Hamish McKenzie | The Future of Media & Substack with its Co-Founder

0:00This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. This episode is brought to you by Facebook. So you were scrolling on Marketplace, and there it was, the bike you'd been searching for.

0:38You sent a message, and it turned out the seller was super chatty, kind of funny, and an avid cyclist. The next thing you know, you're in a cycling crew. Well, a community cycling group. The thing about Facebook, you might find more than what you're looking for. From a browse to a bike ride, this summer, find more on Facebook. Welcome back to Jimmy's Jobs of the Future. Today I'm delighted to be joined by Hamish McKenzie, the founder of Substack. He was here for a flying visit in the UK earlier this year for the South by Southwest London event. And I pinged him an email to see if he would like to do the show.

1:16And we spent a bit of time hanging out together and talking about the future of media and what it may look like. I've been on Substack for a little while. I always find Substack a little bit hard. traditionally because I'm dyslexic so I find writing quite challenging but what is particularly interesting is the way that Substack is moving from not just written but also to audio clips and some more video clips as well so you can also check out this episode there as well and you can sign up to our Substack in the show notes links below as well but this was a really interesting conversation with one of the people that is almost creating the rails i suppose you could call it of the future of media and it was fascinating listening to him talk about how they've almost got 50 people making a million pounds a year on the platform i think it's really interesting and i think it could be the next big evolution that comes here in the uk i think there's a little bit of a challenge around it and that's where we start the conversation with hamish make sure you subscribe so we can continue to get bigger and bigger guests you've had some remarkable growth over the last couple of years right yeah and the start of this year in particular has been hot for subsax growth we're now more than five million paid subscription paid subscriptions there's tens of millions of active subscriptions, which means someone's on a mailing list and actively engaging with someone's content over email or in the Substack app.

2:56I think we just revealed that there are more than 50 people, publications, making more than a million dollars a year on Substack. And, yeah, it's a pretty significant media economy at the moment, but it's still got a long way to go. So we're still in its sort of early years. And how many employees do you have as well? We're about 100-ish people, maybe just a tick over there now. And what do they break down doing? The company's kind of split in half, basically, between people who work on products and building the software and then people who work with publishers and doing customer support, that kind of stuff, and marketing and communication.

3:41So, yeah, it's kind of a nice mix between the arts and the sciences. Yeah. And so, you know, I have this skepticism about Substack and whether the model can work in the UK. Right. And to explain to listeners just to start with, like, I just think the BBC is dominant. People are used to free media in the UK. And also, we don't have as much of a tipping culture. So a lot of the substat model is people paying like eight to ten pounds a month for their favorite journalists, favorite media, et cetera. And I just wonder whether the model can really take hold here in the UK. But you're about to tell me why I'm completely wrong on that.

4:20Oh, yeah. Embarrassingly wrong. What the hell? Where are you getting your information from? The UK is our second largest market. The US is biggest, obviously. That's where we're based. That's our backyard. but the UK has a significant number of top publishers making good money from names that are well-established like the Nick Cohens of the world, the Dominic Cummings of the world, and Rising Star kind of names who I'll have to go and check up and send you a list about later. I forgot to do my homework. But there's also Joe Thompson who's writing about gardening. There's a range of people who cover cooking I mean, Yotam Otolenghi just got on recently.

5:03He's doing extremely well. And BBC History as well, right? BBC History seems to have started recently. I'm not sure if they're monetizing, but they've established a presence there. Yeah, and there's plenty of people who are treating SoftStack as kind of like their blog or their free podcast without the intention of monetizing, but they add to the network and they add to the vitality of the culture there. But I don't think the lack of a – I actually don't know if the tipping culture is a relevant thing because we don't actually consider the subscription to a Substack writer or creator as being akin to a tip.

5:40We think it's demonstrating or showing that you value something so much that you're willing to pay a recurring payment, not just a one-off like throwing a few pennies, that this work is valuable enough to you that you want it to exist for yourself and for others, and you want the creator or the writer or the podcaster or the filmmaker on the other end of that to thrive. And so, you know, eight pounds a month is not a trivial amount of money. I think that's a real vote for a kind of culture that you want to flourish. And where did the name come from, Substack? The name came from, so there are three founders of Substack, Chris, Gerage, and me.

