CEO review: From loss to profit, how did Medium “cut off its arm to survive”?

Substack's popularity always makes people forget that Medium, a content website, is still alive.

Medium has indeed had a bad time in the past few years, but many people don't know exactly how bad it is.

After many rounds of financing, investors no longer wanted it, and it was almost going bankrupt, but thanks to a series of survival operations by the new CEO, the company has been profitable since last year.

This is a review of how Medium went from being deeply trapped in the dual crisis of quality and debt to now turning losses into profits again.

Medium CEO Tony Stubblebine described this process as "falling into a hole and then struggling to climb out." In this review article, Tony Stubblebine hopes to start from an internal perspective to let everyone understand what a troubled startup will encounter, and how they work hard to save it from multiple dimensions such as finance, brand, product and community.

For entrepreneurs, this article is more like a practical experience post. The most core revelation from the lessons of Medium is that cash flow and profitability are the biggest "confidence" of a company. Profitability means independence, allowing the company to no longer rely on external investment, so that it has the confidence to say "no" when negotiating with investors, landlords, and suppliers. This is also the key to Medium's final "survival", with cash income.

I am going to write an article about how Medium turned losses into profits, and the content may be a little "unconventional". To be honest, I'm not sure if a company should be so frank about its past predicament. But this happens to be the core spirit of Medium: if you have experienced something interesting, you should write it down and share it.

So, I hope this article can provide some inside perspectives, let everyone understand what a troubled startup will encounter, and how we turned the tide from multiple dimensions such as finance, brand, product, and community.

Finally, I’ll include a full investor recap of the restructuring. I want to be clear to the Medium community: the “cleanup” is over, and we are now working hard to provide a better service for readers and writers.

01 Introduction:Falling into a hole, climbing out

In 2022, Medium was losing $2.6 million a month and losing paid subscribers, so this huge expenditure was not even an investment in growth. Internally, we ourselves were a little embarrassed by the content that we paid to promote and touted as success stories. Our users were even more blunt, saying that the platform was full of “get rich quick” garbage content, and even worse content.

Then the entire venture capital community’s funding chain was broken. There was no more investor money to fill our increasingly depleted bank account (of course, we didn’t deserve investment at the time). There were no buyers in the market willing to take over a complex, shrinking, and costly mess. However, this made the decision simple: either make Medium profitable or close down.

The difficulties at the time were far more than these, but fortunately, there was always a group of people who really wanted to see Medium succeed. The direction of this story is like the classic plot of "Man in Hole" written by writer Kurt Vonnegut: We were once very proud, then fell into a deep pit, and finally struggled to climb out.

02 Past glory:Minimalist design and a new business model

The "successful" stage is attributed to the former CEO Ev Williams. He founded this company and previously founded Blogger and Twitter. Now he has retreated to the second line, serving as chairman and the largest shareholder, while also happily sending a lot of messages to the current CEO (that is, me).

Ev led two eras here. The first was the "design era", when the team redefined the writing platform and made every aspect of the user experience simple and beautiful. In the second era, he pioneered a new business model, getting rid of the harmful incentives of the advertising model and instead providing a unique bundled subscription service that allows all creators to get a share of it.

The problem lies precisely in this business model. It turned out that it was too hard to run it well, to achieve our grand vision of "building a better internet", to serve readers and writers well, to continue to operate as a healthy business entity, and to fend off speculators, spam, and trolls.

03 Medium's content quality crisis

In July 2022, I took over as the second CEO with two major tasks: saving the content quality and rectifying the company's finances. As mentioned earlier, the financial situation was "on fire", and the quality of the content we spent money on was also worrying.

By the time I took over, we had repeatedly tried and failed in content quality, just like the story of "Goldilocks": we tried the way that cost too much and failed, and we tried the way that seemed cheap (but actually cost a lot of money) and failed again. We urgently need to find that "just right" balance.

Note: The story of "Goldilocks" comes from a classic British fairy tale "Goldilocks and the Three Bears". The meaning of this article is that in any system, there is an optimal and just right balance point, which avoids both the bad of one extreme and the bad of another extreme.

To be fair, Medium's content quality has also had several highlights. The first was from 2012 to 2017, when we didn't even have a subscription service. Medium was the purest and smartest writing home on the Internet, gathering a group of people who really had ideas and information to share. The second was from 2017 to 2021, when we hired a "regular army" of senior media executives and editors and commissioned them to create thousands of professional articles.

