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Substack CEO details ‘broadly compelling’ model, layoffs, and media growth

Substack CEO Chris Best joins Yahoo Finance Live to discuss the platform's business model, future fundraising, hiring and layoffs, growth, and the outlook for subscriptions.

Video Transcript


AKIKO FUJITA: Well, newsletter platform Substack is expanding its offerings even as the startup faces major headwinds in funding. The company recently announced it is suspending future fundraising and laying off 14% of its staff, citing deteriorating macroeconomic conditions. I spoke to CEO and co-founder Chris Best about the company's financials and how he plans to grow the platform. Take a listen.

CHRIS BEST: It's really interesting. There was a question we had early on when we started was, hey, we think this'll definitely work for a business audience. Our first publisher on Substack was a guy named Bill Bishop. He wrote sort of a newsletter about China for an international business and government audience. And that worked astoundingly well.

And we sort of had this question of, this will work for business audiences. But will it work in general? And since then, that answer has kind of come to be a resounding yes. We've had everyone from opinion columnists to sportswriters to culture writers to fiction to all kinds of interesting consumer things. And now we're actually seeing a pretty big growth spurt back in kind of the finance and investing and markets world.

What I think is, the power of this model works across a lot of different domains. It's not like there's one section of the world that this applies to. The principle of, I want to take back my mind as a reader, I want to connect directly with and support directly voices that I trust, things that I want to have in my mind, is kind of broadly compelling.

AKIKO FUJITA: Let's talk about an announcement that recently came down a few weeks ago. You announced you're going to be laying off 14% of your workforce, 13 out of 90 employees. And you said that in part, that was so that you wanted to be able to fund your operations through your own revenue without relying on additional financing. What does that revenue picture look like right now?

CHRIS BEST: What does that revenue-- so first of all, this was like a super-tough thing to have to do. I mean, we let go of some people that are great. The good news for Substack is that we do have a business model that works.

So our business model, in case you don't know, is it's totally free to publish on Substack. You can publish start tomorrow. Publish to whatever size audience you want. And then we only make money when you make money.

So if and when you choose to charge subscriptions, we take a cut of the revenues. And that means that our incentives are aligned with the people on the platform, which also means that our revenue grows as the business-- as the sort of market value of all the writers on Substack grows. And that does continue to grow strongly.

So we have a business model that makes sense at the unit economics level and is growing strongly. So there's no reason why we can't fund the company out of revenue, which is, of course, a good thing to be able to do when you're in a tough market.

AKIKO FUJITA: That announcement of the layoffs obviously came down after you announced you're going to be dropping your fundraising efforts. The last funding round, as I understand it last year, $65 million was raised there. This is obviously something so many startups are going through right now. What's your sense on how long this winter, whatever analogy you want to make-- how long this downturn lasts?

CHRIS BEST: I think the honest answer is that we don't know. I don't think that anyone knows. And the question that companies like ours have to deal with then is sort of, given that we don't know, how should we plan? And what's the right way to operate?

And the way that we've approached it is kind of like, look, we're not going to have any plan that involves wanting or planning on a fundraise for at least two years, maybe ever. And that doesn't mean to say that we wouldn't consider that if the situation changed and the markets were in a good place. It's not we necessarily don't want to. But we kind of want to have a plan A that does not require it. And I think a lot of companies are coming to that similar conclusion.

AKIKO FUJITA: And so you may not be relying on funding for some time. Obviously, that raises questions of, is there a way to expand your revenue base? I know you've really been focused on subscriptions, not necessarily an advertising model. Is that something that you now have to consider, given the current environment?

CHRIS BEST: I actually think our decision to focus on subscriptions to the exclusion of advertising is one of the strategic strengths of the company and one of the reasons that we make as much money as we do and the revenue continues to grow, because although it seems superficially like subscription revenue is money and advertising revenue is money, and if you did both, two monies is greater than one money.

I think the fact of the matter is that the kind of business you make and the kind of work that you do as a writer on Substack, when you want to win at the subscription game, to earn and keep the loyalty of an audience that deeply values your work and make something that's so good that it's worth paying for, the kind of work you do when that's your only goal is qualitatively different and better than the kind of work you have to do if you want to kind of get to a lot of clicks and a lot of views and please advertisers.

And so that focus on subscriptions is actually our biggest differentiating factor. So I don't think that we'll change that necessarily.

AKIKO FUJITA: As you laid out, the main business for Substack has been these newsletters we've come accustomed to reading every day. But you've also expanded into Substack for podcasts. You've also got a video player for creators that you've been testing out. How do you see this all evolving? I mean, what does Substack look like a few years from now in terms of, how much of it is the newsletter that we know? How much of it is podcasts? How much is video?

CHRIS BEST: Yeah, people have often thought of Substack as a platform for your paid email newsletter. And I think that that's a useful conceptual handle for it because it sort of captures the essence of it. But the reason that that's a winning formula is that an email newsletter gives you a direct connection with your audience.

So when a reader subscribes to somebody on Substack, they don't subscribe to Substack. They subscribe to that writer who has their own business, who owns all of their work, owns their connection with their audience. They can bring their email list to Substack. They can take their email list away from Substack.

And that's actually not only exciting in the medium of writing. The same thing applies for podcasting. The same thing applies for high-value video content. We've seen a lot of writers who want to do a podcast. We've seen a lot of writers who want to host their subscriber community. We think that the set of formats that work under this model is actually quite large. And the magic of it is in that direct connection with your audience that you own.

AKIKO FUJITA: And that was Substack CEO and co-founder Chris Best speaking on the future of the platform. You can catch the full interview on our website, YahooFinance.com.