A Tough Decision for the Newsletter Platform
In a move that has left many in the tech industry shaken, Substack, the popular newsletter platform, laid off 13 employees today. The affected roles were mostly in HR and writer support positions. Co-founder and CEO Chris Best broke the news to the team after holding meetings with the impacted employees, along with founders Hamish McKenzie and Jairaj Sethi.
While some may view this approach as more considerate than others (such as Coinbase’s), the reality is that layoffs can be a harsh blow for any company. Substack’s decision comes at a time when venture capital has become more scarce, making it challenging for companies to secure funding. The platform raised $65 million from Andreessen Horowitz (a16z) just last year, but its valuation of $650 million has sparked skepticism.
A Company in Crisis
Substack’s struggles are not unique. Many companies that boomed during the venture capital heyday have had to adapt to the harsh realities of a changing market. The company’s decision to raise another round of funding as recently as last month suggests it was trying to navigate these choppy waters. However, choosing not to take on more funding may be a sign that Substack is prioritizing long-term sustainability over short-term gains.
According to The New York Times, Substack earned approximately $9 million in revenue in 2021 from the 10% cut it takes from writer subscriptions. This translates to around $90 million for writers, with the top 10 earning a staggering $20 million. These figures make it challenging for the company to raise at a higher valuation than its last round.
A Message of Hope and Resilience
In a letter to employees, which he shared on Twitter, Best wrote:
Our goal is to make Substack robust even in the toughest economic market conditions, and to set the company up for long-term success without relying on raising money — or, at least, doing so only on our time and our terms.
Substack is still hiring, but at a slower pace. Currently, its jobs site lists three engineering roles, a sales rep, a head of growth, and a head of HR. As the company matures, it faces increasing competition from established players like Twitter, which has introduced long-form and newsletter products.
A Reflection on the State of Venture Capital
The Substack layoff raises questions about the sustainability of venture capital-backed companies. How can startups justify their valuations when revenue growth is slow or uncertain? The answer lies in adaptability and resilience. Companies must be willing to pivot, prioritize efficiency, and focus on long-term growth.
In an era where venture capital has become a double-edged sword (funding opportunities often come with unrealistic expectations), Substack’s decision serves as a reminder that even the most promising startups can struggle to survive.
A Timeline of Substack’s Journey
- 2021: Substack raises $65 million from Andreessen Horowitz, valuing the company at $650 million.
- Last month: Substack reportedly tries to raise another round of funding but chooses not to take on more capital.
- June 29, 2022: Substack lays off 13 employees in HR and writer support roles.
The Future of Substack
While the layoffs are a setback for Substack, they also present an opportunity for the company to refocus its efforts. By prioritizing efficiency and long-term growth, Substack can emerge from this crisis stronger and more resilient than ever.
As the tech industry continues to evolve, one thing is certain: only the most adaptable and innovative companies will thrive in the years to come.
