Substack: Empire of Narratives
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Substack: Empire of Narratives
The $650 million startup isn’t a newsletter platform – it’s a multi-media network and cultural powerhouse.
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Actionable insights
If you only have a few minutes to spare, here’s what investors, operators, and founders should know about Substack.
More than a newsletter platform. Though Substack has come to define the newsletter movement, its scope, and ambitions extend far beyond it. Chris Best, Hamish McKenzie, and Jairaj Sethi have built more than a simple way to send emails and collect payments, constructing a powerful creative network.
A product transformed. The market downturn complicated Substack’s plans to raise a Series C. While that necessitated cost-cutting, the chillier climate seems to have had some benefits. In 2022, Substack shipped extraordinary improvements to its product, none more important than its recommendations feature, which has driven huge growth for top writers.
Real revenue and upside. Substack’s Series B valued it at $650 million. It’s unlikely the firm would command that price today – though it doesn’t mean the business isn’t in good shape. Extrapolating from Substack’s available data, the company is likely earning north of $20 million in revenue with a low burn. Given Substack’s rapid growth and revenue opportunities, we should expect good days ahead.
The wheels must spin. To date, Substack has delivered for its top writers, driving more revenue than the 10% take rate it clips. Recommendations were critical in that equation last year. The company must ensure it keeps existing flywheels spinning and adds new ones. Publications will take their subscriber lists elsewhere if Substack fails to justify its fees.
Creating cultural power. It isn’t easy to value something as intangible as cultural power, but Substack has it. Important news, analysis, and narratives are shared on the platform, and some of the world’s most influential people use it to connect with their audiences. That influence is difficult to compete with and could help make the company a true category creator.
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Moses Beach needed a faster horse. In 1846, the publisher of The Sun, then one of New York City’s largest dailies, sought to deliver timely news about the Mexican-American War. It was, after all, the story of the day, dominating public attention. “Has the Mexican War terminated yet, and how? Are we beaten?” a teenage Emily Dickinson wrote to her brother, expressing the nation’s inquisitorial mood.
Though Beach understood the appetite for updates from the battlefront and recognized the value strong coverage could bring to The Sun, he faced a conundrum: how could he acquire the best information quickly without incurring enormous costs? Though telegraphs had been invented, the nearest machine was in Richmond, Virginia, thousands of miles from the frontline. Could The Sun afford to run a relay of horses for days, weeks, or even years?
Ever the innovator – Beach had dabbled in gunpowder-powered balloons and steamships before turning to the publishing business – he devised a clever solution. Rather than footing the cost himself, he invited four other New York newspapers to go in with him. Together, they would split the costs; together, they would benefit from faster information.
Beach’s plan worked. This chain of colts and stagecoaches propelled The Sun to new heights and illustrated the power and leverage media companies could produce by acting as a network: sharing infrastructure costs and collaborating rather than strictly competing.
Though designed to solve a temporary problem, that structure would have enduring value. In the years following the Mexican-American War, Beach’s consortium became The Associated Press. Today, the “AP” is one of the most trusted, wide-spanning media organizations on earth, both a “news agency” – distributing content to other publishers – and a destination in its own right. Every day, it produces 1,000 stories, reaches 250 countries, and is read by half the world’s population.
Glance at Substack and its parallels with a nearly two-hundred-year-old non-profit are not obvious. Beneath the surface, though, there is a common signature uniting the organizations, a shared business allele. Fundamentally, Substack exists to defray infrastructure costs for publishers, make it easier for them to build their businesses, and drive them to new heights. Rather than a monolithic entity, it’s a network in which publishers collaborate, helping one another at least as much as they vie for attention. And, if Substack has its way, it will evolve into a premier destination of its own, sought out by hundreds of millions of readers – perhaps touching billions in total.
It has come a long way in a relatively short time. Earlier this week, co-founders Hamish McKenzie, Chris Best, and Jairaj Sethi announced the platform attracted 20 million monthly active subscribers – not bad for a business founded in 2017. Just as impressive, it has attracted (and subsidized) luminaries across disciplines, congregating a surrealist digital soiree in which
, , , , , and natter, ponder, minister, jostle for the camembert and crackers. Nearby, , , and agitate a chocolate fountain back to life.It is powering moguls and mini-moguls, supporting budding empires like
, , , , , , and many more. It is overvalued and underestimated, intolerant and permissive, loathed and adored. Kleenex, Velcro, ChapStick, and Coke are all brand names that have come to define a category; Substack has wiggled its way into this distinguished, stuffy club as a precocious little urchin. Newsletters are not simply newsletters anymore; they are Substacks – sometimes even if they are not on the platform. (Indeed, despite The Generalist’s hiatus, there have been plenty of times we were referred to as such.) It is, in short, news, in every sense of the word.In today’s piece, we’ll explore the complexities of Substack and why, despite the attention it garners and the capital it has attracted, it is misunderstood. In doing so, we’ll chronicle Substack’s origins, dissect its accelerating flywheels, highlight critical risks, and apply our perspective as a media company.
Origins: Capital letters
What is reality? As the science-fiction author Philip K. Dick neared his sixth decade, he grew increasingly obsessed with that question. In 1978, the author of classics like Do Androids Dream of Electric Sheep? delivered a speech on the subject: “How To Build A Universe That Doesn’t Fall Apart Two Days Later.” The talk summarized Dick’s thinking and poetic uncertainty.
So I ask, in my writing, What is real? Because unceasingly we are bombarded with pseudo-realities manufactured by very sophisticated people using very sophisticated electronic mechanisms. I do not distrust their motives; I distrust their power. They have a lot of it. And it is an astonishing power: that of creating whole universes, universes of the mind.
The “sophisticated electronic mechanisms” of Dick’s era were radio and television. Though government groups started using a proto-Internet in the 1960s, it was still several decades away from mass adoption.
