[00:16:24] And the main things are really to craft that compelling value proposition, given the constraints of the physical environment that you're building, which is really quite challenging. And understand all of the complexities that are associated with the capital expenditure around infrastructure, whether you can piggyback on an existing municipality, or whether you cannot. And there's all sorts of just very basic operational things. What do you do with your trash? How do you make it so that if something catches on fire, the whole thing doesn't burn down? There's a lot of this kind of very basic stuff that is unsexy, but deeply important. And to me, that it's the meat and potatoes of startup entrepreneurship. You can do that with a relatively modest seed round, and then you can go big later as you figure out what the heck you're doing.
[00:17:11] Jackson Steger: I appreciate you, like any startup expert would, keeping us lean and not trying to be overly bloated from the beginning. I have a bunch of follow-ups. The first, you mentioned you might turn down the bulk of the money, but you would retain the connections such that you might be able to obtain some of the zoning permissions that you might need. What specifically are you looking for in these kinds of zoning permissions? What are the rules that would be favorable to a project like this?
[00:17:43] Zach Caceres: Yeah. Some of it is contextual, so some of it depends where you build and all of that, but there's a general class of things that really stand in the way of high-quality community building in America. One of those things, which for instance I know Culdesac has spoken a lot about, are parking minimums. This is the idea that every single bedroom or every single person in a development needs to have at least one parking space per person or per bedroom, or something like that. And this just, it just changes the economics of development in a crazy way.
[00:18:14] The other is zoning is obviously a big culprit here, which is essentially just, it's often called use-based zoning or single use zoning, which just means that things like mixed uses, meaning say a café or a bar or something, cannot coexist next to where a person lives or where like a factory is or something. This is not how traditionally cities are built. Even traditional American cities don't really do this. We do this now, that really stands in the way of realizing the value of the asset.
[00:18:46] So, I'm not just talking about aesthetic preferences here. It's just simply the case that generally speaking a lot of people really want to live in places where the grocery store is not 30 minutes away from where they live, like it's just basic consumer preferences, but that are somewhat illegal to actually act on in our current world. So, those layers of permissions don't just change the kinds of aesthetics and experiences that you can provide as an entrepreneur, but they fundamentally change the economics of what is possible and profitable to build. So, you have to really like fully go big and be like we're going to maximize the value of this new place. You want to get beyond a lot of these permissions. Otherwise, you just can't do anything cool.
[00:19:31] Jackson Steger: When Phil was on the show, we talked a little bit about obtaining the permissions that they needed in Arizona. Have you seen any successful playbooks for pushing for this kind of reform on a project basis? What is helpful in getting those sorts of permissions?
[00:19:49] Zach Caceres: I think, again, depending on the city, I think this is one of these areas where there's actually a huge amount of discretion by a city council or a planning board or whatever. And unfortunately, I think, to some extent, the playbook that you see are that influential and wealthy developers are sometimes able to get through that process through all sorts of means, by having a friend in city hall, maybe…sometimes the boards almost extort developers where they'll say, yeah, we'll give you permission, but you need to go and pony up money for X, Y, and Z cause and build a park over here and make a charitable contribution to this 501c3 and all this kind of stuff. And to some extent, the playbook is, hey, you just pay what is this weird, totally above board, almost institutionalized bribery thing or extortion, I guess you could say, that can be part of this process, and that is sometimes what developers do. Now, I think it’s like the sort of dark view.
[00:20:53] The optimistic view is that there are sane cities in the United States, and they probably tend to be smaller, maybe the up and coming places that are on the verge of, let's say, am I a large town or am I a city, and there are sensible people in some city governments, and I think it's just the hard thing though is that the places that are in the highest demand, which is outside San Francisco Metro or something like this, like you're going to have to really run the gauntlet if you want to do something there.
[00:21:21] But, for instance, Culdesac has spoken highly of their experience with Tempe. There's an example of a city council that was somewhat rational. So, this by the way is a reason why I think you almost want to design this thing in a portable way. So, you don't want to be like I'm going to make this perfect design for outside San Francisco because who knows whether you're ever going to be able to run the gauntlet. You almost want to make something that is portable and you can shop it around and be like, hey, some town in Texas, do you want this? Hey, Boise, Idaho. Hey, Lakewood, Colorado. It's just all these places that maybe people aren't thinking about ideally want to bring something that is well crafted and strong and has a good value proposition, some sensible solutions to problems, and shop it around. It's never going to be truly portable, but it's the Java approach, Once Run Anywhere. It never exactly works that way, but that's maybe one strategy for dealing with the permissions.
