Nathan Barry, CEO and founder of ConvertKit, on ConvertKit’s path to $100M in revenue

There are points where certain SaaS products start doing really deep integrations, really heavy API usage, event tracking, all that kind of stuff, and then they'd move to a Customer.io or an Intercom or something like that. People pretty much never graduate from ConvertKit to e.g. Mailchimp. That is a one way path, from Mailchimp to ConvertKit.

ConvertKit bought FanBridge to go after email marketing for musicians. How important is niching down on verticals and what other verticals are there that are particularly big on ConvertKit? Do different verticals demand different product features?

Verticals matter a lot just from marketing principles. If you're trying to get traction, do it in a small niche: big fish, small pond. 

We've got a big base with musicians through our FanBridge acquisition, but the biggest vertical on ConvertKit would be newsletter creators. We're really focused on that. 

Tons of podcasts use ConvertKit—think Tim Ferriss, Andrew Huberman, Pat Flynn, Jocko Willink. 

We have a decent number in the YouTube & Instagram “influencer” category, but that's an area that we still have a lot of room to grow in. We don't yet have the biggest names in that space. Though, if you look on YouTube, we've got Philip DeFranco, and Ali Abdaal, and Thomas Frank, and a bunch of these people with 3, 4, 5, 10 million subscriber YouTube channels.

The creator market is fascinating to me because email's always been huge, and it's famously not a winner take all market. Mailchimp has probably 35% to 40% market share at a billion ARR. If you divide everybody else up, there's a lot of $100M ARR businesses out there.

We're at $35M, so we're still a pretty small piece of that pie. We were the first to focus entirely on creators, but what’s interesting is that as the creator market has grown, now you've got Substack, Beehiiv, Flodesk, and us all specifically focused on creators. There’s other up-and-coming ones, but those are the ones that have traction, so in the same way that we carved off a chunk of the email market by focusing on creators, now the creator market has grown, and now people are focusing on specific niches within that.

Churn can be challenging for creator businesses. ConvertKit has driven down churn and net churn over time. Can you talk about what levers you have to reduce churn and drive expansion in a notoriously price sensitive segment?

Yeah, pricing is interesting. Mailchimp really set the standard in the market, and pretty much everyone just followed them. 

Substack was the first to say, "Hey, we're going to make money in an entirely different way," which is both innovative and challenging—they have all these customers who have really successful paid newsletters and end up moving off because they don’t want to pay Substack 12.9% of all their revenue when they can pay 3% somewhere else.

For us, we've always kept the same pricing and just relentlessly focused on delivering more value for that same price. In thinking about how we can add more value, one of the biggest ways we think about it is in terms of how we can shift it from creators paying us to us paying creators. 

When we rolled out our sponsor network a year ago, the whole shift was about making it so that we are paying creators.

They're not thinking, "Oh, I paid ConvertKit $100 or $500 last month." They're thinking, "No, ConvertKit paid me $1,000 or $5,000." 

If you look at all the moves we've made over the last 18 months—between first launching ConvertKit Commerce, which is really a direct competitor to Gumroad and the other digital sales platforms, and from there launching the sponsor network, where we're able to work with brands to sell across creators—that is a big shift. Now, a brand might come in and say, "Hey, can I sponsor this creator?" And we're like, "Yep, absolutely. We'll help negotiate the deal, and we'll do everything. Then, also, do you want to sponsor these other eight creators?" And they're like, "Yeah, absolutely. Done. Now I don't have to have eight more conversations."

Then, there’s our acquisition of SparkLoop to bring in paid recommendations, and then our launch of the creator network, which is bringing in free recommendations—all of it is about how we can give our creators new subscribers and pay them money. You’re just going to see a big shift, and that'll bring us to 100% net dollar retention.

Substack is increasingly flexing the power of its network to drive growth for its creators and lock-in to the platform. Beehiiv as its ad network. Can you talk about the role that Creator Network plays for ConvertKit and how you think about the network fitting in with SaaS? Who's going to have the biggest network between a Substack, a Beehiiv, and a ConvertKit? How do you think about the competitive dynamics along that front?

