Hamish McKenzie - Substack
We talk about his journey from NZ to founding Substack, how Substack launched and raised capital, advice on monetising on Substack, secret obsessions and more!
Hamish McKenzie is a Co-Founder of Substack, a company that makes it simple for writers to start paid newsletters. To date, Substack has raised over US$17M in funding from the likes of a16z, Y Combinator, and angels including Twitch CEO Emmett Shear, Zynga Co-Founder Justin Waldron and others.
We talk about his journey from NZ to founding Substack, how Substack launched and raised capital, advice on monetising on Substack, secret obsessions and more!
NA: Hi Hamish, thanks so much for joining me. It would be great to start with your journey from writing for publications in New Zealand fast forward to founding Substack?
HM: Thanks for having me. I grew up in Alexandra, which is in Central Otago, a small town in the South Island. I went to the University of Otago, knowing that I wanted to go into journalism and study English literature. I had a great time and volunteered for the student magazine, Critic. I then got a part-time job as a news editor there and took over as the editor in 2004.
That was an awesome fun job and I was very happy about my decision to go into journalism. I then decided to go to do a master’s degree in journalism overseas. I picked Canada, just because I thought it was a bit different from the usual suspects.
That was a one-year program and after finishing that, I thought I wanted to go be a foreign correspondent. China was the big story at the time, it’s rise to prominence or its economic miracle story. It was in the lead up to the Beijing Games. I thought I could go to Hong Kong and report on China, but instead, I got to Hong Kong and ended up working for an entertainment magazine.
I helped start Timeout magazine in Hong Kong and did some freelancing for the Morning Post and a bunch of other publications. I spent four years there and had a really great time, but was ready to leave. I had struck up a relationship with an American girl and I moved with her back to the US in 2010.
I started in the US as a freelancer for a couple of years, then worked for a technology news site, called PandoDaily, covering startups and tech companies. I was there for a couple of years and ended up being hired by Elon Musk to go work for Tesla as the lead writer. I had a crazy year there.
The reason I got in touch with Elon in the first place is because I was approached by a publisher in the UK to see if I’d be interested in writing a book about Elon. After that year, I was ready to go back to journalism and so left to write that book. The book was about electric cars taking over the world. While working on that I worked half time for a company called Kik, which is a messaging app company.
My friend was the CEO. I worked doing communications for them for half time while working on the book. I became friends with Chris Best, who is one of the founders of Kik and was the CTO there. By the time I finished my book, I had scaled back my work at Kik to zero and Chris had walked away from Kik after nine years. He was taking a year off and I’d finished my book and was planning the next steps and we started talking about Substack.
NA: That’s an amazing journey. How was the experience working at Tesla and with Elon?
HM: Exhilarating in all the senses. Huge ups, huge downs, lots of thrills, lots of grind and drama. Definitely, an experience that I would not trade anything for, but I’m also very happy that I’m no longer working for that company.
NA: Coming back to Substack, how did the idea come to being and what was the journey to start the company?
HM: As I mentioned before, Chris had finished work at Kik and was taking a year off. Well, one of the things he was doing during that year off was to try and write more.
He’d written a draft of an essay that he was going to publish on his personal blog which he sent it to me for feedback since I was the only journalist he knew. The piece was about how the attention economy was creating these negative effects in society because online advertising had given rise to these big artificial intelligence machines really that had been optimized for provoking extremes of emotion.
Delight and joy on one end of the spectrum, but more commonly outrage and divisiveness, polarization on the other end. We’re living increasingly in this media environment where it’s harder to coalesce around a shared view of the truth and where it’s easier to separate into tribes that became suspicious of each other.
He’d written this essay and sent it to me for feedback and its good and all the things he identified is true, and everyone who works in the media knows that these are the problems, but what people don’t know how to do is something better. Like what is the productive way out of this?
I said if you’re going to publish this article, then you should at least include a couple of paragraphs suggesting an alternative. To his credit, he never actually finished writing the essay because it got his mind racing and we started thinking about what might be better.
This leads us to the conclusion that subscriptions were a better way forward because they align the incentives between readers and writers. Instead of paying for clicks and outrage, you’re paying for trust. He got excited about the idea of starting the company around that idea and convinced me that it’s something we had to do.
We were both readers of Ben Thompson of Stratechery at that time and he writes about technology businesses from a spare bedroom in Taiwan. He publishes a free blog post a week and then three extra posts that are just for subscribers. They go out by email and subscriptions cost a hundred dollars a year, although I think he’s increased the price since then.
He’d been telling people that his model really works, and more people should try it. We were wondering why more people didn’t try it. We looked at it and thought it works, if you’re technologically savvy enough to cobble together the various tools for that purpose, and if you’ve got enough business sense to be able to construct the economic model to support that work.
Most writers in our experience aren’t necessarily business-minded in that way, even if they are technologically savvy enough to cobble together these various tools, they aren’t, you know, they don’t think its necessarily a great investment of their time to set up that stack and then manage it constantly in the background and do their own customer support.
We thought what if we could take all that niggly stuff off the table so that you can just be a good writer and focus just on doing the good work and Substack could take care of everything else. You can basically just type into a box, hit publish and money could magically appear in your bank account. We both believed that model could work and set about building it. We convinced the first customer, Bill Bishop to come on to start his newsletter and start paid newsletter around China. He had this newsletter called Sinocism and being free for five years he was ready to make some money from subscriptions.
It worked so well on its first day of launching in October 2017 that we thought we should try and go deeper and take a big swing at this. It was around that time that we convinced Jairaj who is our third co-founder to come in full time with us. He’d been doing some consulting work for us; we both knew him from our days at Kik and Chris had worked with him for a long time. He was the best developer that either of us knew and we thought if we can convince him to come and get in on the action with us maybe this could really work.