[00:22:12] Jackson Steger: I love that. Back to the big summary answer you gave and just another follow-up on this startup lean city building approach model, I've worked now for three different startups over the years, and one thing that is consistent in all of them is you have to measure what matters. You have to be careful in your metric selection and have to grow the metrics that are important to actually achieving the mission that you are pursuing.
[00:22:38] And I'm curious, like Andrew Yang, for example, also talked about this during his presidential run, that if he was giving a State of the Union address, he would use PowerPoint, and that instead of GDP, we should have maybe like a happiness metric that is some combination of air quality and all these other things. So, with all that as context, like what metrics should startup cities use to measure success? And how are those similar and/or different from metrics that legacy cities use?
[00:23:09] Zach Caceres: Yeah, it's a really interesting question. Honestly, I would say I'm somewhat old fashioned on this point, which is I think a lot of these other measures are much less important than straight up vanilla, essentially economic measures. So, GDP growth, or if we're imagining a sort of startup city that actually is operated by a private entity, it would just be the market capital company or the valuation of the assets, or just profit and loss within the firm. These kinds of very basic nuts and bolts things.
[00:23:47] Now, I'm not suggesting that air quality doesn't matter or that happiness doesn't matter, or something like that. Obviously, those things are really important. But my understanding, and for instance, in the world of development economics, people are constantly trying to find a way to avoid saying that economic growth is ridiculously important, and economic growth is the thing that's going to deliver happiness and better, clean air quality, and like people are going to burn less biomass, and all this kind of stuff. People are very hesitant to say that because there is a bias against the idea of growth, in my opinion.
[00:24:22] And I think something similar is happening with this level of cities. If you were to build a company, and that company was ridiculously profitable because thousands or hundreds of thousands or millions of people wanted to come and live there, and you were able to continuously build and continuously densify and have such wonderful amenities that everyone was willing to be a premium to live there, what you are doing is you are capturing a huge amount of human happiness and human potential, and the agglomeration effects of talents connecting with opportunities and all of this stuff in the metric of profit and loss.
[00:24:58] I think people have this idea that as startup city, they're going to go there, and in the pursuit of ruthless monetization, they're going to pave over every single green space and never plant a tree, and every street is going to be optimized for the maximum number of tractor trailers to blast through at 85 miles per hour. And it's just like, no, because no one wants to live in a place like that, and there are none of the incentives that are rational for the developer of an environment would even remotely incentivize this kind of very destructive behavior on the part of the management.
[00:25:30] Does it mean that it's going to be a perfect utopia with no mistakes and every problem will be solved? Of course, not. But the underlying incentives of profit and loss align the management of a city with the happiness and health, and even the environmental performance of the area much more than traditional city management. Putting a horrible, polluted lake in the center of your real estate development does not increase the value of your land and drive people to want to rent your apartments or visit your community or shop in the town, or whatever.
[00:26:03] Again, the state of metrics in cities, I did some research on this for a long form piece that I've been working on, which is, I call it the Missing NPS. NPS is a Net Promoter Score, which is a very common metric collected by startups. And it's these little surveys that you get in an app that says, would you recommend app X, Y, Z to your friends? Say 0 to 10. And this is a sort of tried-and-true metric for understanding customer satisfaction.
[00:26:30] And I did a deep dive to understand where do cities collect these things, where is the data, and all of this. And generally speaking, government agencies and most cities really do not collect a lot of this data. And I even interviewed someone who can't share information, and you'll see why, about who they are, but they worked on a consulting project that was essentially doing customer satisfaction surveys of a very large American metro, whose name you would recognize. They found that, in fact, people were extremely dissatisfied, and the conclusion of their consulting contract was basically the city is sweeping it all under the rug and saying no one will ever hear about this data ever again because we don't want anyone to know what the truth is, and we also don't want our legacy damaged by essentially evidence that we are underperforming our customers.
[00:27:21] So, I don't know. I'm simple in this way. Given the current state of this industry, even just building a place that regularly solicits customer feedback and giving it the old college, try to respond to that, would probably be significantly better than a lot of what is. So, I don't really see the need to invent lots of new metrics. I think we could use the existing metrics, make them operational, care about them, have a business and management team that actually follows them that would go a long way.