The two things about the network that are critical are size and quality. 

People care less about how big the total network is and more about the size of the network of people they’re actually trying to connect with. Substack has done a really good job of attracting journalists, ConvertKit's done the same thing with the biggest newsletters and many of the top podcasts—it's a very, very high-quality network, and we're looking at how we can continue to grow that really quickly.

On the sponsorship side, a lot of our revenue now comes from our sponsor network and working with brands and advertisers. Creators are thrilled about that, because we do all the back office for that. For creators, it’s like, "Here, write your newsletter every week and grow it. We'll take care of monetization for you."

Substack and a lot of platforms are very prescriptive about how you should make money. A paid newsletter is the best way to go, or a course is the best way to go, or something else. Patreon, for example—you should have monthly patrons supporting what you're doing. What we've found is that the best way to make money is unique to each creator. 

We’ve deliberately not been prescriptive. What's best for a food blogger with 100,000 subscribers might not be a good fit for someone who has an investing newsletter with 10,000 subscribers. You can do a paid newsletter—you can also have a tip jar, you can do advertising, you can do paid recommendations, and so on.

Then there’s the open platform. We have 180+ integrations, which is in stark contrast to Substack, which is all about its own ecosystem.

To circle back to the network idea, there are three companies trying to build networks in this space—maybe four.

Substack was first. SparkLoop was immediately after them on the recommendation side, then Beehiiv, and then us. 

On creator-to-creator recommendations, network effects are really, really going to matter because you can only really be on one of these platforms.

One thing that's really going to be really interesting is the paid recommendation side, because that's a network in itself as well. We acquired SparkLoop for their paid recommendations product, their partner network. What's really interesting about what SparkLoop built and why we acquired them instead of building our own is that theirs is an open ecosystem. 

If you think about any two-sided marketplace, you've got supply and demand. In this case, supply is the creator sending out recommendations, and demand is the sponsors. It could be a major company, like a Morning Brew or a MarketBeat or one of those, or it could be another creator. It's always hard to build a two-sided marketplace. You need to keep supply and demand in balance, and they really grow as a function relative to each other. If you get too much of one or the other, it hinders growth.

What SparkLoop did that's really smart is they built integrations with 17 email service providers (ESPs). If I want to send paid recommendations to the Animalz newsletter, it doesn’t matter that you’re on ConvertKit and I'm on ActiveCampaign or Mailchimp or whatever else—SparkLoop makes it all flow smoothly.

The reason that especially matters is that a lot of the biggest sponsored budgets in the email ecosystem don't live on tools like Mailchimp, ConvertKit, or Beehiiv. They live on tools like Salesforce Marketing Cloud, Sailthru, these big enterprise systems, or custom-built systems. You think of a Morning Brew, they're on Sailthru. MarketBeat is on a custom-built system. These are high-quality brands that can pay hundreds of thousands of dollars a month in budget. Anyone building a closed ecosystem doesn't have access to that. Whereas the SparkLoop team built all of those integrations.

Beehiiv, on the other hand, is really trying to build a two-sided marketplace inside of a walled garden. I think it’s going to be challenging for them to grow it and maintain the quality of the network.

I think there's going to be a flywheel that plays out where high-quality brands are willing to pay more to high-quality creators—and we’re already seeing that where the top creators being paid out through our partner network are making $50,000 a month. No one's going to care if ConvertKit costs $100 a month and Beehiiv costs $50 a month when you're able to make thousands or tens of thousands more by being on ConvertKit.

What degrees of freedom do you have as a bootstrapped business that Substack and Beehiiv don’t have as venture backed companies?

In our sponsorships business, there was no email platform running sponsorships on behalf of their customers or creators until ConvertKit launched it. That’s just something where we had to take this unique bet. 

If we had a bunch of investors, I bet a lot of the discussion would be like, "What are you doing? You're a subscription business. As investors, we invest in SaaS companies. You are one. Please keep being a SaaS company."