The end of the era of high-end professional editorial teams is both a matter of money and a matter of the company's mission. I was an active user and publisher of Medium at the time, and I felt the mission the most. From a strategic logic point of view, it seems to make sense to pay professionals to produce high-quality content to attract paid subscriptions.

But as a member of the community, my feeling is that these external "professional players" are competing with the personal writing of us native community members. Professionals have taken the stage away from amateur creators, but in fact, we amateur creators are the foundation of the platform and are most likely to share those unique and commercially valuable personal experiences. Medium's best state is to provide a stage for those who don't want to be professional content creators to speak out. We believe that these voices (that is, your voices) often contain the most valuable stories. The Internet cannot belong only to professional media practitioners, influencers, speculators, and content creators. There must be a place here that understands the value of user-generated content (UGC), the value of people sharing professional or academic insights, and the value of lessons learned from living an interesting life and writing about it.

When I joined as CEO, I felt more and more the heavy price of that "professional editor period". Although that team brought more than 760,000 paying members to Medium, it also lost a lot of money. One of my core tasks after taking office was to try to fill the debt hole left by that period.

The professional editor period was followed by an 18-month trough of quality. As investor Bryce Roberts said, "When your product is just throwing money, you can always find what is called 'product-market fit.'"

We were throwing money at the time, naively thinking that this was to incentivize old users of the platform. In hindsight, this unsurprisingly attracted a large number of new writers with questionable motives.

By mid-2022, readers were complaining about the endless “get-rich-quick” scams on Medium, and founder Ev complained about the platform being full of clickbait and barely thought-out summaries of other people’s content. At the time, a tried-and-true “hot” formula was to find a Wikipedia article, give it a viral headline, rewrite it in a broetry style, and then wait for the money to come in. One article like that could make you $20,000.

I couldn’t agree more with Ev: Medium was built to be a mission-driven company. Our mission was to “deepen people’s understanding.” So much of the content we paid for was lacking insight and completely deviated from our mission. It made us wonder: What do we want to do when we come to work?

On quality improvement, we introduced Boost, which adds human selection and professional judgment to the recommendation system. We adjusted the incentive rules of the Partner Program to reward thoughtful and meaningful works. We also added the Featuring feature, which allows publications to directly promote the high-quality content they recognize - the core idea is that readers should have the ultimate right to choose who to trust.

No one would say that this process is easy, and we dare not say that these systems are now flawless. But the articles that stand out on Medium today are very different from those in the past. This allowed us to confidently declare last year that we are building a better Internet - an Internet that values deep thinking and authentic connection rather than being torn apart by false information and confrontation. No one accused us of boasting, which is one of the many signs of our success.

04 Internal governance structure is in disarray,External investors have lost confidence

At the bottom of the abyss, there are two groups of people who are tied to the fate of Medium: investors and employees. (Of course, there are also readers, authors, and editors!)

Investors have long been disappointed with us and have no interest in helping us climb out of the predicament. This is normal for them. They have expected that some of their investments will go down the drain, and once that happens, they will withdraw. We are a failure case in their portfolio.

And our team, on the other hand, wanted to climb out of this abyss unrealistically. I think it was the spiritual core of Medium that inspired everyone here in those dark moments. And I haven’t finished saying how serious the situation was at that time.

Medium’s future depends on the continued efforts of this team (and those who will join in the future) over the next few years. However, all decision-making power and profit distribution are heavily skewed towards investors who have already walked away.

We owe these investors $37 million in past-due loans. You see, on paper, we are bankrupt.

In addition, the investors have a $225 million liquidation preference. This is the most common investment clause in startups. In simple terms, it means that when the company is liquidated, the investors will get their entire investment back before the employees. When the market is good and the valuation of the startup is inflated, this is not a problem.

But when times are tough and the company is bankrupt on paper, this clause is tantamount to telling all employees that 100% of the hard work you will do in the next few years will go to those investors who have already disappeared. This is a devastating blow to employee morale.

Together, the loan and liquidation preference represent the painful monetary cost of our descent into the abyss. It’s even worse, and I have to tell you all about it to give you the full picture.

Accepting such a large investment led to our extremely confusing governance structure. You might think that I’m the CEO and the boss, but I have to get investor approval for major decisions. In Medium, this meant getting a majority vote from five different batches of investors (who, don’t forget, had long since given up on the company). To make matters worse, it’s customary for venture capital funds to consider selling their assets to “scrap collectors” after a certain number of years of operation. This meant that our governance was shifting from a group of indifferent but predictable investors to a group of completely unknown and unpredictable investors.

