Chris Best, Hamish McKenzie, and Jairaj Sethi started Substack in 2017, but their history dates back years before. Chris co-founded the anonymous posting app Kik during his third year at the University of Waterloo (2010). He spent the better part of eight years at the company where he met his soon-to-be co-founders. When Chris left Kik in early 2017, he wanted to spend time enjoying the simple pleasures of life that he previously didn't have time for. This includes spending time with family and friends reading and writing.

To fix the current state of media, they hypothesized, you must change the business model from one that optimizes for your time to one that optimizes for your money.

Social media dismantled publications into articles, with each piece competing for the attention of readers against: user-generated content, articles from competing publications, articles from the same publication.

The social media reward mechanics and the inconsequentiality of playing the game contributed to the increasingly sub-optimal decisions we make on what to consume at any given time. On the other hand, as time spent consuming sub-optimal content increased, so did the perceived value of high-quality content.

A fundamental principle of competitive advantage strategy is new products compete on only two dimensions: Differentiation or Cost. In media, differentiation would most likely encompass a coverage niche. Cost, on the other hand, is a little bit more complex. For an ad-driven media publication, the lever a publication exercises most control over is distribution cost: how much does $ is spend to generate one article view.

Customer Lifetime Value and revenue, while dictated partially by the quality of an audience, are primarily driven by external factors outside the publication's control.

Customer 001: To build the very first version of Substack, Chris and Hamish flew to Washington, D.C, where Bill Bishop was at the time. They built a product exclusively for him. Small scope, large impact.

Customer 002: Hamish and Chris continued with the same approach, recruiting already established writers and solving the needs of their acute publication in a generalizable manner.

They sold trust. What differentiates their product is the degree of alignment between the company and the writers: It takes less time to export your subscriber list and leave the platform than it does to join. Substack charges a 10% commission on paid subscriptions.

Substack's moat is hard to grasp at first; they built a product that lacks any sort of writer lock-in. The lack of platform lock-in, in fact, is one of the core value pillars of the product.

The main risk I see for Substack is the reliance of authors on social media for distribution. My guess would be somewhere around 15%-25% of all new subscribers to Substack publications come from social media platforms. With Facebook, and Twitter launching (or acquiring) their newsletter products, it is possible that they artificially hinder the distribution of any post linking back to a substack publication to make their products more competitive when failing to compete on merits. Something they have done repeatedly in the past.

Ali Abouelatta • ✍️ Substack