Medium’s CEO, Tony Stubblebine, recently confirmed that the publishing platform has maintained profitability since August of the previous year, marking a significant turnaround. In a detailed post, Stubblebine outlined the extensive efforts required to reach this goal, including product enhancements, investor restructuring, loan renegotiations, office space divestment, workforce reductions, and other challenging cost-saving initiatives.
His account provides insight into the demanding process of a startup turnaround and the difficult decisions necessary for such a transformation.
Stubblebine reported that upon his arrival in 2022, the company faced monthly losses of $2.6 million, declining subscriber numbers, depleted investor funding, and no prospective acquirers.
This situation presented the company with a stark choice: achieve profitability or cease operations.
The platform’s challenges partly originated from its business model, which featured a single bundled subscription accessible to all writers. Additionally, the company had explored incorporating high-quality professional editorial content. Stubblebine noted that this initiative inadvertently diverted focus from the platform’s amateur writers, who typically shared professional or academic insights, or personal experiences.
Upon becoming CEO, Medium’s membership exceeded 760,000, yet the company was incurring monthly losses. Stubblebine was tasked with rectifying this financial deficit. Product-wise, Medium implemented “Boost” to integrate human expertise into recommendations, revised its Partner Program to incentivize quality writing, and introduced a “Featuring” tool for publications to curate and highlight relevant stories.
Financially, Medium carried $37 million in loans, alongside $225 million in liquidation preferences held by investors, which prioritized investor returns over employee compensation. The company’s governance structure was also cumbersome, necessitating approval from five distinct investor tranches for significant corporate decisions.
To address these issues and stabilize the company, Medium renegotiated its loans, removed liquidation preferences, and streamlined its governance to a single investor tranche. Additionally, two acquired companies were sold, and a third was shut down.
A crucial step involved Medium’s efforts to rationalize its capitalization table through investor renegotiations. Stubblebine initially hesitated, but after a year, he recognized this as essential for the company’s survival.
Stubblebine observed that the investor restructuring demanded a delicate balance: “The business had to look good enough to save, but not so good that there were other options.”
Stubblebine elaborated on his approach to loan holders: “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.” Six of approximately 113 investors participated in this recapitalization, which involved diluting investor stakes and relinquishing special rights such as liquidation preference and governance roles. He also acknowledged venture capitalists who proved cooperative, including Ross Fubini at XYZ, Mark Suster at Upfront, Greylock, Spark, and a16z.
Medium also implemented significant cost reductions, including workforce layoffs that reduced staff from 250 to 77 individuals. Engineering optimizations decreased cloud expenses from $1.5 million to $900,000. Furthermore, the company exited an office lease in San Francisco, which had cost $145,000 monthly for a 120-desk space. Employees received new equity grants, as their previous holdings were likely rendered valueless after the “cram-down round.”
The platform, previously valued at $600 million, did not disclose its updated valuation following these changes, though it is understood to be significantly lower.
Stubblebine stated, “…I have no ego about what our current valuation is. 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.”