Oh, and to complicate matters, we also own and operate three other companies.

This was the bottom of the abyss. The best advice I ever received was: “Don’t be a hero.” This came from one of our investors. He pointed out that the common problem of entrepreneurs is to think that they can solve any problem by being clever. But all of the above difficulties meant that no matter how fantastic our self-help plan was, it would be hampered by our inability to recruit talent or make major decisions. Even heroic execution could be drained by any investor at any time.

05 The only way to climb out of the hole:Profitability and recapitalization

We did not run out of money, were not sold to private equity, or filed for bankruptcy. On the contrary, Medium has been profitable since August 2024.

We also successfully renegotiated our loans with creditors, completely eliminated our liquidation preference, simplified our corporate governance structure to a single investor tranche, sold two acquired companies, and closed a third.

Looking back on all this now, it feels like we accomplished a monumental feat. We couldn’t simply cut costs because of the quality of our content. If we did that, we would be profitable, but we would be selling content that we were ashamed of. This might be a commercial success, but in our eyes, it would be a failure of our mission and a waste of our lives.

So we had to retain enough of our team to innovate with quality (as described above), but at the same time, we had to aggressively cut costs, find growth paths, and renegotiate with our investors.

The team did a great job. I think I did a good job, too. I had 15 years of experience as a CEO of small companies before joining Medium, and I always considered it a professional pride to achieve profitability for the companies I founded. I still think that’s what entrepreneurship is all about.

But I do have two superpowers. One, running a small business gives me insight into every aspect of how a business works, often because I have to do a lot of things myself. Second, there’s probably no better Medium superuser than me in the social media platform space. I’ve used the platform in almost every possible capacity: from amateur writer, to influencer, to using the platform to promote my business, to daily newsletter writer, to creating three of the largest publications here. Nearly 2% of Medium’s page views come from my publications and articles.

06 Achieving Profitability:Increasing Subscriptions, Reducing Costs, and Leaning the Team

Achieving investor restructuring requires a delicate timing: the company must look good enough to be saved, but not so good that investors have other options.

So, while we worked on the quality of our content, we first worked on our financials. This is a basic financial risk that everyone understands: we spend more than we earn, our bank account balance dwindles month by month, and we will eventually run out of money and go bankrupt.

The gap we finally closed was from a loss of $2.6 million per month in July 2022 to a profit of $7,000 in August 2024. We have been profitable ever since. We’ve saved some of our profits for a rainy day, but we’ve primarily reinvested all of them into improving Medium itself.

Conceptually (not strictly numerically), we’ve broken this financial turnaround into three parts: growing membership, reducing costs, and streamlining the team.

• Growing membership.  This is undoubtedly our proudest achievement. When I took over, our subscriber base was shrinking. When I said the quality of our content was a mess, I meant that users were just as disgusted and unsubscribing at an alarming rate. Today, things are very different. By reshaping the quality bar on our platform, we’ve proven that people are willing to pay for thoughtful, insightful writing. That’s a valuable vote of confidence in a better internet.

• Reducing costs.  This is also a source of professional pride. The cost reductions came primarily from our cloud spending, which dropped from $1.5 million per month to $900,000. This was a result of a lot of engineering optimization and strict cost discipline. There’s a “ladder” slogan popular within Medium, where each step up means $10,000 in value saved or created. We don’t care whether the money comes from growth or savings, so we’re happy to achieve fruitful results on both sides.

• Streamlining the team.  This is a topic worth discussing, but it’s hard to express respectfully enough. I know it’s very sensitive. Medium’s employee size once reached 250 people, and now it’s 77. I don’t know the full history of the past few rounds of layoffs, but I did lead one of them. I’ll just say two things: first, layoffs are never taken lightly by any decision-maker in the company; second, layoffs are a harsh reality for a struggling company. Today, Medium is a healthy business at 77 people. At 250, it would have been bankrupt.

As we cut costs, we learned a hard lesson about office leases. It’s common for leases to be years longer than you actually need them. But you have no choice — sometimes you have to sign a contract that’s longer than your cash can support you to rent an office. In normal times, there is a sublease market, and if your company can’t afford the rent, you can find someone else to take over.