Forty years later, minus a month or two,
experienced a similar sensation. It is one that perhaps every awake, modern person has felt in the past decade or so: that your mind is not your own; that we live in an age of controlling, superior machines; that reality hides behind hallucinatory technologies and algo-juiced clickbait.For Best, those sensations revealed a societal, perhaps even civilization-scale, crisis. The internet, and the social media platforms it enabled, had kneecapped traditional media and replaced it with people and insurgent publications chasing engagement. Discourse and verity had been sacrificed to appease algorithms. Enraged by this state of affairs, Best followed the path of many an agitator, penning a philippic. (Had he been born just two millennia later, Demosthenes – master of tirades, deliverer of the original philippics – would have crushed it on Substack.)
The Canadian was a fitting courier for such a message. The son of an English teacher, Best had grown up with a profound appreciation for the world of words. “I’ve always thought that what you read matters,” he said in our conversation.
Best was also coming off eight years of building Kik, an anonymous messaging app. It had been an eventful journey. Started while Best was a University of Waterloo undergraduate, Kik rapidly rose to prominence, attracting 1 million users within its first 15 days. In the following years, the app attracted millions more and garnered over $200 million in capital – $100 million of which came via a 2017 Initial Coin Offering. Though not a social media platform, Kik’s challenges were similar to those faced by companies like Reddit. Anonymity, at scale, invites moderation and user-safety issues.
Best’s experiences with Kik gave him an appreciation for how “sophisticated electronic mechanisms” influenced behavior. “I developed this really healthy respect for the degree to which the way we design the online spaces we all inhabit now matters,” Best said. “You can’t change human nature…but [how] you set up the rules, incentives, presentation – you can kind of create a heaven or a hell with the exact same people. I think [Kik] probably had pieces of both.”
“No passion in the world is equal to the passion to alter someone else’s draft,” said another sci-fiction stalwart, H.G. Wells. After finishing a draft of his piece, Best offered that passion to former Kik colleague
, asking him for feedback.A journalist by training, McKenzie had built a career at the intersection of tech and storytelling. He followed a stint as a reporter at PandoDaily, a popular tech blog, with a spell at Tesla. At the electric vehicle producer, McKenzie was tasked with “telling Tesla’s story” as the firm’s lead writer. (McKenzie’s experience at Elon Musk’s shop informed his 2018 book, Insane Mode: How Elon Musk’s Tesla Sparked an Electric Revolution to End the Age of Oil.) At Kik, McKenzie fulfilled a similar role, acting as an “Editorial Advisor” while the messenger weathered the stress and squalls of hypergrowth.
The challenge of writing about a problem everyone understands is that simply restating the issue is not enough. The polar ice caps are melting, but what should we do about it? Pandemics are bad news, but how do we prevent them? Yes, internet discourse has degraded into endless, fractal shouting matches, but how do we converse again?
“He had written about this in a very articulate way,” McKenzie said. “Everyone in media knew this was the problem, but no one knew how to solve it.” In the years before Best sat down to write his piece, plenty of entrepreneurs had tried to reform the ecosystem, launching new publications and trialing innovative business models such as micropayments on articles.
McKenzie’s feedback sparked a further conversation. “It just got us to talking,” McKenzie said. The more the former colleagues spoke, the more Best’s work moved from the theoretical to the practical.
The fundamental problem, Best suggested, was contemporary media’s business model. Increasingly, publishers and platforms earned their money through advertising, making companies their real customers – not readers. How could you shift this dynamic? What model would give publishers the incentive to refocus their work on readers themselves?
To McKenzie and Best, the answer seemed simple: subscriptions. Instead of indirectly monetizing through advertising, digital publishers would be paid directly by readers – patronage, renovated for the software generation.
Though far from the norm, as McKenzie and Best looked out at the media landscape, they saw glimmers of the idea’s potential. The Information, started four years earlier, was thriving with a subscription model, and The Athletic, a little over two years old, was off to a fast start in the sports space. Promising evidence, certainly, but neither captured the ethos of what they sought to build quite as much as paid newsletters’ grand doyen, Ben Thompson. With no additional writing staff, Thompson had turned his publication, Stratechery, into a Silicon Valley force, and an impressive subscription business. “It was really, really working, and [Thompson] was telling anyone that would listen that it was working,” McKenzie said.
Starting Stratechery had taken plenty of entrepreneurial drive and technical knowledge, however. How many writers had the requisite skills to hodge-podge together different software solutions as Thompson had? “We hypothesized that [most writers] don’t have the business sense or entrepreneurial urge or tech-savvy,” McKenzie said. “And even if they could, it’s a lot of work.”
Like a photo developing in a chemical bath, a product came into focus. What modern media companies needed, the duo decided, was a simple way to solicit and manage subscriptions – a subscription stack, if you will. With this toolkit, writers could launch Stratechery-style businesses of their own in a fraction of the time and with no software expertise required. Instead of charging a flat SaaS fee for providing that infrastructure, Best and McKenzie’s platform would take a cut of revenue – say 10%.
“I pushed very hard [for that model],” Best remembered. “We could only make money if the customer makes money.”
Critically, even at this early stage, the ex-Kik pair felt that this alone was unlikely to be sufficiently interesting. The right infrastructure was undoubtedly pivotal, but the real prize came after a significant number of independent publications operated within a shared ecosystem. Best and McKenzie knew that was the foundation for a network – one in which media companies might collaborate and interact, helping one another grow. As that happened, the underlying product could become a platform in its own right. It was, in essence, a speedrun of the Associated Press story: shared infrastructure producing a network driving the creation of a destination. They named it Substack.