[00:27:50] Jackson Steger: I love that answer. For context for the audience, two products that are notorious or having extremely high NPSs scores are puppies and ice cream. So, I hope we can all aspire to build cities with NPS scores on that level.
[00:28:07] I want to transition a little bit because Cabin is a DAO, and we do want to talk about some more DAO native things for a little bit. If time permitting, we’ll come back to some hard real world city building projects that have already happened. But I want to talk actually about Balaji for a second. So, for the audience, Balaji Srinivasan is a former CTO of Coinbase and partner at Andreessen Horowitz. I'm bringing him up because he recently wrote a book, called The Network State, and the book opens with this one sentence definition of a network state, which I'm going to read in a second. Anyone who’s familiar they'll know it’s a mouthful. And Zach, I'd love your thoughts, after I read this definition, on The Network State approach more broadly, as well as the individual components of Balaji’s definition that you think maybe matter or don't matter to a network state.
[00:29:01] So, The Network State is a social network with a moral innovation, a sense of national consciousness, a recognized founder, a capacity for collective action, an in-person level of civility, an integrated cryptocurrency, a consensual government limited by a social smart contract, an archipelago of crowdfunded physical territories, a virtual capital, and an on-chain census that provides a large enough population income and real estate footprint to attain a measure of diplomatic recognition. . So, there's a lot there. I just want your reaction to the question in any direction you want to go.
[00:29:39] Zach Caceres: Yeah, and obviously I followed and corresponded with Balaji on and off over the years because he was very early in the space and perceiving all of these things and stuff, and I really enjoyed The Network State, and overall, his work. I will say though, when I read the book, one thing I took away from it was realizing, oh, actually we're talking about things that are much more different than I realize, not in a bad way, but I guess I had this sort of conception based on his earlier work, that we were really like pulling on very similar threads. And when I read that definition, I would say that was the moment where I thought, ooh, actually, I think we're talking about two different species of things in this space, similar to when we were talking about sort of charter cities also being somewhat its own animal in this space.
[00:30:26] Jackson Steger: I'm curious. So, you have this framework on platform cities versus product cities, and I want to give you the opportunity to talk about that. I think that when you bring up product cities, Balaji’s concept of a moral innovation or a one commandment is similar to what you might find in a Fitopia. So, I suppose the question is, what is the difference between a traditional platform and a traditional product? And then, in our city's analogy, what is a product city and what is a platform city?
[00:30:57] Zach Caceres: Yeah. So, Platform City vs. Product City is an article I wrote not too long ago, and people really liked it. And honestly, I think that the distinction is not, it's really not totally clear and rigorous, but I think there's something here. And the distinction is essentially you can think of a traditional city, and you can think also of some projects in the startup city space as fundamentally focused on building platforms. Now, what that means in practice is their idea is, hey, we do not prescribe the particular kind of details of the lifestyle or career or values that you're going to pursue in this place. We’re focused on really specific nuts and bolts of the urban experience.
[00:31:39] So, for instance, the Project Próspera on Roatan, Honduras. Próspera is really focused on making, they call themselves platform for economic development, and they're just saying, hey, incorporate any company you want here, we make it really easy, we make it fast, it's easy to pay our taxes, we don't bother you a lot, you can select the regulatory jurisdiction that you're under. And that's very much just having a neutral view. And again, like nothing about what I'm saying is trying to minimize this or knock it because that is, to me, a totally legitimate strategy and possibly also a strategy with the highest upsides, depending on how you think about it.
[00:32:13] But there is this alternative, which is to say, hey, what if instead of saying my customer is kind of everybody, and I'm making a neutral platform for everybody, say Facebook might consider themselves, you say, no, no. I'm going to make a very specific experience for a very specific kind of person. That I think is more crafting a traditional product, like a sort of vertical software as a service company or something in traditional startup parlance. And this is, hey, when you come to my neighborhood, I use this fake example called Fitopia, when you come to my neighborhood or my city, there's just simply no unhealthy eating options whatsoever. There's a uniform ban on fast food, and there's every kind of keto, paleo, vegan mash-up thing you could imagine, and the sidewalks all have chin-up bars installed in every block, so you can do chin-ups while you're waiting across the street, and there's an amazing bike share, and there's citywide Sunrise Yoga in Central Park every day, and you can take it as crazy as you want. And you could even imagine some things that many people would find somewhat objectionable. Like for instance you can't be a resident if you're not at a certain level of physical fitness, which I think many people would have an issue with, but you can see how this framework of defining more narrowly could tend in that direction, a kind of exclusivity to the experience.