However, we pay $145,000 a month for a 120-seat office in San Francisco that we no longer need. Like many companies during the pandemic, we have implemented remote work. Similarly, our employees are scattered all over the United States. So we didn’t need this office during the pandemic, and we didn’t have enough Bay Area employees who needed it after the pandemic. We are now determined to become a fully remote company, and the concept of an office is a thing of the past for us. Unfortunately, almost all companies experienced the same situation, causing the sublease market to suddenly go to zero. Our landlord was extremely tough in the renegotiation, and we even began to suspect that they were under pressure to report to their investors that they needed to lie about the occupancy rate of the building and count our paid but vacant floor as "occupied". In the 7-story office building with about 800 workstations, there were usually less than 20 people on any given day, and none of them were ours. We tried everything to get out of the contract, even offering to pay the remaining rent in a lump sum just to get some property and cleaning fees back. But the landlord refused for a long time, and we guessed that this was because they needed a paying tenant to hold the fort while negotiating the debt with their lenders. It was not until their negotiations were over that they finally allowed us to pay a termination fee to settle the matter.

07 A Recapitalization Is Necessary

This section is about renegotiating with investors.

To be honest, despite having no background in this area, I enjoyed the process of dealing with this mess. Medium attracts curious people, and I am one of them. This mess is one of those business scenarios you may have only heard of in theory but never had the opportunity to experience.

In an interesting twist, the frozen venture capital market actually helped us. This meant that we only had two choices before us: close down or strive to achieve profitability. In a healthier market, the investors who loaned us money might force us to sell the company. But in that depressed market, the Medium team actually held the biggest bargaining chip: either give us an incentive to continue working, or we will all leave and you will lose all your money.

These types of negotiations are called “recaps” in the jargon, which refers to the restructuring of the “cap table.” At first, I was very resistant to the whole idea of restructuring Medium because it went against my understanding of business relationships: if you take other people’s money, you have the responsibility to make money for them.

So I had to go through a mindset shift that I think all entrepreneurs probably need to go through, which is to realize that sometimes, unless you clean up the cap table, the company has no future.

The day before I started, my investor friend Ross Fubini met with me. He seemed genuinely enthusiastic about my plan to save the company, but then he brought up the idea of a recapitalization. This was the first time anyone had brought it up to me, and I was convinced that I would never do such a “rude” thing to my previous shareholders. But he was very blunt: unless I eventually renegotiated with my investors, any work I had done would be wasted. About a year later, I conceded that he was right.

That left the question of how to do it. Typically, a recapitalization is led by a new, outside investor who acts as a “white knight” when the company faces a “death threat.” All the old shareholders are faced with a choice: accept the terms offered by the new investor or watch the company run out of money and die.

But we had no outside investor options at all, both because the venture capital market had frozen and because we weren’t worth investing in even in good markets because we didn’t have “venture capital-scale” growth.

So I got to learn about two other forms this “death threat” could take. The first, appropriately, comes from an article on Medium titled “Clean Up Your Own Shite First.”

Mark Suster, the investor who wrote the article, pointed out that the new investors were reluctant to be the “bad guys” who forced the restructuring in order to maintain their relationships. They would rather the company’s management took action first. And the way to do it was that the management threatened to resign en masse.

As an aside, this is a perfect example of what I call the “commercial value of amateur writing.” The industry insider information shared by this amateur author has created millions of dollars of value for all of us. If you are a paid writer on Medium today, you can say that all of your income is due to Mark’s article. Long live user-generated content (UGC)!

To be honest, the “management threatened to resign” strategy is far beyond my style and experience. It’s not just that I have never seen a recapitalization. I am not the kind of hardliner who can issue an ultimatum to investors for more than $200 million in investment rights. However, the logic was clear, and I eventually did accept that without this recapitalization, Medium would fail in the future and my work in the meantime would be for naught.

So I started down that path, arguing that there would be no incentive for employees without a recapitalization, but then realized that we had a $37 million loan coming due, involving multiple investors. So this was an additional, more explicit "death threat."

My case to the loan holders was to convert their loans into equity or management would leave, and then create enough equity for them by offering the other investors the terms of the recapitalization.

Essentially, a recapitalization comes with two things. Investors give up their special rights, such as liquidation preference and role in governance decisions. In addition, they usually accept a lot of dilution, so if they once owned 10% of the company, they might only own 1% afterwards. For this reason, recapitalizations are sometimes called “cram down rounds” because the ownership of existing investors is squeezed into a smaller pool to make room for future teams and future investors.