6:20It started off in the very early days of just me and Chris. And Chris is a product guy, and I was the sort of ex-journalist, writer-facing guy. and we're batting names around between us and sort of think about names that start with sub and that we might be able to get the like.com for. So like subwit was one of the early ones and I'm not sure why we thought that was even worth considering but that was in the mix. And eventually we sort of came up with the idea of like what about sub stack? Because it's kind of like a stack of subscriptions or the technology stack for subscription publishing or you might make stacks of cash.

6:57But the most important things were it was a relatively easy to remember in spell name that we could get the.com for cheaply. It was about two grand. And it wasn't so easy to mock, you know, like many names easy to mock. But the worst we've got is it sounds like maybe like a stack of Subway sandwiches. Yeah. Or the existence of Substack implies a Dom Stack, neither of which we're too upset about. and tell us about his early days because you have quite like an untraditional sort of tech founder background right like you were a journalist you were a writer that's not somebody who's necessarily associated with going on to raise you know the 100 million or so that you have done with Substack what um tell us about that and the kind of origin stories and how you funded it because two grand was probably still quite a lot of the time right yeah when two grand for that.com was a lot at the time.

7:56We were being very careful with our money at that stage. Yes, I'm a journalist by background. I had done all sorts of journalism jobs, mostly in the print realm, and had finished writing the book in 2017, which was about how Tesla has catalyzed the energy transition for automotive. And Chris, who's the CEO of Substack and is my co-founder and is the smart genius behind the Substack model, had finished working at his company, which was Kik, which is a large messaging app. And he was taking some time off to figure out what he wanted to do next and indulging some of his passions. And one of the things was he wanted to get back to writing.

8:41He wrote this blog post that he never actually ended up publishing, but he shared it with me because I was a writer friend. I'd also done some work at Kik, and that's how I got to know him. and he asked me for my feedback on this blog post he had drafted. And in it, he was decrying the negative incentives of social media and how they were dragging us as a society, including mainstream media, into this kind of bad place where the way to win, the way to get ahead was to be sensationalist or divisive or shout the loudest just to win the attention game. And my feedback to him was this was a great essay.

9:18All the points he was making were really sound. but everyone who worked in media knew what the problems were. They just didn't know how to solve them. And so I suggested include a couple of paragraphs about like what could be better, what would have to change. And that led to a conversation that led to Substack and Chris saying, well, you know, you need to make the audience the customer instead of the advertisers the customer. And he worked on me to like come and start this company with him. And I was really reluctant to do it because I didn't dream of being a tech founder and I know it's a difficult kind of job and I was also just about to have my first child my wife and I have given birth to a now seven-year-old at the time he was he was born in the same month that we registered the company but you know Chris was very persuasive and he wore me down over over some time and my wife told me I had to go and do this as well she like gave me the permission to go and try this crazy thing.

10:16So I thought, why not? Because if this thing did actually work, then it could become really meaningful and profound. And clearly, seven years later, it has done. What have been some of the major moments along the way, the sort of jump moments? Well, we started off calling it a platform for making it simple to start a subscription publication. and that proved too difficult to grasp with some people. They thought, do you mean like an academic journal? Do you mean like a magazine? So we thought, ah, fuck it, we'll just say. We make it simple to start a paid email newsletter, which gave us a great running start because people could easily grasp what an email newsletter was, even though it wasn't just that.

11:01You published a sub stack, it went to email and to the web and you could have comments, et cetera, and soon enough video and audio. And it's kind of put us in this difficult position because here we are seven years later, people still anchor on the idea that it's an email newsletter platform. But really a sub stack is a channel that you own where you can have a direct relationship with your audience, get paid by subscriptions and publish whatever you want if it's in video or audio or text. So realizing that we could just talk about it in that way was a big moment. early on as well, opening it up so that anyone could start a sub-stack newsletter without it having to be just a paid thing or having to be by invite only, which it was in those very earliest days.

11:43That was a big moment for us. And then there have been so many other moments along the way, but the pandemic was probably the major turning point or not turning point, acceleration point, because we've sort of gone up on a steady curve in terms of growth. But the start of the pandemic saw a real surge in people publishing and big names coming to the platform and revenue growth because all of a sudden there was a lot more uncertainty about media jobs. People were getting laid off and other people were worried about maybe they might get laid off. Other places were closing down and also people were stuck in their houses with nothing to do but scrolling their phones or starting new projects.

