First Time Founders with Ed Elson – ft. Tyler Denk of Beehiiv

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0:43With Thumbtack, you don't have to be a home pro. You just have to hire one. You can hire top-rated pros, see price estimates, and read reviews all on the app. Download today. Scott, you invested in our next founder. What do you look for when you're investing in a startup? someone who's been able to attract really a talented people i try to interview the whole management team so it's more really looking for a team of talented people who clearly get along i i went on the board and was an angel investor in a company called olapik which was it was like a visual image curation software platform and it was three guys from columbia and they just could finish each other's sentences one was a tech person one was the marketer one was the CEO.

1:28They were all very, very smart, very hardworking, got along, and I thought, I just want to back this team. So it's really when you're an early stage investor, you're really not investing in a company, you're investing in people.

1:44Welcome to First Time Founders. I'm Ed Elson. Online newsletters have exploded in recent years. During the pandemic, we saw the rise of Substack, which became the home for writers and creators who wanted to monetize their work independently. Newsletters are also essential to our business. Scott considers our newsletter, No Mercy, No Malice, to be our flagship product. We've invested significantly in this asset, and we now have nearly half a million subscribers interacting with our content every week. That's why I'm excited to introduce our next guest, Tyler Denk, who's an expert in all things newsletters.

2:19After leading growth and product at Morning Brew, Tyler started a newsletter distribution platform called Beehive. In less than two years, Beehive amassed a network of nearly 15 ,000 active newsletters, 50 million readers, and 500 million monthly impressions. And unlike so many software platforms these days, he achieved profitability. Now he's looking to take on the incumbents, with Substack at the top of the hit list. Tyler, thanks for joining us. Thanks for having me. Happy to be here. The story of Beehive really begins at Morning Brew. Could you give us the rundown of first what Morning Brew actually is, and then also what you did there and how that led to the creation of this newsletter platform, Beehive.

3:01Yeah, for sure. So I joined Morning Brew back in 2017 as the second employee in a very fun role, ranging from growth and engineering and product, just doing anything we could possibly do to scale the newsletter size. It sounds like you're pretty familiar with the whole game of being able to scale your audience, expand the newsletter. My first project was creating the Morning Brew referral program where by incentivizing different readers, you could earn T-shirt, coffee mug, crew neck, whatever that looks like. We realized that our existing audience was already natively sharing with classmates, friends, family.

3:37So being able to help further incentivize them with rewards. One thing led to another. I built that on contract. Austin Reef asked me to come on full time. And I came on and just built anything that would help us grow. So I guess to take a step back and answer your question, like what is Morning Brew? Morning Brew is a, or at the time was a daily newsletter Monday through Friday that covered business news and finance, kind of like Bloomberg, but more for a younger demographic millennial told in the conversational voice and tone. I joined, it went to about 50 ,000 people every day, Monday through Friday.

4:10When I left, it was seven days a week going to three and a half million subscribers. And then so the team grew from obviously me as the second employee to about 35, 40 people when I left in 2020. Why did you decide to join a daily newsletter with 50 ,000 subscribers? What led you there? Yeah, it sounds crazy now, right? Yeah. Yeah. Looking back, everyone's like, oh, you were early at Morning Brew. That's amazing. At the time, it was the furthest thing from like a sure opportunity. We there was the two co-founders and a writer in a closet sized office in the NYU campus dorm When austin who is a friend from baltimore reached out to me I had four dollars in my bank account and when he asked if I would be able to build a referral program I lied and said that I could because I needed money and I built it And after building that in the two to three weeks of that took he it was the first time that they had a engineer quote-unquote I'm self-taught, but an engineer to help build something.

5:08And of course, as a team that's growing, they had a laundry list of things that they wanted to be built, and I provided an opportunity. So I spent that summer building a little bit of everything from the website, the referral program, social share icons, where you could share the individual stories on Facebook, Twitter, LinkedIn. And during that process, I had full access, like you do in a startup, to everything from the inbox, from user feedback, to other people talking about the product and seeing how the team works from the inside out. And during that experience, I saw the rabid fan base that they had of people emailing in daily, being like, I can't start my day without reading Morning Brew.

5:44I've shared it to my entire class. All my coworkers are reading it. They're raving about it. And it was kind of like that aha moment of they've clearly struck a chord in an opportunity in a market that I think there's already a huge market for business news from looking at Bloomberg and of the other larger established publications. They were doing it in a very fun, novel way, and it clearly resonated. And then seeing how passionate the team was was kind of like my two-month on-trial experience of being like, I actually think they're onto something massive here. And whether they go into education or just being one of the largest publications for millennials to get business news, I felt both were a pretty promising opportunity.