This recapitalization was formally packaged as a new round of financing. But Medium has already gone through so many rounds of financing. We have had rounds called XX and Z. So our lawyers called this “A prime round” to give us a name that represents a fresh start.

For previous investors, there is a part of the recapitalization that helps balance fairness, that is, they all have the right to participate in this new round of financing. Although the terms of the recapitalization are quite aggressive, the participation right theoretically prevents you from driving the shares of old investors down to zero. In our case, only 6 out of about 113 investors participated. I think this low participation is a clear signal that we are not offering unreasonable terms that are favorable to us.

Beyond negotiating terms, there’s a ton of relationship work to do in getting a reorganization done: investors, former employees, current employees.

Investors are actually pretty easy. I think this validates a lot of truths about startup investors. The more top-tier investors are (and we have some top names), the more reliable they are as partners. These investors are in the business of chasing “home runs”, not niggling deals. So they’re not trying to squeeze pennies out of a deal like this. They’re also in the business of relationships, so they’ll try not to cause trouble because they don’t want to have a bad reputation among entrepreneurs. I never thought I’d be a VC tout, but after this experience, I can easily speak highly of Ross at XYZ, Mark at Upfront, Greylock, Spark, a16z.

A theme in all of this is that old companies get “written off” by the market. This is also reflected in many of Medium’s former employees. I’m actually friends with a lot of them, as I’ve rented space in various Medium offices over the years. These old employees were also seeing their equity diluted significantly, so I called some of them and made the case that their current equity was most likely worthless and that a reorganization might make it worth slightly above zero, but doing so would mean that their work building Medium would not be in vain. For a few, I also made the case that if they really wanted valuable Medium equity, they should come back to work here. If you work at a startup and fall into the “equity isn’t worth the paper it’s printed on” camp, here you have a perfect case study of why this is often true. None of these former employees had any power to stop it — I was just calling out of a sense of duty.

That leaves current employees, some of whom have equity dating back to the earliest days of the company. They were all getting diluted, too. I fretted about this for a while, but the logic of the reorganization ultimately prevailed. To justify a reorganization, you have to make the case that you’re cleaning up the incentives for the future team. That means everyone’s past efforts are diluted, and only future efforts will be rewarded. So we issued new grants of equity with new vesting dates, but did nothing to replace the old grants. That included me. It was pretty straightforward to say that their previous equity was most likely worthless: expensive to exercise, hidden behind a huge liquidation preference, and attached to a company that couldn’t pay back past due loans. I keep using the word “most likely” because we really never know what a company is worth until someone tries to buy all or part of it. But the current liquidation preference after the reorganization is less than the company’s current annual revenues, so we think it’s more likely that the equity is now valuable.

All of this is a sign that we’re out of the woods. We have clean financials, profits, a product we’re proud of, and a simple corporate structure. I increasingly appreciate our lawyers pointing out that we’re making a fresh start.

Now we remind ourselves regularly that we’re doing this work for a reason. I can’t say there’s any rational reason for doing this work, except that I love reading and writing, fell in love with the company many years ago because it also loves reading and writing, and now want to see what we can build on a solid foundation. I’ve been CEO here for three years, but I’ve been in love with Medium itself for 13 years. So for me, saving this company felt worth it, no matter how commercially impractical it might be.

08 Appendix

I’m just documenting some things that don’t quite fit in this story, which is already quite long.

• To bridge the gap between our decision to recapitalize and our actual recapitalization, we issued a Change in Control (CIC) plan to benefit employees. This is like the contractual equivalent of equity, a fairly rare tool, and I’m willing to share the document we used with any entrepreneur who thinks they might need it. It was ultimately replaced by the recapitalization, but filled a gap to ensure that if the recapitalization failed, the employees here would benefit from their jobs.

• I completely overlooked the psychology of the team. This is a big part of the turnaround, because the starting point is a team that has been through a series of failures, and it’s not clear why the new guy (me) wouldn’t just be the next loser. I ended up relying on the advice of “find your allies” from the book The First 90 Days, and the general theme that we need to build confidence in our plan. I think I read that last part in an HBR article, but I can’t remember which one.

• There was still a $12 million loan that was still outstanding. That loan was converted to equity as part of the recapitalization.

• There’s a lot of vanity in startup valuations sometimes. Our highest valuation was $600 million, and I don’t have any vanity about our current valuation. But I also won’t tell you because I don’t want that to be used as a comparison to other startups. We are profitable, and they are not. This comparison point is more favorable to us!