“Substack at the start was both a grand and ambitious vision and a small and modest one,” Best reflected. “And that’s what makes it a good idea.” It didn’t hurt that when they ran the concept past Thompson, he gave his thumbs-up. “Ben’s always been very, very supportive,” McKenzie remarked.
While Thompson may have partially inspired the startup, another writer stepped in as an angel investor and first customer. By 2017,
was already a media adept. In 1997, he co-founded MarketWatch, handling the business side of the financial publication. In doing so, Bishop came face to face with the operational challenges of running a media company. “It was really hard, at the time, to cobble together the set of tools to charge people and run it consistently,” he said. That problem had only become more personal in the years since. Starting in 2012, Bishop began writing , a China-focused publication that attracted a devoted, influential reader base. As Sinocism grew, Bishop considered monetizing his passion project, nudged by Thompson.By 2017, Bishop was ready to make his move. “After talking to Ben Thompson I had worked together a kludge with WordPress and Stripe,” he recalled. To warm up his audience, Bishop began sharing his plans to introduce a paywall. Thankfully, one of his readers paid particularly close attention.
By then, Hamish McKenzie had known Bishop for the better part of a decade and had been a loyal consumer of Sinocism. When McKenzie read that Sinocism was introducing a paywall, he pounced, emailing Bishop and, shortly after, arranging a visit to the writer’s Washington D.C. home. McKenzie and Best ended up with more than they’d bargained for: not only did Bishop agree to become Substack’s first outside publisher, he invested in the budding business. “I really liked the platform, and I liked the guys,” Bishop said. “[I thought:] I’m putting my business on there anyway, these guys seem like they’re really smart – maybe I should double-down.”
Bishop’s decisions wouldn’t take long to receive at least partial vindication. On October 15, 2017, Sinocism launched its paid product on Substack; by the end of that day, Bishop had snagged more than $100,000 in subscriptions. “It validated it for everybody,” he added.
Substack was accepted into Y Combinator’s winter batch not long after, setting Bishop’s new investment on a breakout trajectory. While Best and McKenzie continued developing the product – and reaching out to writers – during the accelerator, the most significant addition came in the form of a third co-founder. Chris Best had hired
in 2012 to Kik’s engineering team, where he spent five years. Early into McKenzie and Best’s ideation, Sethi pitched in as a contractor, but halfway through Y Combinator, he stepped into the CTO role. (Best acts as CEO, while McKenzie serves as Chief Writing Officer.)The trio’s stint at the accelerator culminated in a new round of funding. In April 2018, Substack announced a $2 million seed round with participation from The Chernin Group, Fifty Years, and Garage Capital. Emmett Shear, co-founder of Twitch, joined as an angel.
For a little more than three years, Substack grew nicely. By the end of 2018, it boasted 25,000 paid subscribers; by mid-2019, it hit 50,000.
And then, something broke. It may be truer to say that everything did.
Covid upended business logic several times over: the market crashed, then rallied, then soared, boosting the stock of companies like Zoom, Peloton, and Teladoc. A beneficiary of captive audiences, Substack followed suit, though at a delay. By the summer of 2020, subscriptions reached 100,000 – in line with prior growth. But by September, that figure had risen sharply to 250,000.
Substack would never look back. Over the succeeding two and half years, the platform has expanded subscriptions by a compound annual growth rate (CAGR) of 136%. It did so through the rabid froth of the last bull run and the past year’s chill. Earlier this week, McKenzie, Best, and Sethi announced that Substack had crossed 2 million paid subscriptions and more than 20 million monthly readers.
Substack’s founders acted savvily to stoke their platform’s trajectory. Though they may not have realized it, they borrowed one of their strategies from print journalism’s most notorious entrepreneur.
If American media could choose a single protagonist to represent itself, it would be hard to look much further than William Randolph Hearst. In his discernment and excess, ambition and unscrupulousness, the media mogul and founder of Hearst Communications captures something of the nation and industry’s psyche. The fact that Hearst served as the inspiration for the principal character in the iconic film Citizen Kane, and appeared in Gore Vidal’s series of novels covering American history, Narratives of Empire, demonstrates the extent to which the once presidential candidate captured the imagination.
In 1887, a twenty-four-year-old Hearst took charge of the San Francisco Examiner. He undertook a bold but simple plan to boost the paper’s circulation: bring the best talent aboard. That included luminaries like Mark Twain, Jack London, and Ambrose Pierce.
Amid the 2020 run, Substack began a similar push, launching what came to be known as its “Pro” offering. It tempted high-profile writers to publish on the platform by offering an advance on earnings, a healthcare stipend, and financing to hire design and editing help. Though many were smaller, some packages topped $400,000 across multiple years. The standard arrangement seemed to be that writers would receive a lump sum to get started on the platform, with Substack taking 85% of paid subscriptions for a year, after which point, Substack’s take rate fell to 10%. Beneficiaries included
, , , , and . Other illustrious names like George Saunders and Margaret Atwood may also have participated in this program. (Given how frequently Saunders is billed as Twain’s heir, this would be a nice bit of symmetry.)Though Substack saw these deals as “business decisions,” they couldn’t count on making an investment return. Having a significant capital buffer allowed them to act aggressively. In 2019, Andreessen Horowitz’s (a16z) Andrew Chen led a $15.3 million Series A investment into McKenzie, Best, and Sethi’s platform. Two years later, a16z doubled down on its investment, leading a $65 million Series B. That round valued Substack at $650 million. (We’ll explore this later in the piece.)
For Chen, Substack was a category-bending, n-of-1 business. Not only was it growing rapidly, it had amassed extraordinary cultural power in a short amount of time. Just as critically, it was led by some of the most impressive founders he’d encountered. “I sat down with Chris and Hamish and was just like, ‘Wow, this is an amazing team,’” Chen recalled. “You have Chris who’d seen a ton of scale with Kik, and then you have Hamish who has the motivation and empathy for writers.” Chen added that he considered Substack’s three founders “some of the best” in his firm’s portfolio.
