The Backstory of Substack

While recent Substack trends seem curious or alarming to me, the story of the company’s founding is inspiring and significant.

Many people told them “nobody will pay for Internet content” but Substack co-founders (left to right) Chris Best, Jairaj Sethi and Hamish McKenzie trusted their instincts and said the economic model for journalism provided a raw deal for independent writers.

UPDATE: For an in-depth analysis of Substack’s hard turn toward leftist content creators, see this story.

Introduction:

I’m working on an in-depth research project which will quantify the startling growth of left-leaning Substack authors in the past six to 12 months.

In this series of articles, I will also provide subscription metrics of newsletter authors I have labeled “Covid Contrarians” and show that most of these conservative or libertarian-leaning authors have experienced limited or no growth compared to “Statist” or “narrative-protecting” authors.

This research project supports my view that, in recent years, “something has changed” on Substack or that executives for the writers’ platform seem to have embraced a concerted strategy to re-position Substack to make the platform much more palatable to liberal thinkers.

While this upcoming article might not be popular with Substack executives, I also want to emphasize how much I appreciate Substack and admire the free speech principles embodied by the company’s co-founders.

Without question, the creation and growth of Substack is a remarkable and inspiring story.

Due to the power of a simple idea, the company has transformed the media landscape and given a significant voice to thousands of writers and citizen journalists who previously could not reach large audiences or had no way to “monetize” their content creation.

This morning, popular podcaster Guy Yaz published an interview with Substack co-founders Chris Best and Hamish McKenzie.

The fascinating 80-minute interview tells the story of how a software whiz from Canada and a freelance journalist from New Zealand came to meet each other and created an economic model or publishing template that did change or “re-invent” journalism and, perhaps, could change the world.

The text that follows (along with a few excerpts from a 2022 Vanity Fair feature story on the founders) might interest anyone interested in the “back story” of Substack.

Mr. Yaz’s summary from his “How I Built That” series of podcasts.

(Note: emphasis added by Bill Rice, Jr.)

“Substack was founded to create an escape vehicle for writers: Chris Best and Hamish McKenzie imagined a world where writers didn’t have to rely on legacy publications or corporate advertisers, but could instead create a more direct and meaningful relationship with their audience.

“Despite early skepticism, Chris and Hamish were confident that many people would pay a few dollars a month to subscribe to their favorite newsletters, on subjects ranging from politics to sports to tech. Today, Substack has over 35 million active users, and while many of its offerings are free, a number of its content-creators make upwards of $500,000 a year.”

Note: Per my research, more than 30 content creators in just two Substack categories (“U.S. Politics” and “News”) make a gross income of at least $1 million a year from Substack subscriptions. Mr. Yaz mentioned that “50” authors might make more than $500,000/year. Company CEO Chris Best said the number of authors making at least $500,000 was “considerably” higher than 50.

Background of the co-founders:

Chris Best, Substack’s 37-year-old CEO, grew up in Vancouver, Canada. He earned an engineering degree from the University of Waterloo in Ontario.

While still a student in 2009, the software “wonk” was a co-founder of the company that created the “messaging app” Kik.

At one time, Kik was valued at $1 billion. After eight years working for Kik, Best stepped aside to take a break from the long hours of managing the business.

While the company, at one time, was a huge success, Best said he didn’t make enough money from the company to be “set-up for life.”

During his sabbatical, he tried his hand at writing and wrote a blog post on what he viewed as the sorry state of a media “eco-system” which “had gone insane.”

While working at Kik, Best had met Hamish McKenzie, a journalist who worked for a time doing PR consulting work for Kik.

Best contacted McKenzie and asked him for feedback on his essay.

Said McKenzie, as quoted by Vanity Fair in May 2022:

“(Chris) was bemoaning the state of the world and how it led to this growing divide in society, and how the things that were being rewarded were cheap outrage and flame wars,” McKenzie recalls. “I was like, ‘Yeah, this is right, and everyone who works in media knows that these are the problems. But what no one knows is how to do something about it. What’s a better way? What’s a solution?’

“Their solution turned out to be Substack.”

A tech whiz and a freelance writer join forces …

While Best had experienced professional and economic success at Kik, Hamish McKenzie was struggling to make ends meet as a freelance journalist. (McKenzie was able to pursue freelance journalism largely because of his wife’s income, he told Yaz.)

