Jane Genova
Jane Genova

On June 29, Substack laid off 14 percent of its staff. This is at a time, documents Challenger, Gray & Christmas, of ongoing reductions-in-force in all media. Also, myriad startups such as Substack are facing financial challenges since venture capital is drying up.

The Substack layoff story could have been covered by the media as simply an example of the tech media business navigating the new usual. Instead, it was configured as a possible signal that Substack could be in game-changing financial distress. But Substack's woes are, at least in part, a result of the hype associated with the platform. There is a downside to leveraging hype as a tool for promotion.

In 2017, the Chris Best team launched Substack. On its turnkey platform, writers can sell their content on a direct-to-consumer basis. The business model is paid subscriptions delivered via email. Unlike dealing with establishment and digital media, writers can bypass editorial gatekeepers and no longer have to depend on publications for payment. The transaction fee paid to Substack is 10 percent of revenue, with a processing fee of three percent to payment processor Stripe.

Substack hailed this as "a better future for news." Others declared it as "the media future." Financial author David Warsh observed, "In 2020, Substack became the standard of the independent journalism industry. Not to move [to that platform] would be to capitulate to deliberate obsolescence." In an early sign of success, the platform signed up brandname writers ranging from Glenn Greenwald to Salman Rushdie.

The reality is that Substack essentially represents a natural progression in digital platforms for writers. Those kicked off with the weblog. Blogging liberated writers from the middlemen in traditional media. Blogging, like the Substack platform, can be monetized. However, the Substack technology facilitates all the logistics. Currently, of course, there are myriad other digital platforms that can be sources of revenue.

Another reality associated with Substack is this: There is more required than just posting content. Kevin Krapp, known for his "Full of Krapp" column, declared, "Moving to Substack was a boon to my writing productivity. I don't have to think about anything except writing and this is how I like it." Because Krapp has established a brandname, he might not have to think about another function: marketing. But writers with less name recognition do. That is a necessity for financial success on Substack. What marketing entails might not be fully understood by many writers. Once it is there might be a decline in the number of content providers contributing their 10 percent.

But those problems are the tip of the iceberg in Substack's ability to survive. The bigger ones are these: How media will present its ongoing situation and the effects of that on its revenue sources—and later, when fundraising bounces back, potential investors.

Substack's situation reflects the external developments impacting much of the digital media startup space. All have had their wings clipped by pull-back in venture capital. All are facing escalating competition. For Substack that is coming from Twitter, LinkedIn, and The Atlantic. All could have revenue significantly reduced in an economic downturn.

On the one hand, Substack declares it is in good shape. And, yes, things do look that way. It earned revenue of $9 million in 2021. During funding rounds, it had been valued at least at $650 million. According to Pitchbook, it had raised $86 million in three rounds of fundraising. On its internal job board, it is posting openings ranging from Android Engineer to Sales Representative.

On the other hand, its buzzy branding, created in part by sustained hype, makes it a target for negative media coverage. Bad news, as is well-known, makes for the story. Negative coverage about what it has to deal with to survive can itself set in play a lot of trouble. Both writers and readers can abandon the platform. If there is a recession, that can escalate. In a CNBC interview media leader Graydon Carter observed, "I think [a downturn] will be brutal and possibly long."

So here Substack is. Of course, promotion is necessary. The risk is that it can evolve into hype. The consequences of hype can be severe. Along with making the entity a sitting duck for media to swoop in at the first sign of trouble, there is this: locking the business into the hype. Without the hype surrounding finger-prick blood-testing startup Theranos, founder Elizabeth Holmes might have been able to either accept failure or change course. Now she faces years in prison.

In the sector I cover on my syndicated blog Law and More—elite law firms—I have noticed that most do not allow hype in their marketing and media relations. Examples are Kirkland & Ellis and Paul Weiss. Their strategy is nurturing their strong brand names created from the legal stars who dominate legal and business news.

When there is a negative development, those elite law firms do not automatically spiral into crisis. Recently, Kirkland & Ellis weathered the matter of representing—then not representing—firearms clients. The issue remained stand-alone. There seemed to be no seepage into other aspects of firm values and business.

The same played out in Paul Weiss' accepting a defense role in the racial bias lawsuit "Brian Flores, et al. v NFL, et al." The controversy had been intense. But it remained self-contained. The law firm conducted a presser to present the background and its commitment to social justice. Right now, the bad publicity seems to have blown out to sea.

What could Substack have done differently? Rather than putting itself out there with hype or encouraging it in any way, Substack might have stuck to the facts. Those would constitute the benefits for writers, readers, and communications in general. As a result, it would not have opened itself to the syndrome of Great Expectations Dashed, a media frenzy, and potential unnecessary damage to the brand and the business.

Hype, like controversy and the use of humor, is a wild card.


Jane Genova ([email protected]) creates marketing communications for professional services, industrial trades, and tech. A client observed, "She makes shipping containers' sexy.'"