6:26So then in around late 2021, you decide you're going to start your own newsletter platform when things I presume were going super well at Morning Brew. Why did you do that? Yeah. So there was a slight gap. I left Morning Brew in 2020, right before they got acquired by Business Insider. I didn't know that that acquisition was happening, but through that experience of three and a half years at Morning Brew, I fortunately Morning Brew was like a huge success. We were making a lot of money. We had 40 people on the team. We were like the go-to email newsletter. And I had built everything from the referral program to the website, to our content management system, to an ad management platform that our sales and copywriting team would use to handle all of the different brand advertisements.

7:12So more or less kind of built a platform within the company that was internal for our employees to use. And it worked really well. It was kind of what made us a well-oiled machine to be able to operate at the scale that we did. And at that same time, the good thing about email is you can always receive replies from your readers and get feedback. And there was always feedback coming in daily of what referral program do you use? It works really well. How does your newsletter look so good in all of these different mail clients? How are you able to share your stories to different social platforms?

7:43I'm trying to work with a developer and build something similar. So there was both an appetite for email newsletters at large, And there was an appetite for software that kind of did what Morning Brew did well, which is make the emails look great, make it easy on the team, be able to integrate advertisements, being able to integrate different growth tools and analytics to understand who your audience is. Historically, those were five or six different platforms. And building something very robust that worked well through trial and error for three and a half years gave me the opportunity of seeing what worked, what didn't, and how can we make this applicable to anyone with a newsletter.

8:18So that was kind of like the real moment of the more feedback and input we got from readers. And our readers weren't even necessarily newsletter operators. And there was an appetite with them. I figured there was some value in what I had built internally with my team at Morning Brew. And then around the same time, as you alluded to in the intro, other companies like a Substack were raising money at$650 million valuation plus. and using their software, using what I had built at Morning Brew, I thought that what I had built and the tactical like boots on the ground experience at Morning Brew was a pretty core competitive advantage.

8:53And that's what really led to wanting to launch a company to white label a lot of that. So you basically went to work at a startup, no experience, built a product for a startup that took them to growth and success. And then you were like, okay, I'm going to just take this product that I built and start selling it to other people. Is that a fair characterization? If you were to take a few steps back, yeah, you could probably summarize it like that. Yeah. So was Morning Brew, would Morning Brew be upset in any way that you took a sort of your core differentiated product that you'd built in-house and then started selling it to other companies?

9:29Very loaded question. I would say a few things. There was a point in Morning Brew where I had pitched this idea, actually, to build this and white label it to other software vendors. And at the time, they were already going through acquisition talks with Business Insider and others. So it's kind of a curveball to also pivot into SaaS, like in the ninth inning of acquisition talks. Yeah. There's also a lot of traditional media companies who have attempted to get into software and failed. I think Washington Post just shut down their media or their tech division relatively recently or their software platform.

10:04And so there's a lot of nightmare stories as to why you don't want to divert away from something that's working really well, which is their core competency. I don't think necessarily was the software in the product. That's a lot of the operational things that made things move the way that they did. But I would argue Morning Brew's core value prop was understanding their audience and creating the best content for that audience. The tech was kind of like behind the scenes, the underlying thing that facilitated a lot of that to happen at scale. Yeah, definitely. And you also mentioned Substack. What was the key differentiator in your mind when you decided, OK, I'm going to go start my own competitor?

10:38Very directly, I thought I could compete because at the time when signing up for their product, I wasn't overly impressed. and knowing what I had built at Morning Brew, I actually thought our internal tech had a lot more flexibility and customization for our writers. I'd say the other big difference is I think fundamentally they have a principle around wanting to enable writers to earn a living, kind of like the Patreon and OnlyFans model of monetize your audience directly and charge a subscription, which I subscribe to several paid newsletters. I think they're great, but I do think it's very difficult to charge a premium subscription for newsletters in a competitive media landscape where there's HBO Max, Netflix, all of these other paid products.

11:22Like it's really hard to deliver reliably a newsletter product that warrants paying for. And I actually think that's a very small market where my initial thought was in seeing what made Morning Brew successful and seeing the Hustle, Axios all get acquired. They were all ad based newsletters. And I think actually the most difficult thing that we did at Morning Brew was scale a sales team that could really take the data and understand who the audience is and be able to sell that to premium advertisers. And so that is what we are building at Beehive is one, just facilitate, make it so easy to create good looking content where you can engage with your readers and understand who they are.

12:00But if you want to monetize rather than you having to sell all of these D2C brands or premium advertisers on why they should monetize and advertise in your newsletter, we can actually help facilitate that transaction and place premium ads in these newsletters so you have the upside of monetizing without having the sales team to do so. So where is the majority of your revenue coming from? Our primary business model is more of a traditional SaaS. So we have the free plan to get started. We have a$49 plan, a$99 plan, which is a fraction of a lot of the competitors in the space. But that is like a traditional, if you were sending emails, I'm sure you're familiar with no mercy, no malice.

