Friends,

As we announced on Thursday, The Generalist is officially back on Substack! 

We outlined the reasons behind our move in our last piece; this time around, I’m excited to write about Substack itself. 

The transformation of Substack in 2022 is one of the most interesting business stories of the past year. The startup evolved from a popular newsletter platform into a dynamic content network powered by unique flywheels. In tandem, it turned into a true destination, supporting new mediums like podcasting (and soon, video). It’s quickly becoming a cultural powerhouse with the potential to shape what we consume and how we connect.

Its best days may be yet to come. While it may need time to grow into its $650 million valuation, its lean team, rampant growth, and substantial revenue mean its fate is in its own hands. To hear the full story and better understand why we think Substack is the media platform of the future, jump in.

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Substack: Empire of Narratives

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.

If you like The Generalist’s work, please consider hitting the heart button on this piece. It helps more readers discover our writing and supports our growth! ❤️

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 Dickson 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 Margaret Atwood, Kareem Abdul-Jabbar, Marc Andreessen, Chuck Palahniuk, Patti Smith, and George Saunders natter, ponder, minister, jostle for the camembert and crackers. Nearby, Glenn Greenwald, Bari Weiss, and Matt Taibbi agitate a chocolate fountain back to life.

It is powering moguls and mini-moguls, supporting budding empires like The Free Press, Letters from an American, Not Boring by Packy McCormick, Lenny's Newsletter, Platformer, The Ankler., 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, Chris Best 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 Hamish McKenzie, 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. 

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Puzzler

​All guesses welcome and clues given to anyone that would like one. Just respond to this email for a hint. Today’s riddle is courtesy of The Riddler himself. 

What is it that no one wants to have, but no one wants to lose either?

Jeb B is a master puzzler. He flexed his skills to decipher last week’s conundrum quickest, trailed by Greg K, Upendra S, Ajay J, Joshua K, Steven R, Ram S, Thomas R, Nitin B, Jim W, Jeff C, Eli K, Shashwat N, Gary J, PierPaolo C, Krishna N, Saagar B, Hari A, and Firdavs A. All figured out this concoction:

What are the next three letters in this sequence: TTTFFS

The answer? SSE. Here’s the pattern: Ten, Twenty, Thirty, Fourty, Fifty, Sixty. The next three entries in the sequence are naturally, Seventy, Eighty, Ninety.

It’s been a big week for The Generalist. I’m so excited to be back on Substack and for some of the exciting additions we have to come. My sincere gratitude to all of you for being on this journey.

Great days ahead,

Mario