[00:33:36] And that, I think, is a bit more, as I understand it, in line with Balaji’s definition of a network state. I think it's a bit more of a narrower, more focused definition of what it is that we would want or expect from the network state, and it would revolve around this kind of values constructed experience that's really meant for a very particular kind of person with the particular values, maybe particular income level, particular location, whatever, and that's what you're building for.
[00:34:04] Jackson Steger: Yeah. Thanks for connecting those separate threads of questions. I'm curious, how do these different approaches, Próspera in Honduras versus Fitopia, how do they scale?
[00:34:16] Zach Caceres: The classic argument by proponents of the platform city is that the neutral platform play will always have bigger upside, because if you can actually pull off the kind of urban platform that everyone wants to be a part of, hey, everybody is a much bigger customer base, then fitness fanatics are a customer base, right? So, that's the sort of classic example, or the classic argument I should say.
[00:34:38] On the other hand, you could also imagine a version of the product city approach that's almost a bit more, it's almost to say a private equity fund that buys or buys up a lot of product, you know, a lot of companies in different verticals and then manages them all and tries to manage them all competently or whatever, although people have strong opinions about private equity management, but you get the idea, where it's not about having Fitopia have a billion people in it. It's about there’s Fitopia and then there's, I don't know, there's Cartopia, which is actually just all about people that are obsessed with classic cars or whatever. And then there's Nerdtopia, and it's just like one giant history of computing museum with blazing fast internet and co-working spaces and all this, and there's a certain person who likes that. And you can think of a million ridiculous and maybe some not so ridiculous versions of what the product city would look like, and maybe it's more about replication, and almost a kind of a franchise model or a multiple franchise model rather than the, hey, I'm going to make the mega city that everyone wants to live in.
[00:35:52] Jackson Steger: Yeah, I can imagine, to what we were discussing earlier, there being this blueprint for pitching your own product city and being able to go to places like Boise or Lake Water with that approach.
[00:36:03] We started, towards the beginning of the podcast, you mentioned this Y Combinator pitch that you made to buy municipal land banks, and then recently you wrote that maybe a DAO is the right kind of organization to buy such a thing, like Cabin, like others in this space is a DAO and the audience and Cabin members are well aware of my personal skepticism towards the efficacy of many different kinds of crypto projects, but I've been keeping an open mind, especially as it pertains to crowdfunding assets. So, I'd love to hear your thoughts on just like why is a DAO potentially suited to buy a land bank, and what can the DAO do with that land bank to rejuvenate it?
[00:36:48] Zach Caceres: Yeah, interesting. I would be keen to understand your skepticism. But I should start by saying, I think one of the things that has been a real boon to startup cities as a sort of meme and getting this into the Overton Window and out of crazy town, is actually the rise of Web3 in DAO. So, I think that has been absolutely fantastic for this space. So, honestly, I'm grateful to CityDAO and Cabin and all these people that are doing this stuff because you all are really carrying an idea that matters a lot to me out, I think, into the mainstream.
[00:37:20] My own view of DAOs is it sounds like it's pretty aligned with yours, which is I'm very bullish on it as a way of, one, connecting people around a particular niche. So, actually, just like finding those people and being able to get in touch with those people, which I think of as you're mining the long tail of the internet. And on the internet, there's every kind of person with every kind of weird interest you could imagine. Finding those people is not that trivial. With a DAO, hey, getting those people altogether, that's really great and really valuable.
[00:37:46] And the other is as an aggregator of capital around these very niche, and sometimes eccentric interests, like ConstitutionDAO buying this constitution. It's like a very particular kind of person wants to be a partial owner of a constitution, and it's fantastic that the DAO was able to get those people together and to have them like try to make this purchase and stuff.
[00:38:06] Jackson Steger: I’ll interrupt real quick, just to share that ConstitutionDAO in its heyday was one of its core team members was doing all of that from the Cabins at CabinDAO. So, just plus wanting on that moment as this lightning bolt phase broadly. There's a plaque currently at Cabin commemorating that moment in time.
[00:38:26] Zach Caceres: How cool. No, I had no idea about that. That's very cool. Yeah, I would say where I'm less enthusiastic about DAOs is I think a lot of people are falling into a trap that many technologists and technology entrepreneurs fall into, which is the view that the problem with collective decision-making is, one, that people don't have enough information to make the decision. So, we just need to like give them more data and then they'll be sensible in their decisions and/or, two, that decision-making power is not broadly distributed enough.