Best had, indeed, seen plenty of scale with Kik. He’d also experienced plenty of controversies; Substack offered little reprieve. As the company grew in size and relevance, it attracted criticism on multiple fronts.
Some writers found Substack’s 10% take rate punitive, especially compared to traditional email platforms; a writer that earned $100,000 in subscriptions paid Substack $10,000 for the pleasure of using its platform when a similarly featured alternative might have a fraction as much. John O’Nolan, founder of competitor Ghost, referred to Substack’s rate as “too greedy of a slice to take of anyone’s business with very little in return.”
That Substack allowed controversial writers like Glenn Greenwald, Jesse Singal, and Andrew Sullivan to use the platform struck some as a sign it didn’t take moderation seriously. Publishers like Jude Doyle, Nathan Tankus, and others departed for Ghost on these grounds.
Ghost was not the only rival with which Substack had to contend. In 2021, as Substack established itself as a category unto itself, Facebook and Twitter entered the newsletter game. Zuckerberg’s company launched “Bulletin” while Twitter acquired the Dutch platform, Revue. (Both are now defunct, Substack waving their heads aloft like sans-culottes.)
Twenty-twenty-two introduced new challenges for Substack. Midway through the year, Substack considered raising a Series C at a mooted $1 billion valuation but aborted the process in light of another market shock. “We went to sniff the market…and it was perfectly timed for the market turning,” McKenzie said. “We were like, ‘Ok, this is not the right idea.’” That volte-face provoked widespread coverage emphasizing Substack’s elevated $650 million valuation and a reported $9 million in revenue – a figure McKenzie says was incorrect, though “not orders of magnitude wrong.” With venture capital off the menu, Substack cut 14% of its headcount and reduced burn.
The cooler environment seemed to benefit Substack in important ways. The company’s product matured by leaps and bounds in 2022. Visual improvements, a mobile app, video support, a stronger editor, upgraded podcast functionality, discussion threads, a revamped web reader, mentions, chat, and, of course, recommendations all emerged last year. “The amount of stuff they’ve shipped in the last 12 months has been super, super impressive,” Andrew Chen noted.
The result is a product that looks increasingly unique – and noticeably closer to Best and McKenzie’s original vision.
Product: Narrative network
Many companies make grand plans – few have the chance to see them through. In a relatively short time, Substack has succeeded in advancing through its master plan. From the beginning, Best and McKenzie designed Substack to be three-in-one, a holy trinity of media: tool, network, and destination. Though different elements are more mature than others, this configuration remains the best way to understand the platform.
At its most fundamental level, Substack is a tool. Writers use it to email their readers, publish posts online, and accept subscription payments. Do not let the seeming simplicity of these tasks fool you. It is not easy to do any of these things well: emails are easily waylaid, content is hampered by ugly interfaces, and purchases flounder on ill-designed checkout pages.
Substack’s version of these features is restrained, efficient, and, increasingly, elegant. You may not have all the features you want or as much control as you’d like, but you won’t struggle to get started. I remember using the platform to send the first-ever edition of The Generalist and being impressed by how easy it was to get started, particularly compared to clunky enterprise-focused alternatives like Mailchimp. Though Substack has added a great deal of functionality since then, it’s succeeded in retaining that initial simplicity.
Beyond solving these core problems, Substack offers reasonable dashboards to track subscribers and payments. Compared to other email marketing platforms, the offering is light here. You can see how many readers you have and your gross annualized revenue, but there’s no simple way to see your blended open rates, for example. That feature would be considered table stakes in other products.
Substack has other gaps, too. You can’t set up different email series or simple automations. Historically, design choices have been extremely limited, meaning that brand-conscious publishers have few options beyond the color of a few buttons. Additionally, publishers on the platform have traditionally struggled with SEO, limiting their inbound traffic.
Along with Substack’s take rate, these were the reasons I decided to move The Generalist fully off of Substack in early 2021. I wanted more control over our brand, a more robust set of automations, and more rigorous analytics. I felt that SEO was extremely important to the business and wanted to build our site’s authority. (I still believe this is important, which is why we cross-post on our other domain for now.)
While Substack hasn’t entirely addressed these issues, the progress made in our two-year absence is remarkable. The available dashboards have improved, and a recent SEO upgrade seems designed to solve the most pressing issues. Critically, Substack has also given much more design control to publishers. It’s now common to see Substacks leverage different fonts and background palettes, for example. On a case-by-case basis, Substack has worked with some of its largest publications to create more extensive, elaborate custom themes. For example, visitors to The Free Press are greeted by a site that looks very little like a traditional Substack; the only obvious sign of its provenance is the “subscribe” button in the top-left corner.
Such cosmetic features are meaningful for a media business. Though Substack has attracted many impressive publications to its platform, it has also seen some leave. The Dispatch, for example, departed in 2022, opting to build a solution of its own. Beyond economic considerations, I suspect part of the rationale would have related to brand control. Indeed, this was a key consideration when we thought about moving The Generalist back to Substack. Though we’ve started with the platform’s default aesthetic as we get back up to speed, I expect us to tweak the visual language and branding to better fit our ethos in time. Introducing more flexibility here could persuade fast-growing publishers that they don’t need to leave the platform to build a brand.
Beyond bolstering its weaker points, Substack has also added support for new content types. It’s now possible to publish podcasts via the platform, and video support is being tested with a limited number of users. In my discussions with employees and investors, this was billed as a particular area of interest, expanding Substack’s surface area beyond the written word.