12:28So those are some of the... Like podcasts. Star podcasts, yeah. Yeah, exactly. Know anyone. That's true, right, yeah. So, yeah, those are some of the big moments. And was there a moment when you were sort of, what have been the moments that have taken your back, I suppose? Like, was there a moment somebody sort of joined that you hadn't been expecting or, yeah, I mean, obviously, and also you've taken, like, some serious money from Andreessen Horowitz on the way as well, which is quite a kite mark of approval as well. Yeah, well, maybe I can get back to fully answering that quickly. you asked earlier that I forgot to finish answering, which was that.

13:03In those early days, we funded it out of our own pockets. So for months, the only reason I was able to pay rent is because my grandmother happened to die at the right time. She passed down some money to my dad, who passed down some money to me, and I used that as my paycheck for the first six months. Chris had a little bit of money that he could throw into the pot. And then that got us through to a point where we got into Y Combinator, which is a big accelerator in Silicon Valley, and we could raise a seed round at the end of that, which was a couple of million dollars. And then we were humming along quite nicely, just the three of us building this thing.

13:37Chris and I had convinced Gerard, the CTO, to come in early. And then in 2019, Andreessen Horowitz came to us and said, well, you guys should raise a round with us. We'll make it really founder-friendly and we'll make it so easy and fast for you to do that you won't have to worry about it being a distraction because there were only three of us. so we spent a lot of time trying to figure out how to raise money. So Andreessen came to you, right? They came to us, and we did the whole round in five days. We had a coffee on a Monday with Andrew Chen, who's our investor there, and then by Friday we'd signed a term sheet, and it was$15 million by the time the round was done, which really was a ridiculous situation because we hadn't spent any of the$2 million that we'd raised from our seed round because there's only three of us.

14:23And so we had three of us working away on Substack two years into this and$17 million in the bank. And we're working out of Chris's living room in San Francisco.

14:38So I love the way you talk about seed round being$2 million, by the way. It's a quite different context. So Silicon Valley is a not normal place. But what did you then spend$17 million on? Because I always think that's – Founders are largely raising money to go hire people, right? Two things, it's hire and marketing. So what did you then think, right, well, we're going to spend$17 million on? Well, we spent a long time not spending that money, even after starting to hire some people early on. But employees are really expensive in San Francisco, and we were determined at that point pre-pandemic to co-locate everyone in San Francisco, put them under the same roof.

15:16And by the time you pay, like especially for engineers, is their salaries are really high. Then there's a bunch of benefits, but the housing price is really expensive in the area, so you kind of need to do that. So it doesn't take long to really start burning through that kind of cash. We started to spend a lot on a combined partnerships marketing initiative, which was to help convince writers that they could come start on Substack and be successful, and they could say no to the jobs they were already in or to other opportunities they were being presented with. And so we did a thing where we would pay a minimum guarantee to some writers who we thought fit the mold and who really wanted to try this model and could see the potential for themselves in it.

15:59And we paired the minimum guarantee with a promise of 15 % of the subscription revenue they generated for that first year. So it was like a training wheels kit. And after the year had ended, we'd kick away the training wheels. so they just revert to the normal Substack model which is they keep 90 % of the revenue and we keep 10 % of the revenue and that turned out to be a really good way to get the flywheel spinning getting a lot of really good credible names publishing great work in the ecosystem and it helped the name Substack get out in the media world and it sort of gave rise to the company and the brand at the time Really clever, right?

16:39And you've got some people like Graham Ruddock and Yoshi Herman as well who've been on this show and created great businesses off the back of it as well. And, of course, the biggest UK substack are Dominic Cummings as well. That must have been a moment and a half when he signed up. Yeah, it was a crazy moment. Like a lot of the people in the US weren't even aware of who he was. But, you know, the Brexit thing was raging at the time and the various scandals that he was involved with. And so, yeah, we started getting a lot of interest from the UK. and for a while people sort of associated Substack with just like being a dominated, sorry, a Dominic Cummings adjacent platform, something, something, something, it must be his politics.

