Medium CEO Tony Stubblebine announced on Friday that the publishing platform has remained profitable since August of last year, when it first achieved this milestone. In the post, Stubblebine detailed what it took to achieve this goal, which involved a combination of product changes, an investor restructuring, renegotiated loans, unloading office space, layoffs, and other difficult cost-cutting measures.
His post offers a deep dive into what it takes for a startup to achieve a turnaround and the tough choices that have to be made.
According to Stubblebine, the company was losing $2.6 million per month when he joined in 2022. It was also losing subscribers, was out of investor funding, and lacked an acquirer.
He said that left the company with only one choice: “make Medium profitable or shut down.”
The platform’s difficulties, in part, stemmed from its business model, which offered a single bundled subscription any writer could share in. The company had also experimented with bringing on high-quality professional editorial content, which Stubblebine said began to draw attention away from the amateur writers on the platform — those sharing their professional or academic work or writing about lessons that “come from living interesting lives and writing about it.”
When he joined as CEO, Medium’s membership had topped 760,000 but was losing money every month. Stubblebine had to dig the company out of that hole, he said. On the product front, Medium introduced a way to add human expertise to recommendations with Boost, changed its Partner Program incentives to reward thoughtful writing, and added a Featuring tool that allowed publications to curate and promote other stories of interest.
In terms of the finances, Medium owed $37 million in loans, and its investors held an additional $225 million of liquidation preferences (meaning the investors would get their money back before employees saw returns). Its governance was also overly complex and required getting investor approval from across five separate tranches before making major company decisions.
To correct these problems and right the ship, Medium renegotiated its loans, eliminated its liquidation preferences, and simplified its governance to just one tranche of investors. It also sold off two of its acquisitions and closed down a third.
Critically, Medium worked to clean up its cap table by renegotiating with investors, which Stubblebine didn’t immediately want to do, he admitted. But after a year since the idea was first raised, the CEO realized that’s what it would take to save the company.
“The investor restructuring required a bit of a sweet spot. The business had to look good enough to save, but not so good that there were other options,” he noted.
“The case I made to the loan holders was to convert their loans into equity or management would walk, and then to create enough ownership for them by going to the rest of the investors with terms for a recap,” Stubblebine explained. Six out of some 113 investors participated in the recap, where the investor stakes were diluted and special rights like liquidation preference and governance roles were given up. (He also shouted out to VCs who were easy to work with as partners, including Ross Fubini at XYZ, Mark Suster at Upfront, Greylock, Spark, and a16z.)
Medium had to cut costs, too, both through layoffs — going from 250 people to just 77 — and through engineering optimization, which cut its cloud costs from $1.5 million to $900,000. It also eventually got out of an office lease that saw it paying $145,000 per month for a 120-desk office space in San Francisco. Employees were granted new equity since their existing equity after the “cram-down round” was likely to be worthless.
The platform, once valued at $600 million, didn’t share its new valuation as a result of all these changes, but it’s considerably lower, of course.
“…I have no ego about what our current valuation is,” Stubblebine wrote. “But I’m also not going to tell you because I don’t want that used as a point of comparison with other startups. We are profitable and they are not. That’s a comparison point that serves us better,” he said.