Last year, Substack’s only co-founders were the three co-founders: Hamish McKenzie, Chris Best, and Jairaj Sethi. Now the San Francisco-based startup has a bigger team – up to 18 employees – and even bigger ambitions: It’s trying to revive the ailing media industry.
To that end, the trio – Adweeks Publishing Executives of the Year – built their entire business on what until recently was an afterthought for many media companies: newsletter subscriptions.
McKenzie, a former journalist, says the media business has long been in a “defensive crouch” to ward off death, but Substack and the idea of paying writers directly through subscription to newsletters are turning the industry around. “I think a reinvention is beginning and Substack is part of it. We see that this model works, ”he says.
Substack authors create newsletter content that is sent to subscribers via email. The offer has become increasingly popular since its inception in 2017. The platform has kept well-known journalists such as Casey Newton, Andrew Sullivan and Edith Zimmerman from their traditional newsroom jobs. Two years ago, Substack had over 11,000 paid subscribers. Now it’s up to 250,000, says McKenzie. (The company claims to work with thousands of writers, but doesn’t provide specific numbers, nor does it disclose what percentage of those writers have newsletters with paid subscriptions and which are free.)
Substack’s top 10 writers collectively raise more than $ 7 million a year, and the platform cuts those subscription fees by 10%, says McKenzie. And the company continues to focus 100% on subscriptions without running ads to generate additional revenue streams.
“We believe there are so many ways to explore and innovate subscriptions and direct payments,” says McKenzie. “The world has not even seen a tiny fraction of the potential of what is possible with an ecosystem where readers pay writers directly.”
McKenzie became friends with Best when he joined Kik Interactive, a now defunct messaging app that Best co-founded and served as CTO. Until 2017, the two were thinking about what would come next. They shared a passion for the future of the media industry and recruited Kik alum Sethi to start Substack. McKenzie leads operations, Sethi leads technology, and Best serves as CEO.
The media industry, which so far has largely relied on advertising revenue to stay afloat, had a brutal 2020 when Covid-19 raided the newsrooms, closed live events and squeezed ad spending. But newsletters have been hugely popular with both media companies and readers as people remain surrounded by digital devices and have their emails always on hand.
Right now, media companies still have some major advantages over Substack, including benefits like health care, access to editors, and legal support. But the founders of Substack say these are all on the platform’s roadmap. The company is currently building a Substack Defender writer protection program limited to US writers with paying subscribers. Next up is building a health service and a system to connect writers with editors, which Substack will run initially as a test with a “small number of publishers who make good business sense,” says McKenzie.
“We started experimenting with packages for potential writers that would give them enough support to make them feel comfortable being on their own. And in some cases that may mean quitting their high profile media job to build their writing business on Substack, ”he says.