The New Zealand-born co-founder of the newsletter publishing startup tells Hal Crawford how he gave up writing to focus on supporting writers – and why he believes the subscription boom is still far from over.
Only a writer could have started Substack.
Everything about the platform – a system for making, sending and getting paid for email newsletters – smacks of writer.
In the world of Substack, those who make newsletters are not “producers” or “creators” and newsletters are not “content”. Writers write and readers read Substacks.
This is one of the keys to understanding how a company based on a medium at least 40 years old could be changing the digital media ecosystem.
According to Hamish McKenzie, the New Zealander who co-founded Substack in 2017, the company sprang from a belief that good writing, and good writers, had become undervalued – but that a lot of readers were ready and willing to pay.
A steep career trajectory
McKenzie is a thoughtful guy, and it feels like he’s learned to be careful. He waits a moment before speaking, making sure he has the words right. That’s more important now than ever. A single ill-chosen sentence from a founder could sink a company in this febrile shadow-epidemic world. Substack is supposedly worth over $900m NZD, around half the market cap of Air New Zealand. That’s a lot of money at risk every time he speaks to a reporter.
“The entrepreneurial thing is something I’ve done almost reluctantly,” he says. “I was more an aspiring writer, ever since I was a kid. I remember I was maybe eight years old, writing a series about the crocodiles trapped in the toilet.”
McKenzie grew up in Alexandra in Central Otago and to my ears is 100 percent Kiwi. To get a sense of how he speaks, have a listen to his appearance on Duncan Greive’s media podcast The Fold. When I tell him he doesn’t sound like an American despite having lived in California for years – he’s temporarily in Wellington sitting out Covid – he thanks me, and says he hopes he stays a New Zealander in his “culture and disposition” as well.
“There are some things America is great for. There’s Hollywood and there’s New York … and then there’s the NBA … that’s a uniquely American sport and spectacle and business. I think that Silicon Valley is like the NBA of the tech industry.”
McKenzie’s desire to write led him to study at the University of Otago, then took him around the world until he ended up at tech news site PandoDaily covering Silicon Valley, switching after a few years to a communications job at Tesla. After another comms stint at messaging startup Kik he founded Substack with colleagues Chris Best and Jairaj Sethi.
“The changes were giant at each step … going to be an entrepreneur was a massive [change] as well, and a different flavor. The top companies in the world, probably by market cap the biggest in history, are tech companies. It’s thrilling to be at the centre of that, playing this game I never thought I’d end up playing and getting exposed to its inner workings. It’s an adventure.”
A writer becomes a cheerleader for writers
McKenzie published the book Insane Mode about his experiences at Tesla in 2018. Having listened to The Fold podcast, I don’t ask him to elaborate about founder Elon Musk – the quote from that interview which stuck in my mind was “I wouldn’t want him to be my dad” – but I do ask him if he’s done with writing books.
“I think that’s an itch I’m not fully scratching by choice at the moment. The idea of helping many other good writers, most of whom are way better than me, reach their potential … and make great money from doing it – that feeling is just as good as doing the work myself.”
McKenzie’s writerly aspirations have deeply influenced Substack. By putting writers at the centre of the platform, and promising them a path to financial success (or at least a decent income), the company ensured many of the best writers and journalists in the world would migrate to newsletters. And by making its pitch to big names with big followings, Substack had multiple enthusiastic audiences at the ready – the marketing is built-in.
“What we’re trying to do is unbreak the media ecosystem by taking the power away from the big platforms that are oriented around engagement-based algorithms, and putting that power instead in the hands of writers and readers.
“Subscriptions are key to making the whole game work.”
Avoiding ‘capture by reader’
Here McKenzie touches on a recent obsession of mine: the rise of subscription-based business models. Like paid search engine Neeva, McKenzie sees subscriptions as healthier business models because the publisher’s client and audience are one and the same. This “perfect alignment” creates no incentive for deception or manipulation.
But what are the downsides of subscriptions? I ask McKenzie about “capture by reader”, a phenomenon where newsletters build a loyal following of people who only want to hear about one topic or point of view.
“[Capture by reader] can be a thing. It’s up to the conscientious writer or reporter to be on guard against it. The best writers … will be the ones who hold their integrity and get rewarded for their integrity because they recognise that it can be a thing, and actively take countermeasures.”
He cites Turkish sociologist and writer Zeynep Tufekci as an example. Tufekci’s hyper-rational take on Covid has seen her Insight newsletter gain a big global following. She started a dedicated section titled ‘The Counter’ to publish the best arguments against her own pieces.
“She’s talked about the risk of her Substack just becoming a lovefest where she’s cheered on by readers who are just there to support her. So she chooses to hold herself to account.”
Money and responsibility
McKenzie and his co-founders have been careful to build a system where successful writers like Tufekci can make money, and income for top writers is substantial. There are more than 500,000 paying Substack subscribers and the top 10 writers collectively make more than $20m USD ($28m NZD) a year. Substack’s own revenue comes from a standard 10% fee taken out of subscription income.
In addition to setting up the system and coaching writers on how to build audience, Substack takes on selected writers with advance payments. McKenzie says this is “more like a bank assessing a loan” than a publisher providing start-up funding for a publication.
Interestingly, McKenzie himself sees this backlash as partly a result of other Silicon Valley success stories.
“I think we’ve had a good 10 years of Facebook and Twitter and YouTube affecting our brains and changing the way we think about how the media system works. And in that world, it’s led many of us to have less clear views about the importance of free speech, for example.
He says that while it’s “frustrating for people to apply the rules from social media to Substack, as if Substack were the same”, it’s an understandable response.
Will the subscription boom last?
I tell McKenzie that I am getting near my limit on subscriptions, and that I have low-level anxiety that I don’t know how much I’m spending. Does Substack worry that people will stop paying?
“Everyone has a limit. Over the next few years we’re going to find out what that limit is, and my bet is that for most people the limit is going to be much higher than they assumed it might be. I think that’s a correction in the right direction. I think good writing and good culture has been undervalued by the market for a long time.”
Some writers have already banded together on Substack, and some have approached Substack for help in providing bundled content. It’s a back-to-the-future move that McKenzie says they are looking into.
“We think that’s very interesting. [In that scenario] Substack is not the bundle dictator,” he says. “Substack is a facilitator that helps writers cooperate easily and takes all the guesswork and administration out of the equation for them so they can focus on the writing.”
The end game
As you might guess from McKenzie’s quote about being at the centre of the Silicon Valley world, Substack has attracted investment from some big names. Famous venture capitalists Andreeson Horowitz are on board, and after four funding rounds Substack has a huge on-paper valuation.
All the noise, names and big numbers have painted a target on Substack’s back. McKenzie does not seem concerned about the growing list of high profile competitors, including Facebook, Twitter and nonprofit publishing platform Ghost.
“That’s all good,” he says. “Anything that gives writers more options and more ways to make money is good. Our focus is not on responding to competition. We want to build the world’s most amazing support system structure for writers to unlock all the energy and value that they can bring to the world.”
I tell McKenzie I hope he is taking lots of notes. It’s clear to me that the writing itch he’s not scratching is going to return more insistent than ever. And it would be hard to think of better material than being at the heart of a newsletter startup that has grabbed the world’s attention and excited the envy of giants.
Hal Crawford, the former head of news at MediaWorks, is a media consultant and writer based in Sydney. Sign up to his Crawford Media newsletter here.