On the other side, if you look at Substack, I fully expect that Substack is going to launch an advertising business. But they initially came out so strongly against advertising. They were like, "Advertising is everything that's wrong with writing and journalism, so we're completely against that." They raised money on that idea, and they sold customers on it. Now, I think, they're finding that sponsorships and great audience-brand fit are phenomenal things—and not, in fact, everything that's wrong with the internet. They're going to reverse course, and I think it's going to be painful for them, their customers, and their investors.

Being creator-funded ultimately allows us to stay really close to creators. You’re going to continue to have this showdown between VC-funded companies and creator-funded companies, and it's going to be interesting to see it play out. I think that our livelihood being reliant on creators paying us and delivering value to them every month is going to give us a closer pulse on what customers need and then also give us the freedom to be able to try those things out.

We'll see other entrants. Beehiiv came in, and maybe six months later launched their ad network. I expect Substack will do the same. It’s going to go from, "What? Why is an email company launching an ad network? That is the weirdest thing" to—within a year, a year and a half—everyone being like, "Well, of course." As the email company, you get control of the inventory. You can provide all the reporting for the creators, who don’t want to interface with brands. The creators don't want to get an email asking how many clicks something got—they just want it all taken care of.

Substack is known for long-form journalism, while Beehiiv—coming out of Morning Brew—has a bit more of a kind of business vibe. Some of these folks are emphasizing creator tools inside of the app more to serve a particular type of end product. Is there a kind of signature for ConvertKit newsletters in terms of the actual content, and then how do you think about building creator tools for that signature group inside of the app?

ConvertKit is going to be a lot more individual creators, whereas Beehiiv seems to be targeting  more publications. Substack and ConvertKit are going to overlap a lot when it comes to the solo creator segment and where there's more name recognition to that individual.

I think what's interesting is that within that Venn diagram of individually known creators, Substack has gone exclusively after writers entirely, while we’ve stayed more broad. It’s kind of ironic that we consider creators more broad, because I remember years ago talking to venture capitalists and all that, and they were like, "Creators are such a tiny niche, it'll never be anything." Now it’s like, "Oh, creators are the broad version—we’ll have to categorize down from there."

We really find email works well across a bunch of different content types. I think we're the only email tool that will play video natively in email, and there's a bunch of things we do behind the scenes to make that work from our own video streaming servers and all of that, which is really important for our YouTube creators and our musicians.

We also have a lot of creators who care deeply about email design, and that's been interesting, because we went from not really leading in the email design space to a place where now that's something that we're really, really good at. One thing we just released is the ability to share and sell email designs and automations, so you’ll see a lot more people selling things that they’re built on ConvertKit and sharing it with all other creators.

Again, you'll just see us go back over and over again to the idea of building the opposite of a walled garden: an open ecosystem—we want as many integrations as possible, and as much data flowing smoothly as possible for creators. That helps creators win.

Another example is that while we have our own payments platform, we don't care where or how you earn money, we'll still aggregate that data into a single place. To use Ryan Holiday’s Daily Stoic as an example, they’ve got courses, physical products like guides, challenges, a bunch of different things, and they're selling on Teachable, Shopify, Memberful, and Stripe. All of that aggregates into one dashboard that doesn't care where that sale came from or where that customer came from. 

That’s just a very different approach to a lot of other platforms who are like, "No, it needs to happen on our platform or it didn't happen."

You talked initially about breaking off pieces of Mailchimp—have you seen Mailchimp catch up at all? And how do you position against Mailchimp today?

Mailchimp has done a lot of product innovation. If you look at their TV, they were the first really emphasizing generative AI in the email creation experience. It's interesting—I didn't expect them to move as quickly as they did on that. 

Overall, though, people used to compare us against Mailchimp years ago—and that just doesn't happen anymore. I think part of it is that Mailchimp just doesn't care about our market. I've talked to a bunch of people who have worked at Mailchimp, and it’s pretty clear they don't care about pursuing the creative market. 

We feel like it's a huge opportunity, but if you're already a billion in revenue, what are you going to do? Add another couple hundred million pursuing that when you could go after small business and add another billion in ARR?

