Substack is in trouble.
Despite it's cultural impact, the business is a dead man walking...
@beehiiv is about to take its throne. Let me explain why 🧵
Before we start, I want to recognize that Substack has made a positive impact on media:
-They disrupted the mainstream media's monopoly by allowing independent writers to go direct
- They shifted us towards a more open internet, by letting writers keep their subscribers' emails
However, their business model was flawed from the start.
Similar to @Medium, they took on a bunch of venture capital to scale their business ($82M in total)
For a while, this papered over the holes in the business. But those issues are finally starting to show...
For starters, Substack is hemorrhaging money.
According to their 2021 income statement, they lost $22M.
(I expect those losses have only accelerated as they have scaled)
Looking closer at the financials, I see 2 concerning line items:
1) They only did $12M in revenue in 2021 (this is literal 🥜's).
To put it into perspective, individual newsletters like @MorningBrew did $46M in revenue that same year alone.
2) The $16.6M in partnership expenses
These likely went to writers to convince them to move to Substack. The only problem?
There's nothing stopping those writers from moving off the platform with a few button clicks
(That's the double edge sword of letting writers own emails)
So you have a business that is burning cash, with no path towards profitability.
To make matters worse, we have entered a terrible fundraising environment.
Which means that Substack can't raise the capital it needs to continue to burn cash and extend its runway...
This is why you've seen Substack making some moves that reek of desperation:
1) $2M community fundraising round:
IMO, this is taking advantage of their brand reputation. I am skeptical that anyone investing in this will see a positive ROI.
2) Their latest hail mary is a Twitter competitor.
For all the sh*t-talking people do about Twitter, it actually has extremely powerful network lock-in effects.
Just ask Mastadon how their plan to take Twitters' users is going...
While many members of the mainstream media are glad to see Substack struggling, I actually think this distribution model will work
It just needs a different business model
Enter @beehiiv, which I believe will be the most influential media platform of the next decade
I moved my newsletters from Substack to Beehiiv earlier this year, when I realized that Beehiiv's product was 10x better
A few examples:
-Extremely rich analytics suite (that goes way deeper than Substack)
-Native referral program
-Better text editor w/ more content types
What's crazy is that Beehiiv has launched all of these features in less than 2 years!
And it makes sense that this team knows how to build a better newsletter platform
After all, their founder @denk_tweets was one of the first hires at Morning Brew. He has first-hand experience
But it's not just Beehiiv's product that is superior... it's their business model
They've raised $4.2M to date from big media names like @businessbarista, @ShaanVP, @profgalloway & @Codie_Sanchez
However, it looks like they may never need to raise again👇twitter.com/denk_tweets/status/1625997238584373248?s=20
IMO, while Substack helped create media disruption, their business is a 0% interest-rate phenomena.
Meanwhile, Beehiiv is an almost entirely bootstrapped business with a sustainable model.
And because their product is superior, customers will keep paying.
In summary, while Substack is more culturally relevant now, the future belongs to Beehiiv
Most of the top newsletter operators already know this (see the AI newsletter wave)
It's just the VC-class (with Substack bags) that are trying to keep it relevant
blog.beehiiv.com/p/top-ai-newsletters-should-reading-beehiiv
Since I'll likely get some push back, I also wanted to drop some of my creds below:
-Grown multiple large newsletters like @bigbraindaily (100K+) and 101 PM Lessons (40K+)
-I've built content products for millions of users at @LinkedIn
-I've used Beehiiv, Substack, Medium
Additionally, since this is a bit of a 1-sided thread I'd love to hear from some of my favorite Substack writers on what they think:
@micsolana, @packym, @APompliano, @mtaibbi, @noahpinion, @lennysan, @petergyang