“We’re going for billions here. Fifty mil is not what we’re looking at.”
With a $50 million offer on the table 18 months after starting the company, most founders would call the Lamborghini dealership. Not Beehiiv’s Tyler Denk.
Beehiiv’s growth has been astounding: Launched in late 2021, Beehiiv’s run rate was $12m ARR in April of this year. That’s impressive in any category, but even more so when your company isn’t a trendy AI startup, but built on dusty old email.
If you’re not familiar, Beehiiv plays in the email service provider category, which features towering incumbents with giant war chests, generous free plans, and brands established for decades. Oh, and it’s also competing with Substack for the very few writers worth subscribing to.
An established category with generalist products, niche products, enterprise products, and everything in between doesn’t sound like it has space for a startup to win. But when a market calcifies, companies often get stuck and don’t realize when circumstances change.
And that’s how opportunities for new entrants win. And it’s how products like Beehiiv can see a meteoric rise.
Why does an email platform work in 2024?
Email hasn’t been exciting since the 80s. The technology is old and we know its use cases: Get in contact with people, send marketing emails, send transactional emails.
For a long time, email seemed like a solved problem (not unlike the Pre-Command AI digital adoption space 😎). But then came the newsletter revival.
Stratechery, Lenny’s Newsletter, Morning Brew ($75m exit), The Hustle ($27m exit), Axios ($525m exit)…
Those are just the first examples that come to mind. Newsletters are big. And they’re all built on top of email. Here’s why:
On the internet, the hardest part of building a media company is getting distribution. In the 20th century, this had a physical meaning: You needed to distribute physical copies of your newspaper/magazine to newsstands, subscribers’ houses and offices, etc.
But logistics are trivial on the internet. Copy-paste, click a button. There you go. The hard part on the internet is to get people to pay attention. With social media reach in free fall and more and more content to compete with, that’s getting harder and harder.
Email is one of the few channels where you own your audience. You can import an email list anywhere and be in direct contact. That’s why newsletters became successful: While legacy media tried to get social media traffic, newsletters reliably arrived in the inbox.
This shift enabled companies like Morning Brew, where Beehiiv founder Tyler Denk was the second employee. He built a few core things:
- A CMS that made it easy for Morning Brew to publish via email and their website simultaneously (while looking good in all email clients, optimizing for SEO, etc.).
- Novel growth tools like referral bonuses with invite codes.
- Monetization-related tools like an ad management system.
These custom tools Tyler built for Morning Brew were instrumental in growing Morning Brew’s email list to the millions. This stack is also exactly what the Beehiiv team would build as its first product. That's similar to Command AI: We first built Command AI as a feature to another product, CodePost - before pivoting into it full time.
And that’s for Morning Brew, which had a team. Now imagine if you were Lenny Rachitsky in 2018 and you tried to build an independent newsletter business.
You would’ve had to:
- Build a website to post and manage your content with a content management system (CMS).
- Buy a subscription to an email service provider and create templates.
- Copy-paste and reformat your content in the email software every time you publish.
- Build sign-up forms and publish them on your website.
- Set up payments so you can charge readers
- Find a way to segregate paying from non-paying readers and automatically sync that with your email provider.
- Sell ad placements and insert the ads in your newsletter.
And you haven’t even written anything yet - which is the thing you really wanted to do. Plus you’re now paying hundreds of dollars a month for subscriptions. Who’s surprised that very few writers were doing this?
So building a business on your own writing was expensive and confusing. And anytime you can turn something expensive and hard into something cheap and easy, you can build a great business. That’s what Beehiiv is doing.
But you can’t analyze Beehiiv without mentioning its arch-rival Substack.
Substack vs. Beehiiv (and why they’re not really competing)
Beehiiv and Substack compete over a tiny cornered resource: The writers worth subscribing to and paying for. They both offer a bundle of content management systems, email service providers, and payments.
Substack should win this competition: It was first to market, has a bigger brand, raised $86 million (Beehiiv raised $48.1m) and it’s completely free until you make money (while Beehiiv charges a subscription fee to unlock features).
When Beehiiv first launched, its product was similar to Substack: A CMS, ESP, and payments solution. The only differentiator: Charging a SaaS subscription instead of a 10% cut on creator revenues.
That’s why Beehiiv started out explicitly counter-positioned to Substack:
Nowadays, Tyler Denk doesn’t view Substack as a main competitor. He talks much more about Intuit’s $12B Mailchimp acquisition. That might sound odd, given that Beehiiv and Substack started out with similar products.
But Beehiiv and Substack’s product visions diverge. Beehiiv had this plan:
While Substack wants to do this.
In other words: Beehiiv wants to build a great SaaS business and ad network. Substack wants to build a social media site.