[00:38:58] And if only we had more people with more votes and more like committees and stuff like this, then we would have really good outcomes and equitable outcomes, and everyone would feel engaged. And I would love to live in that world, I just don't think it's true, and I think there's absolutely enormous overwhelming evidence from public choice economics, from the study of political ignorance, voter participation rates, just the existence of the incorporation versus co-ops, all of this stuff. I think there's just overwhelming evidence in reality that actually that is probably not where the value of the DAO is.
[00:39:32] But unfortunately in the DAO space, you see a huge amount of attention and resources being put into that aspect. And in my biased opinion, all the resources, you just go to finding the people, figuring out how to have a sensible normal management team, and aggregating capital to purchase the assets. So, this is my biased view of DAOs. Okay. Just to start the land bank conversation.
[00:39:54] The land bank conversation is, to me, actually it's possibly this like tailor-made use case for a DAO. You have about 250 land banks around the United States, and these banks collectively hold thousands and thousands of properties all around America, many in like reasonably nice cities or loan cities. And these properties, generally speaking, are some of the worst properties in the city. Like there is just no sort of gentle way to describe it. They are like they're blighted, they're abandoned, the bank had to reclaim them, and then they have tons of back taxes, this kind of stuff. Okay.
[00:40:31] What land banks do, they get these properties. They then go and try to clear away back taxes and other like barriers and legal issues to getting this on the market. And then oftentimes they practically give these things away, or they sell them at a loss, which is one of the most depressing things possible, which is just like you do all this work and then you lose money every single time one of these things gets back on the market. It's crazy.
[00:40:53] The challenge with land banks in this is that you can go buy a parcel in Omaha, Nebraska for $200. Now, why haven't you done that? The answer is that owning a single parcel in Omaha, Nebraska that's totally blighted and completely surrounded by other blighted property is actually not that great of a deal. It's not that great of an investment. And what the land bank wants you to do, often as a condition of the purchase, is you can't just sit on it. You’ve got to put it back and build a house on it, or open a business on it, or whatever.
[00:41:25] But again, the reality is very few people want to go live out in the middle of blight, or no business is going to be supported because there's no one nearby to go and be a patron of the business. So, there's a certain sense in which a barrier to the realization of the value of the assets in the land bank is also the ability to kick off this kind of positive feedback loop of development.
[00:41:46] Now, my proposal, which admittedly is a hair-brained idea here, but is why not, I use the example of Omaha, Nebraska, I scraped the database of their parcels and said, okay, there was essentially a couple million dollars-worth of land and much of it was concentrated in one particular part of Omaha, Nebraska. So, my thought was, hey, you go to a DAO, you organize a DAO, you go to the Omaha Land Bank, and you say, listen, you have $2 million of this essentially worthless land. We'll give you $2,300,000.00 if you sell us everything, every single bit of land in your portfolio to this DAO, and we'll pay above market to sweeten the deal for you all. But what you have to do is you have to help us go to the city and remove zoning and land use restrictions from these parcels, because it's not possible to realize the value that's in these parcels in their current state, which is why they are sitting there blighted for decades in the lank bank.
[00:42:48] So, you make a sweetheart deal, you buy up all the, you buy up as everything that you possibly can, and then you have the DAO, essentially spin off many DAOs, anyone in the DAO with an idea for the thing to do can go and basically lease that land from the DAO and undertake an entrepreneurial project on the parcel.
[00:43:08] I actually think that, even with the land use restrictions removed, the value of all those assets would immediately increase if you just changed zoning and land use on them. If you've got variances for the whole thing or whatever, it would immediately become significantly more valuable because of the potential future revenue of the land. But then also you are effectively trying to crowdsource with sensible incentives the owning and operation of the land through the DAO.
[00:43:33] So, that's what you try to do. Get it all. Kick off the positive feedback loop of development. And I think actually like the actual capital numbers is not that big. We're talking like a couple million dollars to get that land into circulation, assuming you could be persuasive enough with these land banks, which is a whole other thing.
[00:43:50] Jackson Steger: That’s a great overview. I am certainly aligned in probably the best decentralized projects, have a very clear plan and vision, and then our aggregators of capital, like you described, and that I do think that the lank bank is an awesome example of something we could do. I shared the article that you wrote about that, and I recommend you just check it out as well. We'll put it in the show notes. I shared it in the Cabin Discord, and it got a lot of enthusiasm and attention. Just kudos to you for writing that.