12:39There is a monthly fee associated with paying the software vendor used to send those emails. That is the majority of our revenue. I alluded to the ad network as well. We take a transactional cut on ads place. So in place of you having to source your own advertisements and pay commissions to a sales team and do all of that work, we facilitate premium ad deals for you. And we take a cut of that, which varies. So that's a second revenue stream. And then we also have like some transactional like growth tactics built into the product where you can recommend another newsletter in the beehive ecosystem we take a 20 cut off of like co-registration is essentially what it is um so those are the three primary revenue streams we facilitate premium subscriptions like substack but we don't take a transaction fee so that's 100 revenue to the content creator i feel like the big milestone that people like that founders like to talk about is one million arr So when did you hit that?

13:36And how long did it take for you to hit that? And then finally, what decisions did you make that you think led to that milestone being achieved? There's a lot there. I feel like I can kind of do like a masterclass of like everything going on in my head in terms of how I was, I mean, any, I feel like any company that starts and can go from zero to 1 million ARR in a very competitive space has dozens of growth tactics and things that they did very intentionally to help reach that milestone. because the zero to one is by far the hardest part, especially in a hyper-competitive industry like email in general.

14:10So it took us 14 months to go from zero to a million ARR. And there's probably dozens of things I could attribute that to, but a few that jump out is, one, our very first seed round, which actually Scott is an investor in, we strategically had a long tail of strategic investors who have newsletters, who have media experience in the hopes that being our early adopters, kind of incentivizing them to move their newsletter over. Again, when you launch, like your product is the worst it will ever be day one. And when there's much more mature platforms in market, you kind of need like an extra incentive to win over those early adopters.

14:47And so leaning on early relationships and investors is like one kind of like growth hack to get that initial cohort in the door. So that helped. Two is, I would say, building in public has been very powerful for us. I know it's cliche and a lot of people do it. Some people are like totally against sharing numbers and metrics. I'm the opposite. Everything is an open book. I share cost. I share revenue. I share growth. I share the upsides, the downsides, because one, I think people can align with a person and a story more than like a business and a brand. And so I never intended to really be the face of the brand, but in being able to share and promote other newsletters who are having success on the platform and also being very quick to respond to user feedback and how we can make it better.

15:31I've kind of become the face of the brand. And in doing that, I have been very vocal in how we're building the business because I actually think it, one, it's hard as shit. And I think that people actually resonate and are intrigued to learn about how you go from zero to one and even how you hit scale, how we're prioritizing engineering versus support versus product versus growth, what's working and what's not. And so I've kind of done it through content and just being able to share the journey of how we've been able to do that. And then I'd say the last one is we've developed a reputation for shipping features very quickly.

16:05I think a lot of that's actually born out of the insecurity of being a young company. And when we're in this space where our top 10 competitors are so much further, they've been around for five, 10 plus years, they have a much more robust feature set. what I wanted to prove to the market was, one, we can ship really good product very quickly. And what that tells them is maybe we don't have feature XYZ, but if you've paid attention to our pace and velocity of shipping, odds are we will get to XYZ very quickly. And so it kind of buys you a little bit of time of winning people over with whatever features we do have.

16:41And if they grow frustrated that we don't have something, kind of earning their trust that we hear them, we know what's important and that we can prioritize that. Yeah, the building in public thing is so interesting. We've had a lot of founders on who've discussed, we've discussed this topic. Why exactly is building in public good for generating revenue versus just getting followers? I actually think if you were deciding between a different software vendor and you're kind of like up in the air between two or three, being able to bet on trajectory and a person that you think actually has your best interest in heart and is trying much harder to make this work and succeed and that you have their ear directly to provide feedback, I actually think is a pretty key selling point.

17:23whether it's the most scalable selling point is TBD, but I'm sure that there's plenty of people that I've DM with over the days that view it as a competitive advantage to be able to say, here's three things I think you can do better. And I have the track record of listening to them and delivering on those three things pretty quickly. And then like lastly, when you hit milestones, it opens up a lot of doors, right? Like I don't have to share on Twitter and LinkedIn that we hit 3 million ARR, 4 million ARR, 5 million ARR. But when I do, I get dozens of warm leads from people who are like, hey, I've been following the journey.

17:56I think I'm moving off platform X to jump over to you. Or, hey, can I make an introduction to this investor, this advertiser, this newsletter? Because I think they'd be a perfect fit. And I think it's just like maximizing your luck surface area. The more you can share, the more hype that you can build around the narrative that you're building on, the more opportunities and doors that open of people who either align with you and want to help you succeed, or at least just with like the algorithms and everything else, being able to surface your success as a broader opportunity to whether it's investment is what you're going for or new customers.