McKenzie grew up in New Zealand and, with a master’s degree in journalism, decided to go to Hong Kong to pursue a living.

He met his future wife while working as an editor for a Hong Kong on-line journalism site.

He later moved to America (Baltimore) when his wife got a job in that city and then worked as a tech writer for a now defunct website in Canada.

At some point, he became fascinated by the entrepreneurial acumen of Elon Musk and had the idea he could write a book on Musk.

McKenzie tracked down Musk by finding his mother in Australia. McKenzie sent Musk’s mother an email, which she immediately shared with her son.

Soon, McKenzie was on the phone with Musk. Instead of green-lighting a book, Musk offered him a job in public relations department of his company.

(Skip forward eight or so years, and Musk tried to buy Substack).

While McKenzie made it clear he admires aspects of Musk’s life work, for some reason the two men got sideways and McKenzie left the company. (He did write a book about Musk, Insane Mode, which was published in 2018 without Musk’s participation).

Note: One might get a glimpse into McKenzie’s politics from comments McKenzie made in the podcast interview.

Paraphrasing, McKenzie said Musk’s work at Tesla is crucially important to eliminating or dramatically reducing the use of carbon fossil fuels, which McKenzie apparently believes are causing Climate Change. The subtitle of his book on Musk is “How Elon Musk's Tesla Sparked an Electric Revolution to End the Age of Oil.”

Back to Substack ….

According to Best and McKenzie, the eco-system of journalism has always been warped because the writers who work for establishment journalism companies produce content that is read by vast numbers of people, but the writers earn only whatever salary their bosses are willing to pay them.

The writers are NOT their own publishers.

Their “solution” was to create a media platform that, according to Chris Best, would be a “hundred times easier to use” and would allow independent writers to simply focus on writing compelling stories. Substack would take care of everything else.

“This won’t work …”

Like most great entrepreneurial success stories, the company founders were repeatedly told their grand idea wouldn’t work.

A common rejoinder: “Nobody will pay for content on the Internet.”

Yes, they will, both men answered … especially if readers like a given writer enough.

Best went to work creating the software platform that allowed writers to easily produce and submit content that would be emailed to users.

The company took care of all the back-room distribution and logistical details, allowing writers to focus on simply writing articles that would resonate with enough readers who, the company’s founders believed, would pay for content in the form of monthly or annual paid subscriptions. (Substack earns 10 percent of each subscription with payment processor Stripe earning approximately 2 to 3 percent).

I liked this answer …

Toward the end of his interview, Mr. Yaz asked Best a question that resonated with me. The question: What’s more important to entrepreneurs - luck or inspiration (i.e. a great idea)?

Best’s answer: “neither.” The key is simply believing in your idea and then doing it. Details, or perfecting an idea or business model, can come later.

To prove their concept would work, the pair needed at least a few key “content creators” who would sign-up for Substack.

Hamish McKenzie knew a writer name Bill Bishop, who wrote a newsletter about China issues.

According to McKenzie, Bishop had been writing for a while that he was going to put some of his content behind a pay wall, but he hadn’t done this yet.

McKenzie and Best talked Bishop into posting his newsletter Sinocism (which now has more than 379,000 total subscribers) on Substack.

In October 2017, Bishop posted his newsletter on Substack … And in 24 hours had more than $100,000 in paying subscribers.

As McKenzie wrote in a Substack post five years later:

“Bill effectively launched two new life-changing businesses that day: his one and this one.”

Now based in Silicon Valley, McKenzie was in charge of recruiting the writers who could make Substack a success while Best focussed on the software and tech challenges. (Jairaj Sethi, who Best worked with at Kik and knew from college, was also a founding partner.)

***

Gaz asked McKenzie how he became a founding partner of a company that was valued at $650 million in 2022 (the company might be valued at more than $1 billion today).

Best wanted both men to share “equally” in the ownership, although McKenzie was a struggling freelance writer.

McKenzie also said his grandmother passed away in New Zealand and he used his inheritance to contribute an unspecified amount of start-up capital to the company. (I mention this anecdote as it might give hope to other struggling journalists with an entrepreneurial bent of mind… such as myself.)

Almost immediately, venture capitalists and investors came on board to provide the company sufficient operating revenue.