[00:44:19] I have two questions to take us out. The first is, you've opened you talked about the common thread of your career being these different social technologies, and then more recently we've been talking about Startup Cities. What is this comprehensive city tech stack? We've talked about this at Cabin in our neighborhood that we have outside of Austin. We have 29 acres of land where there's both our hardware tech stack, which includes our prefab cabins and the internet towers and the septic system, but then also the software stack, which is Discord and all of the different ways that we create and retain the community. Recognizing that network states and DAOs might be in a slightly different category than startup cities, what's the startup city tech stack?
[00:45:07] Zach Caceres: Yeah, actually I'm a big fan of that article. I guess it's by Jon Hillis, right? The Tech Stack article. I really like it a lot. So, yeah, I'm very much aligned there. I think actually it's very difficult to define the tech stack simply because a lot of the tech stack is contextual. And I would actually argue that it's almost perfectly analogous to software, where the technology stack that you choose, there is no universally perfect tech stack for a given company because the technology decisions have to be driven by the use case, going and building in Texas Hill country and trying to be off grid because that's part of the value and the kind of customer that you all seem to be building for, who I would describe as what's probably above average income, above average education level, tech oriented, maybe remote job, on the younger side, say under 45, probably leans, like small family size, this kind of thing. Again, I'm just guessing, okay.
[00:46:07] But based on that, the tech stack that you're going to build is probably going to be, yeah, you know, cool modular cabins, beautiful views, all that kind of stuff. That makes total sense because you're crafting a very particular kind of space. So, you have a lot of people doing knowledge work, deep work, right? How about a person that wants to come and build with a lathe or a carpenter or something, maybe the carpenter would work. But there’s a lot of professions, I think, that would not translate well to the current cabin tech stack. I'm not trying to knock it, I'm just trying to illustrate that the tech stack is reflective of the customer experience you're trying to make.
[00:46:44] All that said, I think where I'm coming from is that there are probably some commonalities here. For example, the kinds of buildings that you want to build, probably you want to build for flexibility. So, for example, industrial has a bad rap in a lot of cities because everyone views it as like ugly and awful. An industrial facility is one zoning decision away from becoming luxury lofts or a hip brewery, or a co-working space, or whatever. And in some ways, the buildings that seem to have longevity in a lot of American and also European cities are what some people call the big dumb box, and it's like the big dumb box is the traditional like vernacular of European urbanism, which is you put the big dumb box and you set it right next to the road and there's a door that transitions you from road to big dumb box, and that big dumb box can be, in history, it's a brothel and it's a textile factory, and it's an apartment building, and now it holds a startup in that. So, part of the tech stack you could imagine is this vocabulary of physical forms that are built for change. That would be one thing.
[00:47:52] Another aspect, I think, is operational software, which is, again, very boring, but ticketing systems, high quality ticketing systems, so that you understand how to coordinate people to solve problems, and also RFID. One of my biggest gripes in real estate, like luxury apartment buildings and stuff, like you know, I live in a really nice building here in Denver. No one that works in the building is ever where I need them. Like why are the people not in the right spot? This is a standard operational difficulty that I, as the customer, need a particular person in a particular spot at a particular time, and it just never happens. Why? These are your tech stack should also be able to operationalize having people and things in the right place in the right time. And that is, again, very unsexy basic problem, but that I think is absolutely unavoidable for operating a living environment.
[00:48:45] Yeah, I mean, beyond those kind of broad brush strokes, I think a lot is driven by the individual opportunity. So, with an individual opportunity, I would be much more opinionated about the details but, I can't be in the abstract.
[00:48:58] Jackson Steger: Cabins, industrial, prefab, brothels coming to you soon. You heard it here first on the Campfire podcast.
[00:49:08] Zach Caceres: I'll take equity in that one.
[00:49:11] Jackson Steger: I love that answer. I want us at Cabin to take that snippet and write an article, maybe expanding on what Jon and Zach wrote. Maybe they'd like to co-write it with you.
[00:49:22] But to take us out, Zach, I want to just lean on your large experience here to ask you, like which city building project over the last 10 years were you really excited about that didn't quite live up to the expectations that you had for it? And then, conversely, what city building project are you most excited about?