When assessing Substack in 2021, I missed its potential to become a network. I understood it was a tool, of course, and could see how, as it matured, it would become a destination in and of itself. But though I understood the origin and terminus, I failed to understand the critical link between them. Substack isn’t just a place to publish or read – it’s an ecosystem for writers and creators to collaborate and contribute to one another’s growth.
The clearest manifestation of this is Substack’s recommendations feature. For such a transformative addition to the platform, it’s extremely simple. With a few clicks, writers can “recommend” other Substack publications. By doing so, those publications appear on their homepage and as a suggested read when a new subscriber joins. Substack sends inconspicuous emails at regular intervals noting that a publication recommends another – letting you know, for example, that The Generalist recommends
. (We also recommend excellent publishers like , , , , , and others.)
No financial transaction drives the exchange (though some may make informal arrangements). It’s done simply as a way for writers to help one another and demonstrate taste to readers. “One of the more pleasant surprises of recommendations is how well it worked off the back of the goodwill of writers,” VP of product
remarked. He added: “When you’re subscribing to a writer, it’s not just because you want their email in your inbox; you want their thoughts to shape your worldview.”Recommendations didn’t just work – they transformed how publishers grew on the platform. “When the recommendation system started kicking in, it was definitely a material increase in new sign-ups,” Bill Bishop remarked.
expressed a similar sentiment. “Recommendations really justified the 10% [take rate],” he said. “Not that I was really smarting about it ever. I would say it’s a key feature.”The Generalist has seen the benefit of recommendations, despite only recently returning to Substack. Thanks to other publications, we’ve gotten more than 2,000 subscribers – a non-trivial amount.
Though recommendations are the cornerstone of Substack’s network, other features help. Its leaderboards drive healthy competition and allow readers to discover popular publications easily. The platform also recommends articles based on the activity of others in your network.
Even in subtle ways, Substack prompts writers to collaborate. You can cross-post other publications’ pieces or tag fellow writers. Substack’s dashboard has a neat, somewhat hidden page that details audience demographics and the amount of overlap your publication has with others. For example, The Generalist has a 9% overlap with Not Boring and an 8% overlap with Lenny’s Newsletter. It’s easy to imagine how this data might prompt new collaborations and partnerships.
“We’re trying out different things and seeing what sticks,” growth product manager
said about promoting collaboration. Recent additions like the Letters feature – which lets writers publish a correspondence – illustrate this iterative approach. Already though, its network is making a difference. Substack’s team confirmed it drives 15% of paying subscribers and 40% of free sign-ups. Notably, the company counts anyone with an existing Substack account toward these numbers; they are still impressive.When thinking of Substack through this lens, it can begin to look like a very good deal. Imagine you’re a publisher earning $500,000 a year. At first, glance, giving up $50,000 for an email platform and website sounds absurd. Plenty of alternatives exist for a tenth of the cost. However, if that $50,000 platform drives $75,000 in revenue, using it is sensible and economical. The math is even more attractive for publishers that monetize via subscriptions and ads.
For The Generalist, this growth was especially persuasive. If you believe Substack will continue growing, as I do, the opportunity to benefit from these features may compound. My friend Ben Butler offered the best analogy I’ve heard, comparing Substack to Booking.com and publications to various hotels. Though hotel owners may wish to have part of their business or brand exist off of travel platforms, they must have at least some presence – the sheer volume of traffic and business a player like Booking.com drives cannot be missed.
Finally, Substack seeks to become a destination. In truth, it’s already become one in some pockets of the internet. I would hazard that a non-trivial percentage of tech workers, for example, visit the site with no set intention, merely to browse. Substack has encouraged this behavior by expanding its reach and functionality.
Critical to this strategy was the introduction of a mobile app – now available on both iOS and Android. It offers a superior reading experience to many email inboxes and websites and mixes in other neat features.
For example, users can easily listen to podcasts from their favorite publications, as they can online. As more podcasts come onto the platform, I expect Substack to build a cleaner, more fully featured podcast player in the vein of Overcast. This would further establish it as the kind of app you open multiple times a day.
In November 2022, Substack launched chat, another interesting aspect of the app. With the toggle of a button, publications can offer a Telegram-esque chat product for subscribers. It’s a lightweight, mobile-friendly way for writers to engage their reader base. “If you can get a conversation going, it’s actually quite powerful,” Bill Bishop said. It’s too early to tell whether chat will become a vital part of Substack’s offering in its current form – but the company wants to manage this kind of community building for its customers.
In my discussion with Sachin Monga, he emphasized the precision with which Substack views its stakeholders. It doesn’t think about “users” or “creators” – it hones in on “writers” and “podcasters,” building for these groups specifically. It may sound like a small thing, but this specificity feels critical to understand how Substack makes its product designs. It’s also an intriguing framing when thinking about chat. What does a community platform look like when designed explicitly for writers? What would Discord look like, passed through a literary lens? We will have to wait to find out; it’s an intriguing question for now.
As mentioned, it was clear from the beginning that Substack wanted to become a destination, though my feeling on the matter has changed. Initially, I assumed that the larger Substack’s brand became, the more it would seek to minimize and commoditize the underlying publications. In many respects, that has been the recent history of content networks – Twitter doesn’t want each tweet to have vastly different brands, stylizations, or rules. It wants variety in content but uniformity in structure. Wouldn’t Substack seek to require The Generalist to adhere to similar strictures?
I assumed so. I missed that structurally, Substack can’t apply the same force as traditional social media platforms because the underlying businesses are fundamentally portable. Imagine you’re an Instagram influencer that monetizes via sponsorships. If you don’t like how Adam Mosseri manages the platform, what are your options? You cannot simply port your followers to another network and start monetizing. Your business depends upon the benevolence of the platform on which it was built.