17:23But Substack is a totally neutral platform where anyone from any stripe can come and publish. And we have people from all across a political spectrum, including Dominic Cummings. Yeah, yeah, his stuff is fascinating on it. And where do you see the kind of next five years going? like what are your kind of hopes and dreams for it like you've that you've i wouldn't say you've pivoted you've you've added video and audio to it yeah in the last year or so like what does the future of kind of sub stack and media look like yeah increasingly people are understanding sub stack is a place that you can go to and you can find great voices there to start a relationship with a media relationship with and those voices might be most comfortable expressing themselves in writing or they could be video first or they could be podcasters audio first and so uh we're really focused on helping people understand that this is an app you can spend your time in that it's a better place to find culture than the other places you might otherwise go and the reason it's a better place to find culture is because the incentives are all aligned where the publisher only succeeds when their audiences feel like they're getting value and the platform substack only succeeds when the publisher succeeds.

18:39The only way we make money is by taking a cut of their subscription revenue. And they own their relationships with their audience and they own all their content. So they can pick up and leave any time. So there's a huge pressure on us to prove that we're delivering value to those publishers. Unlike the other systems where they're sort of trapped and if Elon Musk changes his mind about what the rules are, they have to just go along with it. But also the subscription model puts upward pressure on quality. You have to prove that you're able to hold on to and reward the attention and trust of your audience over time.

19:19So it's not just like, can I get a flash in a pan viral moment? It's can I regularly produce quality stuff that keeps coming back and draws some people to pay for it. And so, yeah, we're creating this big network, this media network with different rules that creates a different cultural outcome from what we've seen on these other platforms in the last generation. Are you a fan of Jimmy's Jobs of the Future? Hi, I'm Sonny, one of the producers behind the show. And we don't just make this podcast. We produce some of the best business content out there, working with global brands and founders. Over the past year, we've flown around the world and demand keeps growing.

19:58and with four prime ministers trusting us with their appearances on this show you're in safe hands so if you're already in the market for a podcast or standout business content why not start with us drop me a line at sunny at boxlight.io try our podcast calculator or book a meeting at boxlight.io that's boxlight.io now back to jimmy where do you think you might be by 2030 30 in terms of paid subscriptions? Oh, how long, that's only five years away, God. Yeah, yeah. Well, we're at more than five million paid subscriptions today. Less than six months ago, we're at about four million paid subscriptions.

20:39And the growth there has accelerated. We've been going for seven and a half years. The app network effects have really only been around for like the last two years we launched notes which is this discovery and discussion feed on the home page of the app and one of the things like you've hired for is like sort of community people and i think that's a fascinating area and i guess i'm going to ask you two parts about the community aid is you've hired community managers to kind of like manage journalists help them on board all that type of thing uh and you've got uh for our store as well here who uh is an amazing journalist and background that does that particularly in the UK but then also it's the writers kind of building their communities as well and I'm just fascinated by what you think the future of community looks like because you are also seeing the traditional newspapers try and do this so the Times is doing a lot around in the UK about trying to build a community now I think it's possible the Times is going to be able to do that whether other media traditional media brands will be able to do.

21:45I'm not quite so sure. But yeah, I'd love your kind of reflections on the future of media communities. Yeah, I think we're like, the old system in media used to be much more about broadcasting. Here's the official voice, here's the official opinion. You will sit there and consume it and we'll never hear back from you or we'll like hear back from you in the form of like letters to the editor, which might take three weeks to get to us. In the social media era or in the sort of internet, the modern internet era, people expect to be able to talk back. They know that you can hear them talking back, and it's much more of a conversation, especially as the media gets more and more distributed, and it's not so much concentrated around a few pillars that are dominated by a few tycoons.

22:32I think that the media system becomes much more of a conversation, and I think community is central to that, or a natural outgrowth of that. so a lot of substacks have extremely lively communities, one of the top revenue earners as an individual on substack is Heather Cox Richardson who's a history professor and she writes these daily blog posts or letters about the day's news the day's political news in the US and she has such a devoted audience of people who are just grateful for the work she keeps doing, that she keeps showing up for them, that every time she publishes a post there's thousands of comments and the funny thing is that it's totally free that Substack.

23:15So she's a top earner. She's earning millions of dollars. She publishes the same thing on Facebook. She's a history professor. A history professor. She publishes the same thing on Facebook for free. You get it on Substack for free. But if you're a paid subscriber, you get one perk, which is you can leave a comment. So thousands of comments on each one of her posts from these people who are so in there with her. They feel like they're invested in the mission with her. And her sub stack is absolutely not just like a series of blog posts. It's all the people around those blog posts talking to her and talking to each other.