[00:49:49] Zach Caceres: I would say one sad history of the city building space is that there's a massive, just mega project graveyard that just stretches for decades. And I was never that excited about those. I think the thing is if you are an engineer and you have like a technologist-oriented mindset, you have an inherent skepticism towards, yes, we're just going to waterfall the utopia and we're just like one consulting document away from utopia or something, and it's just crazy to me.
[00:50:16] So, let's say a sad part of the space where a lot of hopes and dreams have washed ashore and crashed into the rocks of reality, and I would actually say one body of work that many people in this space don't know about but should is the mega projects and risk world of scholarship. In particular, there's an Oxford professor, named Bent Flyvbjerg, whose last name I can’t pronounce or spell, but if you look up Oxford Mega Project Risk, you'll find him. And he has a wonderful book, called Megaprojects and Risk, in a paper, called what everyone needs to know about megaprojects. And if you just look at the numbers on the performance of these kinds of really grandiose schemes, it's going to disabuse you of the notion that the kind of like super grandiose visionary stuff is the way to go here because it's insane, it's something like 98% of megaprojects underperform by their own standards, their own stated standards, on every single metric that they state, and the numbers are just incontrovertibly crazy.
[00:51:11] So, those things, as a class, have generally underperformed expectations. Me, personally, I was really fired up about the first round of reforms in Honduras, the RED reforms, which were the predecessor to the current reforms. I was living in Latin America at the time. I knew a lot of people in this space. We were all like this place is going to be huge, it’s going to be innovative in this. The reality is that reform was essentially destroyed, repealed and destroyed. And then wave two happened, and then that looks like this one is also now being, the jury's out. It's possible that things will still survive, but it's certainly much less good than it was even 6 months ago because of political changes in the environment. So, that which, I would say it's very much, probably some of the more ambitious stuff in the charter city space, has been a sad disappointment, and it's sad because we're not going to necessarily be able to see the full scope of innovation that could have been made if those things were given a stable footing for a long time to build.
[00:52:07] The project that I think are the most interesting to me, the project that I'm personally the most interested in right now is Ciudad Morazán, which is a project outside of Choloma, Honduras. The reason is that this is really a hybrid. It contains charter city’s aspects, but the entrepreneur behind it is the creator of basically one of Latin America's largest pharmacy chains. So, he's very much a meat space entrepreneur, logistics entrepreneur, and I was fortunate enough to see some of the design documents and finances and some of the urban plan and to follow the construction closely in this. And I just think he was not only visionary, but he really understood his customer to the point where they actually sent people out into the informal communities, the slums in Choloma, and really asked people about their budgets, what they wanted, and then built that. And I think that is the kind of thing that's really missing in a lot of Startup Cities projects. This kind of solutions in such problems. And he really did not do that. And I admire that really it showed a commitment to the customer, that's really fabulous.
[00:53:12] The other company that other people and that I’m really interested in that startup cities, people should know more about, there’s really two. One is Vail Resorts, which is the – you know, I live in Colorado, they own and operate a vail. And there's a whole very interesting history of towns that were essentially built by firms, and many of the firms were essentially startups of their day, and they were built around the monetization of a particular natural resource or something like that. And no one can possibly call Vail like an evil Dickensian company town. It's like a ridiculously bougie safe place that people from all around the world go to.
[00:53:47] And the other is Howard Hughes Corporation, which I've only actually really started recently going deep into them, but they operate communities such as The Woodlands and Houston that had 120,000 people in them, which is essentially a small city. For most people who don't know about them, they fly under the radar, but they have a very interesting business model, and they pursue unsexy platform-oriented urban development, and it has worked really well for them. Yeah, those are the companies that I'm excited about. Howard Hughes, Vail Resorts, Ciudad Morazán. Not so excited, dreamy utopia and the desert grandiose things. I just, it just doesn’t, I just can't get excited about it.
[00:54:25] Jackson Steger: Zach, thank you so much for joining the show. For listeners, I highly recommend you check out his newsletter at www.startupcities.com. Any other call to action or anything you want to plug, Zach?
[00:54:36] Zach Caceres: No, I really appreciate it. I love what you all are doing and wish you all the best. If any of your listeners want to come over to www.startupcities.com or tweet at me or whatever, I really have an open mind about this stuff. I want to hear your perspective. I have started doing some guest posts with people. So, I'm very much open to what your community has to say, and I'm really looking forward to the conversations that will come out of it.
[00:54:58] Jackson Steger: All right, great. Thanks everyone.