Substack Falls on Tough Times

Startup cuts 13 jobs of 94 positions, 14% of staff trimmed.

Hey Guys,

While the subscription economy takes off, getting VC rounds is entering one of its worst periods in recent memory and so I feel bad for startups struggling. I’m always on layoffs.fyi surveying the damage since I cover startups across a broad range of industries.

https://layoffs.fyi/

Substack is laying off 13 people, around 14% of the company

So you can imagine my sadness and shock to see Substack on the list.

Co-founder and CEO Chris Best informed the company after holding meetings with the affected employees along with founders Hamish McKenzie and Jairaj Sethi.

This is not exactly surprising, any startup remotely Web3 or a pandemic beneficiary like Substack was, is entering a different market. Substack is the latest tech company to announce layoffs, with the company’s CEO Chris Best tweeting on Wednesday that he’s letting 13 workers go. According to Axios, that’s around 14 percent of Substack’s workforce.

Trimming is always the correct move, better to be prudent then sorry, there’s too much at stake!

I would not write on a platform if it had leaders I did not respect. Apologizing and taking the time is the right way. But this is a business.

Chris Best @cjgbest

Today’s the saddest day we’ve had at Substack. We’re letting go of 13 people. Here’s the note I shared with the team.

A 14% trimming of jobs is conservative, many startups have shed a lot more already in their first round of layoffs. Substack had a good 2021, but that momentum cannot continue when more of our audiences are being pressed by inflation, have less discretionary spending and cannot afford 10 different household subscriptions.

But do not fear dear writers, Substack while shedding some copyrights and HR folk, are still hiring sales, product-marketing and engineers. It’s not as if the startup is in any serious trouble.

Chris Best @cjgbest

The people we’re saying goodbye to today are all talented, great people who care deeply about helping readers and writers. It hurts to let them go. We’ll miss them.

People will come and go, Creators will leave the platform, some influencers will stop writing Newsletters, publishing and media is not an easy business.

As the Tech layoffs accelerate into the second half of 2022, we are near or already in, a recession.

Chris Best @cjgbest

Market conditions are bad and may get worse for an extended period of time. We are preparing the company to succeed without having to rely on outside funding. (If we fundraise again, we want it to be on our time.)

Substack will fundraise again, they just need to wait a bit longer then they ordinarily would have. The VC climate is going to get pretty bad and valuations will plummet.

Still for a close-knit new startup, to say goodbye to 13 of 90 of your colleagues would be hard. According to The New York Times, some of the employees laid off were involved in human resources and writer support.

Substack’s reputation for free speech is getting impressive and I like the differentiating factor, even while at times it can be controversial. There are so many dead-ends now in the digital town square, where one simply does not feel safe.

Chris Best @cjgbest

We are in a fortunate position. Substack continues to grow our business and revenues. We have money in the bank. Our business model works. We are still hiring for key roles, albeit more slowly.

Substack’s revenue exploded in 2020 and 2021, especially among its top 15% of writers. To say that 80% of the revenue goes to the top 20% of its Writers would likely be an understatement.

Substack is far from the only company laying off a significant percentage of its workers in the past month or two. It’s extremely common right now, even at very high-grow and profitable companies.

Chris Best @cjgbest

We feel a responsibility to use this position to serve writers and readers, and we will do so to the utmost of our ability.

Substack is very writer and reader-centric. They understand that both are their customers.

Best says that the company needs to change tactics, as it could be facing “an extended period” where the economy goes from bad to worse. He says that the layoffs are one of several changes the company has made to make sure it’s in “a strong financial position.” This is fundamentally correct, though I’m not sure even Substack realizes how bad the macro climate could get.

Venture capital funding and deal volume have also dropped significantly in the past quarter, according to new data.  Flashy startups like Substack have never faced a recession before or even imagined having trouble doing financing rounds. In fact their last valuation was inflated, just like everyone else.

Like several other companies that boomed in a time when venture capital flowed more freely, Substack must figure out how to survive in a hostile economic time. It’s gratitude and care are noted as compared to bigger startups like Coinbase.

This won’t in any tangible way impact us as Creators, but certainly we can expect seasonal lower subscription rates. Some of us I will note, already have seen this in our data. People are having a summer of revenge travel and are spending less time indoors while having less cash to shell out to inspirational creators or niche heartlands.

Like many other C-suite teams, Best admitted that the move may be a surprise to some employees. “Not so long ago, I told you all that our plan was to grow the team and not do layoffs,” he says, also noting that the company is “still hiring for specific key roles” and has money saved. All in all, this is an extremely strategic move.

Substack needs those App engineers, sales staff and product-marketers to grow faster. For the most part its programs, support documentation and product info is on point. In the Great Reshuffle, startups need to reshuffle their staff to face the challenges of the times.

The layoffs, which cover roughly 13 of Substack's 94 employees, were across human resources, support and operations, the company’s vice president of communications Lulu Cheng Meservey confirmed to Axios.

The Big Picture

Subscriptions were pioneered by periodicals, including, in 1688, the first illustrated edition of Milton’s Paradise Lost. 334 years later Substack is creating tools for Creators that’s helping to heal the wounds of a censored and Ad-driven internet.

Thanks for reading!