So Beehiiv kept building more tools for writers — A/B tests, automations, analytics, etc. and keep adding new ways to customize and grow your newsletter. That’s how you win and retain SaaS subscribers.
Substack has been opinionated: The only monetization is paid subscriptions. Design options are constrained. Substack hasn’t built obvious features like email automations etc. Substack wants to become a destination where people find great writing. It wants people to type in Substack.com, have a good experience, and return. Because that’s how you win and retain social media users.
That’s most obvious with its Substack Notes product, which is effectively Twitter within Substack:
The product vision makes the pricing logical: If you charge 10% of writers’ revenues, it behooves you to help readers discover writers. The more they discover on Substack, the more they subscribe to, the more money Substack makes.
This also explains design constraints: If Substack wants to become a social media company, readers need to know they’re on Substack. Too much customization would build less trust in the Substack brand. New writers attach themselves to the trust built by the Substack brand.
You can also see this in the evolution of Substack’s positioning.
It's normal for companies to change their positioning when they launch new products (read how we did it here). But Substack went even further: It changed the traget audience on the main CTA on the home page, which is a big indicator of strategy changes.
I also see this when I receive Substack’s weekly newsletter, Substack Reads: The latest issue is curated by a The New Yorker cartoonist and features opinions on Kafka.
Substack wants to be a destination readers type into their browser. Beehiiv doesn’t. I’m pretty sure Tyler Denk doesn’t care if no end user ever knows Beehiiv’s name.
This explains why Beehiiv is so different now. Beehiiv is as counter-positioned to this as they could be while still offering some of the same functionality:
Beehiiv is for creators who care about growth. Having email automations, A/B tests, CMS, ESP etc. in one platform is great. But you still need to do that stuff. Many writers want to feel like they’re working for The New York Times in the 1970s: They write and another entity takes care of the rest. Those writers love Substack.
But if you want to run your newsletter like a startup, you probably prefer Beehiiv.
Ultimately, Beehiiv offers more bells and whistles while Substack offers them a brand to attach themselves to.
This is an example of great product strategy: Find a segment nobody of the market no incumbent is serving well - and then build a product that overserves them.
That’s what Beehiiv did: Substack didn’t have the growth features they wanted, but email marketing providers don’t include a CMS and required going back to using 7 tools.
And when that underserved segment is big enough and your product is good enough, your company takes off like Beehiiv did. But the Beehiiv master plan didn’t say “become the next Mailchimp”, did it?
Premium subscriptions are a great way to monetize, especially for individual writers. But advertising is a bigger business: You’ve probably seen a lot of YouTube ads, but never paid to subscribe to someone’s channel.
Any place people pay attention is a place worth advertising in. The more a newsletter grows, the better the ads you can sell. But ad sales is another workstream most creators don’t want to do. You have to make the sales, manage the ads, etc.
That’s why Beehiiv is pursuing one of the biggest opportunities in all of tech: Building an ad network.
Beehiiv’s big opportunity: The ad network
In the attention economy, whatever has attention is worth advertising in.
Adf networks might be the best business model ever: Get people to tell you (Google) or show you (Meta) what they’re interested in, then charge businesses to show ads to those people.
Before that, many companies advertised in newspapers and magazines. Those sold their ad inventory with numbers like circulation and reader demographics, interests, etc.
Conde Nast owns 37 media brands, one of which is Bon Appetit. If you want to advertise in Bon Appetit, Conde Nast might tell you you’ll reach 2 million readers interested in food and gastronomy, 36% male and 64% female (I made those numbers up).
But guess what - those are the exact types of numbers Beehiiv has (and far more). But not for 37 brands, but for over 10,000 (a number that’s grown since Dec ‘23).
If a legacy media company like Conde Nast can make $1.7 billion a year with 37 brands, Beehiiv’s ad network could dwarf even its impressive SaaS ARR.
Do all of those 10,000 newsletters have the appeal of a high-brow Conde Nast publication? Probably not. But building the next big ad network could be a giant win for Beehiiv.
The win-win-win is clear: Companies don’t have to manually discover newsletters and can get their ads inserted into a bunch of relevant newsletters. Writers don’t have to sell ads or manually insert them into their newsletter.
Combined with Beehiiv Boosts (which is a way for writers to earn money by referring readers to other newsletter writers), earning money becomes as easy as switching on a button - as long as you have a few subscribers. And getting more subscribers becomes easier with Beehiiv’s growth tools.
If the newsletter industry continues to grow as much as it has over the past years, then Beehiiv’s ad network could be one of the biggest startup successes of the 2020s so far - especially when combined with eigh-figure (and growing) SaaS revenue.
