Medium CEO on Turning Around $2.6M Monthly Losses

Medium Achieves Profitability After Significant Restructuring

Tony Stubblebine, CEO of Medium, revealed on Friday that the publishing platform has sustained profitability since August of the previous year, marking a significant turning point. His announcement detailed the multifaceted approach taken to reach this milestone, encompassing product adjustments, investor restructuring, loan renegotiations, office space reduction, workforce reductions, and other stringent cost-saving initiatives.

A Deep Dive into the Turnaround

Stubblebine’s post provides an in-depth examination of the challenges and difficult decisions inherent in revitalizing a startup. It illustrates the necessary steps for a company facing potential collapse to achieve a successful turnaround.

Upon his arrival in 2022, the company was experiencing monthly losses of $2.6 million. Subscriber numbers were declining, investor funding had been exhausted, and no viable acquisition opportunities were present.

The situation presented a stark choice, as Stubblebine articulated: “make Medium profitable or shut down.”

Addressing the Initial Business Model

Part of Medium’s initial struggles stemmed from its business model, which centered around a single, all-encompassing subscription shared by all writers. Furthermore, attempts to incorporate high-caliber professional editorial content inadvertently diverted attention from the platform’s core user base – amateur writers sharing professional insights, academic work, or personal experiences.

When Stubblebine assumed the role of CEO, Medium’s membership stood at over 760,000, yet the company continued to operate at a loss each month. He faced the task of reversing this trend.

Product and Financial Adjustments

On the product side, Medium introduced Boost, a feature designed to integrate human expertise into content recommendations. The Partner Program incentives were revised to prioritize and reward well-considered writing. Additionally, the Featuring tool was implemented, enabling publications to curate and promote compelling stories.

Financially, Medium was burdened with $37 million in outstanding loans, and investors held $225 million in liquidation preferences – meaning they were entitled to recoup their investment before employees could realize any returns.

Restructuring Loans and Governance

To address these issues, Medium successfully renegotiated its loan terms, eliminated the existing liquidation preferences, and streamlined its governance structure to a single investor tranche. The company also divested two previous acquisitions and discontinued a third.

A crucial step involved restructuring the company’s cap table through negotiations with investors, a process Stubblebine initially hesitated to pursue. However, after a year of consideration, he recognized it as essential for the company’s survival.

“The investor restructuring required a delicate balance. The business needed to appear viable enough to warrant saving, but not so prosperous as to present alternative options,” he explained.

Investor Recapitalization

“My proposal to the loan holders centered on converting their loans into equity, with the understanding that management would resign if this wasn’t feasible. This would then create sufficient ownership for them by approaching the remaining investors with a recapitalization plan,” Stubblebine detailed. Out of approximately 113 investors, six participated in the recapitalization, resulting in diluted investor stakes and the relinquishment of special rights, such as liquidation preferences and governance roles. He also acknowledged the collaborative spirit of VCs like Ross Fubini at XYZ, Mark Suster at Upfront, Greylock, Spark, and a16z.

Cost Reduction Measures

Alongside these strategic changes, Medium implemented significant cost reductions. This included workforce reductions, decreasing the employee count from 250 to 77, and engineering optimizations that lowered cloud expenses from $1.5 million to $900,000. The company also terminated its office lease, eliminating a monthly expense of $145,000 for a 120-desk space in San Francisco.

Employees were granted new equity to compensate for the likely devaluation of their existing equity following the “cram-down round.”

Valuation and Future Outlook

While the platform was previously valued at $600 million, Medium did not disclose its current valuation following these changes, acknowledging that it is substantially lower.

“…I have no concern regarding our current valuation,” Stubblebine stated. “However, I will not reveal it, as I don’t want it used for comparisons with other startups. We are profitable, and they are not. That is a more relevant comparison,” he concluded.