Newsletter businesses are different. Because email addresses are portable, you take your audience with you. If a tool or network is no longer serving the company, you can make a change – just as The Generalist did this week. As a result, Substack cannot overreach even if it wanted to. Even if it were run by mustache-twirling villains rather than principled media obsessives, it would be counterproductive to exert too much force, to turn the screws too tightly. Instead of doing so, as we’ve discussed, Substack has moved in the opposite direction, allowing for greater variety and control.
While Substack is a three-part business, its different pieces work harmoniously. The stronger the tool becomes, the more writers come aboard. The more writers that join, the more robust the network becomes. The more powerful the network becomes, the more compelling a destination Substack is. And the better the destination is, the more readers come aboard and discover writers. It’s an elegant model. It may also power the creation of a big business.
Business: Manifest destiny
Is 10% a lot? It depends on the context. Of niche newsletters, no; of the media economy, yes. This question of context is at the heart of how one assesses Substack’s business potential and how large it may eventually grow.
First, a refresher of Substack’s business model: the company takes 10% of writers’ subscription earnings on the platform. It’s an aligned business model that means Substack only earns money when its writers do. (It’s worth noting that publications end up with less than 90% after factoring in processing fees and chargebacks. Bill Bishop estimated he takes home “eighty-five cents for every dollar.”)
Though Substack’s cut might sound expensive, it’s rather economical relative to other platforms that drive revenue for underlying businesses. Video platforms like YouTube and Twitch take as much as 50%, Apple’s App Store famously takes up to 30%, and OnlyFans clips 20%. Patreon – which acts less like a destination and charges subscription fees – costs 5-12%.
Based on this model and its free user growth, Substack last raised at a valuation of $650 million, though it’s unclear whether that figure was pre or post-money. If it’s the latter, Substack’s true valuation is $715 million. Is the company worth that much?
Though Substack declined to share revenue figures, we can do some back-of-the-envelope math to assess where the business is today. As mentioned earlier, Substack announced this week that it had passed 2 million paying subscribers. To understand how this translates into revenue, we need to understand a customer’s average order value (AOV). While AOV has not been disclosed, we can get a ballpark figure by reviewing the pricing of top publications.
To do so, I looked at the annual plans for the top ten publications in culture, business, finance, tech, and politics. These are the categories that Substack positions most prominently in its product, suggesting they’re popular and may drive the most volume. Annual pricing across these fifty publications ranges from $50 to $2,000, with a median of $100 and a mean of $234. Using the latter two figures, which seem most representative, we can understand Substack’s likely gross merchandise volume (GMV) and revenue.
We can see that Substack’s revenue is likely between $20 million and $46.8 million. If I had to guess, I would expect it to be around $25 million to $30 million.
How valuable is it? In essence, Substack’s revenue is a derivative of subscription revenue. It doesn’t have perfect control over its earnings, relying on its customers to drive purchases. While that’s not ideal, the upside is that this revenue should be resilient, coming from hundreds of different sources – albeit with perhaps meaningful concentration. Given Substack is ultimately a software product, it should be high-margin.
All told, it seems reasonable to value Substack’s revenue like a B2B SaaS company – perhaps with a bit of a haircut. Per
, another Substack publication, median B2B SaaS multiplies are at 10x next-twelve months revenue (NTM) for businesses growing more than 30% per year. Given Substack grew at roughly 74% over the past year, it comfortably fits into this category. If Substack grows at the same rate, its revenue in twelve months would sit between $81.4 million and $34.8 million, a decent proxy for an NTM figure.
Applying a 10x multiple, Substack would be valued between $348 million and $814 million in today’s market. If we think my semi-intelligible guess of $25 million in current revenue is reasonable, Substack would be worth $435 million. (It’s also possible Substack would command a higher multiple given its fast growth, though it’s not guaranteed they can retain this trajectory.)
If that sounds like failure, it shouldn’t. While Substack may not be worth $650 million in the current market, virtually every company that raised during 2021 did so at elevated valuations that need to be grown into. As long as a company has sufficient runway, there’s nothing wrong with that. The founders brought in money on advantageous terms and without jeopardizing their future.
Substack seems to be in this situation. Andrew Chen remarked that they had moved quickly to preserve capital, even presenting an “infinity runway” option to their investors, showing how the business could become self-sustaining. Given the small size of Substack’s team and eight-digit revenue, it’s realistic to imagine they could turn a profit within the near-to-medium term. In our conversation, CEO Chris Best noted he was a “big believer that business model is destiny.” Substack’s model has very nearly put it close to controlling its fate.
How large can Substack grow without deviating from its current subscription model? Looking at large legacy media companies provides a starting point. As of May 2022, The New York Times boasted 8.4 million digital subscriptions, followed by the Wall Street Journal with 3 million and Washington Post with 3.5 million. According to these figures, Substack already eclipses esteemed publications like The Economist, The Guardian, The Financial Times, and the Harvard Business Review.
Substack would surpass The New York Times figure within three years at its current growth rate. If Substack equaled the Grey Lady’s by this measure and maintained median and mean annual subscriptions, its revenue would be between $84 million and $197 million. Applying the same valuation process would mark Substack between $840 million and nearly $2 billion.
Is this Substack’s ceiling? It doesn’t feel like it. As we’ve established, it doesn’t scale like a media company. If Best wants his business to dominate a new beat, he doesn’t need to hire a team of journalists and designers; he only needs to persuade the right writers to hop aboard.
Using legacy media as a guidepost is also unimaginative. In 2014, Bill Gurley published a now canonical post. In “How to Miss by a Mile,” Gurley argued that New York University professor Aswath Damodaran’s skeptical assessment of Uber’s $17 billion valuation made critical errors. Using the global taxi and limousine market as a reference point, Damodaran failed to consider how Uber might grow the broader market, enabled by a radically better experience, network effects, and an advantageous economic structure. He estimated Damodoran’s TAM assessment might be off by 25x or more.