Covid takes a hand …

Even with Bill Bishop’s impressive example, Substack was still largely unknown in the world until destiny took a hand in the form of “the Pandemic of the Century.”

Podcast interviewer Yaz made a point I’ve highlighted in numerous articles; namely it was the “Covid Contrarians” who put Substack on the media map.

Neither Best nor McKenzie disputed the interviewer’s point, with Best noting that Substack’s key metrics increased six-fold in the year 2020.

Yaz also pointed out that it was more “libertarian or conservative-leaning” writers - not the more liberal writers from the mainstream press - who flocked to Substack.

These were writers who questioned the experts on the Covid narrative, and many if not all of them were banned or their reach significantly suppressed in popular social media platforms like Twitter, Facebook and YouTube.

To their immense credit, Substack’s founders let these writers write what they wanted, even if they might not agree with the POV of the site’s budding All-Stars.

While a few writers had large followings on other social media platforms, the growth of many newsletters seemed to be organic - giving birth to the proverbial “citizen journalist.”

Substack’s founders pointed out that an “army” of “content moderators” was being used by companies like Facebook and Twitter, a bizarre and disturbing strategy in their view.

Both men speculated Substack was perhaps too small, or too new, to attract much attention from what would be dubbed by Substack author Matt Taibbi’s team, “The Censorship Industrial Complex.”

Still, By 2022, NGOs such as the Center for Countering Digital Hate (CCDH) and articles in The Washington Post and The Atlantic argued that Substack could be over-run by disinformation super spreaders, anti-vaxers and extremists including “Nazis.”

According to one CCDH video presentation, “five popular anti-vaccine newsletters” generate “at least $2.5 million a year … Substack makes 10 percent profit off of their lies. It’s got to stop,” the video concludes.

In protest, some Substack authors left the platform and called for their colleagues to emulate their actions - which few did.

The company’s founders fought back against the pressure campaign, issuing a statement that said: “We make decisions based on principles not PR, we will defend free expression, and we will stick to our hands-off approach to content moderation.”

Up, up and away …

Today, Substack has more than 35 million users and at least five million paid subscriptions.

Hamish perhaps made news in the Yaz interview by clarifying the company has five million “subscriptions” not five million unique people who pay for at least one subscription.

As many users pay for multiple subscriptions, the number of paid subscribers is still unknown.

While the company, which has 100 employees, has yet to make a profit, in previous interviews Best has said the company could make changes that would show the company was profitable in a given year.

For now, the company is still investing in growing the number of users and content providers. According to my research, more than 50,000 authors publish Substack newsletters.

As I will show in upcoming articles, in recent months and years, the company has clearly made a concerted effort to court more traditional or liberal authors.

For example, one liberal historian, Heather Cox Richardson, by herself has 2.6 million subscribers, which is more than the entire population of 15 U.S. states.

Regarding Hamish McKenzie’s former boss, Elon Musk, both co-founders confirmed Musk wanted to buy Substack two years ago. (Best said Musk was going to let him remain as CEO of the company.)

The company founders rejected the offer as, at the time, the executives were on the verge of rolling out “Notes,” which is Substack’s version of X or twitter.

No doubt viewing Notes as a competitor to X, for several months, Musk banned any links to Substack newsletters on X. However, this ban has been removed and both men noted that Musk himself sometimes links to Substack articles.

Whether Substack’s founders ever sell to Musk or Facebook/Meta or another giant tech or media entity is, of course, unknown at this time.

If, at one time, Substack was best known as a content platform known for its “anti-vax” kooks or extremists, this public perception seems to have changed dramatically in the past six months to a year.

Substack has been discovered - and embraced - by a Who’s Who of liberal authors and content creators who supported the lockdowns and the Covid “vaccines.”

(In defense of Substack’s possible growth strategy, if the company is committed to attracting more content creators or writers, almost all salaried or well-known writers would be liberal.)

“Covid Contrarians,” like myself, are still producing our own independent content, but, once again, we are in the minority.

Still, nobody would have read this article, or any of my hundreds of articles, if Chris Best and Hamish McKenzie hadn’t decided to create a better model for independent journalists like myself.

***

(Behold! The magic button for independent content creators. At my Substack, 96.3 percent of subscribers are free.)

Writer gratuities via Ko-Fi.