NA: That’s a great story of the beginning. After launching the product, getting a few writers on board, what was the process, that you guys went through, for raising venture capital and investment for Substack? How early did you start to consider it and how was that process?
HM: After Bill’s success with his launched and then a couple of other writers coming on and doing well. We really thought that this could be more than just a boutique business and that if we could make a big shot of it, it could have profound societal consequences for the better. Maybe we could provide a media ecosystem that’s alternative to the one based on advertising, one that could be based on trust instead and one that could give writers economic options for the future.
This is a way that writers could flourish on the internet instead of suffering, which was the current status quo. Pretty early on after those first early successes, probably October, November, where we’re convinced that the responsible thing to do would be to try and make this as big as possible to help positively affects as many people’s lives as possible.
We thought we should try and give us all the best possible advantages of making this a successful technology company and a way to do that is to try and get access to the best minds, networks and advice you can. We decided to base the company in San Francisco where the ecosystem for startups is the richest and most supportive. We applied to Y Combinator and were accepted. Once we were accepted into Y Combinator we got $150,000 as part of that deal, which was good seed money for us.
Then you build-up to this demo day in Y Combinator, where you pitch for seed funding and out of that, we successfully raised US$2.2 million from a good bunch of angel investors and a couple of small VC funds. That set us on the path, and it gave us plenty of runway for a long time.
In 2019, we did our Series A and raised US$15 million, and we weren’t looking to raise at that time. We were heads down, building the product, building the business, trying to get product-market fit, trying to build momentum and we were saying no to a bunch of investors that are coming around looking for a way to get in on the A.
We got into this conversation with Andrew Chen and he introduced us to Andreessen Horowitz, who have a great editorial team and they convinced us that they could do it in a distraction-free way essentially, where we close the deal in the space of a week and got really good terms. That felt like an okay thing to do at that point.
The reason the distraction-free part of it was important is because we were only three people. If we took our eye off building the business or building the product for too long, then we would’ve been screwed. We didn’t want to take much time off to go and do this big Series A process.
NA: That’s amazing. I guess it’s a good sign when VCs are coming to you to try to preempt the Series A.
HM: Yeah, I recommend it.
NA: In your experience, how should someone, who is writing currently on Substack, think about when to start monetizing and pricing their blog?
HM: You want to be looking for signs of sustained growth and good momentum. If you’ve been publishing for a while and it feels like and looks like people are liking what you publish, then you can safely start thinking about paid subscriptions.
The indicators might be that you’ve got a couple of thousand people on your mailing list for example. You have really good open rates, anything above 40% to 50%, depending on the frequency you publish, people telling their friends. You might even be getting emails from people saying I’d be happy to pay for this if subscriptions are an option. Those kinds of indicators suggest that it’s a good time to start thinking about going paid.
When it comes to pricing, there are two categories we think of, on one end is the consumer category where you’re publishing for an audience that is interested in the subject you’re writing about or interested in you personally and they pay out of their own pockets.
For that crowd, we suggest $5 a month, $50 a year or somewhere around there as a reasonable ballpark. For the second category, you are publishing information that is helpful to people in a business sense. In this case, most of your subscribers should be able to put the subscription on a corporate credit card, or company expense account.
For that crowd, pricing wise you should be thinking of minimum $10 a month or a $100 a year, going up from there.
NA: Those metrics or leading indicators are helpful to know. Can you talk about the next big steps and plan that you have on the roadmap for Substack? It sounded like you guys really started the company as a way to support writers specifically with a way to monetize, but are there other ways that you are planning to support writers that would really help them take the leap to do this full-time?
HM: We’re starting to build out a services program, which is in its infancy, but hints at what might be in the future. For instance, we started with a legal support program called “Substack Defender”, where if you’re a writer in the US with paid subscriptions enabled, you can apply to be part of this program.
When you’re accepted, it gives you access to a team of lawyers employed by the program who can review and help you respond to legal pressure brought by your antagonists. If some bully is trying to use a cease and desist letter to intimidate you out of doing an important story, the Substack Defender programs lawyers can respond to that cease and desist letter for you. They could also review a story ahead of publication that might be legally touchy in some way to give the writer an extra sense of assurance and security that they won’t be vulnerable to a legal challenge.
That’s an example of the kind of support that we are starting to offer and it’s something we’ll scale out later. We are also starting to do similar things like connecting writers to editors and connecting writers to healthcare and design support. All of this stuff is in a pilot stage, but we’re really interested in investing deeply in that to help many more writers in the future.
NA: That is exciting. What advice would you give first-time founders, when they’re thinking of starting a company, what should they be doing first?
HM: Mostly just to get in motion to stop. Don’t overthink it, don’t over plan, don’t playhouse too much. Just get out with a product no matter how crappy and embarrassing it is and get information, get feedback from your users and then talk to them, figure out how you can make it better for them. Don’t worry about having the perfect business model and the perfect product from day one. Just make something people want and keep improving.
NA: That’s great to the point advice. What’s a secret obsession of yours that most people don’t know about?
HM: I guess a secret obsession is I’m really into Lorde (laughs), the Kiwi singer and I have an unfortunate, lazy, downtime habit of watching rugby highlights videos on YouTube. That’s my main source of entertainment.
NA: I like how both of your secret obsessions are a very Kiwi (🥝) thing. Thanks for taking time from your day to talk Hamish. It was great talking to you.
HM: You’re welcome, thanks for reaching out!
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