Today, Uber is valued at a hair below $70 billion – far beyond the $17 billion Damodaran and Gurley debated but short of the Benchmark general partner’s most radical hopes. It doesn’t matter for the integrity of the argument, however. The point is that it is difficult to estimate market size at the best of times, but doubly so when assessing a category creator. While Substack is unlikely to 25x The New York Times subscriber base (which would put it close to par with Netflix), it could foreseeably outstrip the 172-year-old press several times over.
Of course, Substack doesn’t need to adhere religiously to its existing business model, even if it inspired the firm’s name. Publications monetize beyond paywalls, and Substack may wish to take a piece of that pie. Not Boring, for example, has become one of tech’s most popular, prosperous newsletters by leveraging sponsorships – as does The Generalist. Could Substack simplify the ad process – for writers and podcasters – and take a cut of earnings?
Neither McKenzie nor Best ruled it out, but it doesn’t seem to be a priority. “It’s not like we never think about other revenue options. And there are ongoing discussions about what else we could do,” McKenzie said. “[But] in my mind, ads and subscriptions do conflict with each other, or at least introduce conflict.” He added, “If there were a Substack with ads that came along today, I’d be confident about competing with them.” Best echoed that sentiment: “There’s an established advertising model that works for big networks…Our advantage is to go to the opposite end of the barbell.”
An experiment might be one-off products. Newsletter writers often create popular courses, pen e-books, or even host conferences. These can represent significant sources of revenue. Eric Newcomer, for example, recently announced Cerebral Valley, an AI conference. Newcomer estimates Cerebral Valley could deliver as much as a third of his revenue this year.
As it stands, the best way to promote the conference is by sending an email to subscribers. That’s not bad, but Substack could go further, adding an “Events” tab to its web and mobile apps, making it easier to buy tickets and RSVP. The same principle could guide the creation of a library of e-books, a collection of job posts, or a selection of paid courses.
Given that paying customers already have credit cards on file, Substack is in a perfect position to drive incremental purchases like this, taking a cut in the process. If Substack can win across media and product types, Series B investors are unlikely to fret unduly over the price paid in 2021.
Risks: Peak newsletter
Did Claud Cockburn worry about Peak Newsletter? In 1933, the British journalist left his job at The Times to start his own publication. Cockburn grew his subscriber base in the succeeding years, winning over readers like Charlie Chaplin and King Edward VII. He was, in essence, a newsletter writer. And he was not the only one of his age. Indeed, much like the present day, newsletters were a bustling business in the mid-twentieth century, albeit in physical form.
Perhaps this story is merely a newsletter writer’s form of self-soothing; Substack will certainly hope so. Among the company’s primary risks is the collapse of the content type it supports; if the newsletter withers or dies, Substack likely does, too.
Despite the model’s longevity, it’s not an impossibility. In the eras of Moses Beach or William Randolph Hearst, predicting the inevitable death of the newspaper might have sounded like lunacy. Of course, over the past two decades, America’s newspapers have experienced a culling, with 25% of publications closing their doors. The mass extinction continues: in 2022, the New York Times estimated two newspapers a week were shutting down.
Could newsletters experience a similar disruption, displaced by faster, slicker content formats? Already quick-video platforms like TikTok and YouTube serve some of the demands a newspaper once did. Time spent reading for personal interest is declining, from 23 minutes per day in 2004 to 16 minutes in 2019, the most recent survey year. Will younger generations find value in good old digital ink?
Perhaps not – which makes Substack’s experiments in alternative content formats even more important. Even if that is the case, the demand for B2B publications should remain strong and cannot be as well-served by short-form video platforms. If you’re a logistics manager, you might find a few tips on TikTok, but you’ll spend money on a trade publication like Freight Waves. Though it may become more niche, at least some demand for long-form writing will remain for the foreseeable future.
A newsletter cataclysm is possible, but it will not rank high on Substack’s list of risks. More frightening is the possibility of reputational damage. As discussed, Substack has weathered plenty of firestorms in its comparatively young life, attracting opprobrium from multiple quarters. In some instances, this has driven the exit of writers with significant audiences and earning power. So far, these movements have been on the mini side – Substack’s executives will want to ensure it stays this way.
One of the reasons Uber failed to meet Gurley’s wildest wishes is because of the negative attention it so often attracted. In response to the ridesharing app’s response to President Trump’s immigration order, a #DeleteUber campaign took off in 2017, hamstringing growth and boosting rival Lyft. Without these fumbles, Uber might have seen Lyft off once and for all.
Robinhood offers a more recent example. The GameStop saga battered the trading app’s reputation and has permanently damaged the public’s perception of its “payment for order flow” business model. Its loss was competitor Public’s gain. The social trading app aggressively counter-positioned against Robinhood, explaining its differentiated business model and urging customers to “break up with their broker.”
Though discontent has quieted over the past year, the nature of Substack’s business means this is always a risk. Media companies tend to like writing about other companies, meaning Substack will remain in the spotlight. Because email accounts are portable, its customers can depart the platform for substitutes like ConvertKit and Beehiiv. Its rivals would likely benefit if it were to stumble into a PR quagmire. The company will need to tread carefully while not being cowed into inaction.
A final concern for Substack will be its ability to deliver growth for its customers. Recommendations represented a game changer for the ecosystem, propelling constituent publishers to new heights with no added effort. While this feature can keep bolstering subscriber counts, Substack will want to add other weapons to its arsenal just in case that flywheel slows. At some basic level, every successful publisher makes the same calculation at the end of the year: did Substack deliver more than the 10% it took? Everyone is happy when the answer is yes. However, when there’s a deficit, the focus shifts from growth to cost.