18:29It helps just expand the opportunities there. If you're willing to disclose it, how much of the company do you own? And have you taken any off of the table? I won't share how much I own, but I have not taken any off the table. Okay. What is your opinion on selling secondary shares? Do you approve, disapprove? Would you ever do it yourself? Yeah, I think everything is like a big like it depends on the person in the situation, right? So if you had a family, if you needed a larger house, because you just had a kid, whatever it is, like there's circumstances in life, I think, I think there's a classic saying or thing within startup culture of like paying yourself very little as a founder, because you need to focus all your time on the business.

19:14And like, you need to kind of earn that salary. And I completely disagree with that. I'm able to pour 14, 16 hours a day into the startup because I pay myself well enough that I'm not stressed financially to have to worry about bills and other miscellaneous things that distract you in life. And so by giving myself a livable salary that I'm okay with, I can focus 110 % on the business. And so I think that can be extended to secondaries as well. If you are in a place in life where your significant other and you have a kid and you need a larger space and you don't have the available liquidity to do that, to be able to sell secondary and be able to take care of your family so you can focus on the business I think is totally acceptable.

19:57I mean, to give an idea of equity stake, I have two co-founders. We didn't split equally, but roughly. And then we've done a seed round, an extension, and then our series A. So fairly diluted. And I'm also someone who doesn't love the traditional like raise an A, raise a B, raise a C. That's why you alluded to in the intro, we were profitable for two months earlier this year. since raising our A. We've hired a shit ton and are not profitable on a month-to-month basis, but I think we should get pretty close to profitability again in 2024. And the goal is to not raise again for a lot of the reasons we kind of just mentioned, right?

20:34Like I am diluted a good bit from having two co-founders and having two rounds of funding. And I think we've been able to run the company extremely lean. We have people who are really good at what they do and the business itself has pretty high margin. So I don't see a reason to continue to burn cash just so we can go to the series B. I'd rather build like a sustainable business that can eventually flip the switch and optimize for profits. To what extent is money motivating you as you build this business? And do you consider Beehive to be the thing that will set you up financially for the rest of your life?

21:09The goal is for that answer to be yes, right? So 5 million ARR right now in like month 20, and that doesn't include the other revenue streams. So at about a$7 million run rate in under two years, I feel really good about our team. We're extremely talented, extremely hungry, run really lean. And the space I think is pretty ripe to be disrupted. And so I don't see any reason where if MailChimp can get acquired for$12 billion, I think our goal, our ambition is much broader than the software that they built when they got acquired for$12 billion. And so I do think this can be a massive multi-billion dollar business, which I think by most measures of success would be financially set if that were to happen.

21:52So that's like for sure the goal and the vision of what we're looking to build. as far as like money as a motivator like I remember in a younger stage in my life thinking people always like what after an entrepreneur sold the company talking about like their users and how like the new acquirer like didn't set up their users for success long term and like there's always like kind of headaches after an acquisition or that there can be and I always viewed that as like who cares you kind of just walked away with a hundred million dollars you really give a shit and I've changed a lot on that and like the answer is like yes because there's a lot of users and people who really stuck their neck out and helped us get to the point that we are yeah there's a lot of users who put up with months of our product being like a clear number 10 in the space but trusting that we would figure it out and build and actually proactively provide a lot of feedback and so there is like a a very unique perspective in like I want to do what's best for our users.

22:51And I've also, in building this, you kind of forget a lot of these businesses are newsletter first businesses that are trusting us as a 20 month company to run their business, to monetize, to be able to push conversions downstream. And there's a lot of responsibility in making sure that we do that really well. I'm not going to bullshit you and say that money isn't anything that I care about. Like I for sure have aspirations, would love to be financially free to to be able to support my family and those that I care about. But there's a lot of mission and vision built into that that was always there from the beginning, but it actually becomes a bit more amplified throughout the journey, I'd say, to really look after your users and make sure that their best interests are in heart.

23:37We'll be right back after a quick break.

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25:14any hour can be the highest high and lowest low. And I've had someone who I was super optimistic on joining the company, turn us down and offer. And then the next hour have a massive user say that they're churning from their platform and moving over to us. And the swings are wild. And when you care as much as I do, like it's very much amplified. And something I'm trying to work on is trying to be a little bit less, you know, a little bit more steady along the journey, because there's a lot of swings. One of our not yet co-founders, but first I'd say employee, our CTO, Andrew Placken, was a good friend and he ended up passing away about eight months into the journey.