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.