Trickily for Substack, this issue is especially pronounced among its biggest players. If your newsletter is earning $3 million a year, Substack needs to find a way to deliver at least $300,000 in value and hopefully more. If Substack cannot do this, it may create a dynamic in which the rational move for the most successful publishers is to leave the platform.
Substack’s leadership is aware of this risk. “We don’t have many guardrails against writers leaving,” Hamish McKenzie said. “The best retention strategy is [for writers to] succeed so wildly with Substack [they] wouldn’t even consider the competition.” To date, Substack has executed that strategy effectively, but it may not always be as easily done.
Future: Infinite press
Today, Substack is known as the newsletter platform. In three years, that may no longer be the case. Substack’s goal is to be the best place to build a media business, no matter your preferred content type.
Podcasting and video are good primitives to introduce, but they are just a starting point. Substack hosts an incredible breadth of content (a “bonkers cornucopia,” as Head of Marketing Bailey Richardson put it) from food to politics to travel to spirituality. It is alive with subcultures and esoterica, a place for the passionate to coalesce no matter how miniature their shared interests are.
In addition to this beautiful strangeness proliferating (“niches create more niches,” Reid DeRamus remarked), Substack can better serve existing constituents, building support and infrastructure for different parts of its ecosystem. That might come in the form of new mediums or features.
For example, you can imagine Substack rolling out support for comics and graphic novels, giving these creators easier ways to build a business around their work. The next Cyanide & Happiness or XKCD may be provisioned over email, or shown in the Substack app rather than running as blogs, accumulating distribution power via closed social networks. An elegant reader could be built to consume this visual content, along with special features like caption competitions.
You could see Substack rolling out similar features for other categories. For instance, food writers might benefit from a bespoke recipe builder or timer functionalities. Financial analysts would undoubtedly use interactive market charts, tables, and other graphing supplements.
The more compelling Substack’s toolkit becomes, the more creators are likely to hop aboard. The platform can also take steps to lower the barrier to creation – perhaps with the help of AI. As outlined in “Endless Media,” generative AI engines like Midjourney and ChatGPT are fundamentally disrupting how we create content, making it considerably easier to conjure compelling imagery and passable written text.
There are so many ways Substack could seek to benefit from these innovations. For example, it could automatically generate summaries of long articles for writers to include at the top of a piece – like our actionable insights. With the help of voice-skinning platforms, it could upgrade its read-aloud functionality to support custom audio; readers would hear articles in the author’s voice. It could even take a page from Lex, an AI-powered word processor, augmenting its current editor to help publishers work through writer’s block or accelerate their process. Fittingly, Lex was created by the newsletter network, Every, which a former Substack employee co-founded.
Substack is awake to the opportunity. One writer spoke about a closed beta test that made it easier to generate headline images using AI; Substack confirmed that it was running such an experiment. It’s a test in line with the platform’s ethos: it’s possible to manifest an apposite image using Midjourney but not effortless, requiring careful prompting. Though the details of Substack’s test have not been disclosed, it would make sense for the company to streamline this process, providing prompt guidance. Just as Substack made collecting subscriptions a matter of a few clicks, it may do the same for creating media assets.
As the Stackverse proliferates, the possible business opportunities expand. Among tech’s collection of bumper sticker phrases is this classic from Netscape CEO Jim Barksdale: “There are only two ways to make money in business: One is to bundle; the other is unbundle.”
Substack’s relationship to this phrase is interesting. On the one hand, it propelled media’s great unbundling, jailbreaking writers from traditional publishers and giving them the tools to succeed. However, it does fundamentally, well, bundle those new businesses under its banner. To date, that’s been done at a product level, but it could manifest in other ways, too.
We’re beginning to see some inklings of how this might play out. By hitting a button in settings, publications can activate “Substack Boost.” By doing so, their subscription starts programmatically showing up in the checkout flow for other publications, offering 20% discounts.
It’s, in essence, a mini-bundle. It’s to Substack’s benefit to encourage this kind of behavior, driving up AOV and earnings in the process.
More exciting than the content types and business mechanisms Substack may someday support is the cultural power the company looks set to amass. Best’s firm is already a powerful player in this regard. It is home to some of the world’s most interesting, influential people.
It can be difficult to visualize cultural power in all its intangibility; a real-world Substack party serves as a useful physical manifestation. Bailey Richardson (
) remarked how the company had hosted a drinks event in the East Village attended by legendary songwriter , Vanity Fair writer , and the late football journalist . All were on Substack.“We’re only in the early innings of the cultural significance of Substack,” Andrew Chen said. “There’s going to be new buzzwords and terminology [that comes from it]...the same way that gamer terminology that becomes mainstream originates on Reddit and Discord.” It is a modern salon, a place to converse, collaborate, and create.
As it happens, the first-ever post on Substack was about The Sun. Announcing their new platform in July 2017, Chris Best and Hamish McKenzie detailed how the New York newspaper pioneered media’s advertising model in 1833 – five years before Moses Beach took over. In the view of Substack’s founders, by doing so, The Sun initiated the media industry’s gradual slide toward dishonesty and superficiality.
It feels fittingly recursive that The Sun originated the unhealthy environment Substack seeks to correct and then pioneered a new model of cooperation that hews closely to Best and McKenzie’s original vision. Moses Beach’s “Associated Press” coalition may have started as the solution to a transient problem, but it evolved into an enduring example of network power.
Substack is not a publisher nor a simple tool. It is a network, an ecosystem, an engine alive with word and culture and thought; an empire of narratives.
The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.
Substack: Empire of Narratives
Excellent post. I'd undercounted and had put their ARR at 10m, but the range is likely wider. I'm a little confused on the eventual size here though, especially as media businesses have higher attrition vs B2B saas, and low net revenue retention, but as a regular user the platform's great!
Excellent article (and thanks for mention!). Would add that Finance Substack also has scope to tap into the sizeable market for paid investment research.