23:49That's really interesting. What are the sort of – give us some like profiles of other sub stackers. Let's give them some – Yeah. A couple of things popped into my mind actually, the British ones. So Jim Watterson, who was a mediator sort of the Guardian until recently, left and started a local news sub stack called London Centric, which is brilliant. It's been nominated for an award and he does feature reporting basically, a mix of news reporting and feature reporting. It's a one-man shop. He might end up hiring other people to help him. I know it's a lot of hard work but it's really a giant success already, less than a year since he launched it.

24:25Polly Vernon from the Times has a really productive and active sub-stack. So there's journalists who are doing it. There are people who might have thought of themselves as cooking influencers first, who are big on Instagram or big on TikTok or are making the move over the sub stack. So there's a woman in the US who has a giant TikTok audience. Her name's Violet Wichel. She got famous for a dense bean salad that went viral. And even though she has millions of people following, more than a million people following her on TikTok and about a million on Instagram, she makes several times more money on Substack than she does from those other two platforms combined with the brand deal she gets from those places.

25:11Her subscriptions are the thing that really support her. And there's a ton of other, like Emma Gannon was sort of originally a podcaster and an author and she's found a home on Substack that she really values because she speaks directly to her people in this intimate space and there's enough there that it makes her a really good living. So, yeah, I could go on and on with this stuff, but that's a sampling. And let's also talk about Elon Musk because you worked for him for a while. And then he – well, let's do that first, right? So you were a journalist and then you went in-house at Tesla to kind of be an in-house journalist, content writer, et cetera.

25:57Sounds like a fascinating role. What was that like? Yeah, that would have been a fascinating role. So I was writing for a tap publication called Pando Daily. I'd written a few things about Elon. And the editor wrote Faber and Faber here in London reached out. Julian Luce. I love Julian Luce. He reached out and said, do you think there's a good way to do a book about this guy? Do you think he would be interested in cooperating? And I said, well, I know that he's read some of my stuff and liked it. Let me see if I can get him to cooperate. And I got in touch with him by tracking down his mother's email address because she had back then a website for her job being a nutritionist.

26:33And she immediately passed on my email to him. He immediately got me on a call through his PR person and then on the call said, I don't know about this book, but have you ever thought about working for a company like Tesla? And I said, oh, it's kind of interesting. I tried to talk him into doing the book, and eventually we just put that aside. I thought, you know, this could be an incredible opportunity. I didn't dream of leaving journalism. I love being a journalist. But the idea of sort of being an in-house journalist, telling the story of Tesla as it came up in 2014, this was. It was 2014 when I started.

27:09Working under Elon Musk, who I was sure was about to become an historic figure. He already was. that just wasn't so widely known Dan as he is now. So I took that job, had a great time there, but it was also like a wild experience full of ups and downs. It was just over a year by the time I left. I had three bosses in the space of that year because the communications team at Tesla is not exactly the calmest waters. Elon wants to control everything down to the comma, as you might imagine. So it was really hard to be an in-house journalist. And instead I became a sort of the writer on the comms team.

27:45which is the most cursed team in the history of corporate America. And I left because I lined up this part-time work with Kik, who I'd become friends with the CEO. And Kik was a nice Canadian company, almost the opposite culturally to Tesla, which was a throw everyone under the bus culture, throw everyone under the dual motor Model S culture. Yeah, and I wrote a book. I wrote that book that I mentioned earlier, which was a bit of an arduous ordeal because Elon didn't want me to write it once he got wind about it. It's all about electric cars and how they were going. It's about how Tesla catalyzed the electric car revolution and deserves a ton of credit for that.

28:32I mean, it's an amazing story. Whatever you make of what he's done in the last few months and whatever, the spotting of that is pretty extraordinary. Yeah, and people try to downplay what he's done with Tesla or started by these other people, but no. Elon made Tesla happen. When Tesla was about to go bankrupt in 2008 during the financial crisis, he was transferring money out of his own bank account to make payroll for the people in that company, saved it from almost certain death. He's done that a couple of times and did the impossible, which is start a car company in the United States of America that went on to succeed.