That’s exacerbated by them being inside the Intuit ecosystem. As I understand it, the Mailchimp CEO now is four layers deep inside of Intuit, which is this massive, massive company. As part of that, Mailchimp is just going to be drawn heavily into the Intuit ecosystem and further into serving SMBs. They're just becoming less relevant as a competitor.

How do you think about ConvertKit's positioning vis-a-vis Substack and Beehiiv?

One of the big distinctions is that none of the other tools focused on creators have automations that do anything more than just send an email. Something we really stress at ConvertKit is building flywheels for your creator business—we see creators end up on this content treadmill where they're putting out a newsletter every day or every week, and they’re not monetizing it that effectively. A $5-$15/month subscription is really just not an effective way to monetize a newsletter compared to what's possible.

On one hand, you’re like, "Wow, I’m making $100,000 a year without a boss so long as I put out my newsletter twice a week!" Yeah, that's phenomenal—it’s also a quarter of what you could be doing off of that same audience if you had a smarter monetization strategy and had a flywheel driving it. 

I see a lot of content creators on other platforms falling into this hamster wheel, and if they step away from their business for a week, it declines. There’s a direct correlation between their input and what they're getting out of it.

What we emphasize with ConvertKit is building these flywheels where you can put effort in and it gets easier with each rotation and it produces more with each rotation. That's the stuff that ConvertKit is really, really good at building. For example, automations that welcome each new subscriber to make sure they know about your product or your coaching or your course or whatever it might be.

How do you think about positioning towards helping creators grow, or is that a false promise? Fundamentally, as a SaaS provider, you might be like “Hey, we give you the tools to help you grow. We don't actually make you grow.”

I don't think it's a false promise, because with Creator Network, I've been watching people grow ridiculous amounts. 

We actually got this wrong in the early days—in 2019-2020, we were focused a lot on solving distribution for creators. We were asking what traffic we can get as ConvertKit and send to our customers. The problem with that is we’re always limited by how much traffic we can get. Even at a big audience of hundreds of thousands of users, that's still a substantial bottleneck. Substack and SparkLoop were really the first ones to flip that equation and say, "Forget what distribution we can provide. It's all about what distribution creators can provide to each other."

That's really interesting because I don't even think that the other social platforms are even doing that. YouTube's distribution is still pretty reliant on whether you got featured by YouTube. There's this interesting decentralized approach with Substack's recommendations or our creator network that is entirely based on the connections between creators. 

And what's interesting is that creators have always been good at connecting with each other. Forming mastermind groups, being encouraging, blurbing each other's books, whatever else, guest posting, teaching workshops together, but those are all one time activities. With some of these recommendations features, it's like, “Hey, let's partner up and let's partner up all day every day.” It’s a native software feature. 

So no, I don't think it's a false promise—because with almost every creator that I see that fully gets set up on the Creator Network, it quickly becomes their single biggest source of traffic or new subscribers. Ryan Holiday of The Daily Stoic said that, "Creator Network is now driving more new subscribers for Daily Stoic than every other traffic source combined." 

When you think about it, it makes sense—because if you compare what he can drive individually vs. what three, four, or five other talented creators drive added all together, the latter will obviously be way bigger. The Daily Stoic has over 500,000 subscribers and they're literally growing twice as fast now as they were 60 days ago.

If everything goes right for ConvertKit over the next five years, what does it become and how is the world changed?

ConvertKit will definitely hit $100M or more in annual revenue in the next four or five years. 

I think the biggest thing is that we'll pay creators a lot of money and will make it so much easier to be a creator. 

10 years ago, if you wanted to sell things to an audience online, there were all these decisions that had to be made and platforms to set up and glue together and all of that. As we continue to be successful with what we're building, it's going to be like this: you create the content and work to promote it, and we'll give you all these ways to monetize, between paid recommendations, advertising, and selling products.

If you want to take some of that money and reinvest it into growth, you can do recommendations with other creators. 

A couple of things will be true, I think. One is that audience sizes will get remarkably larger. In the last 10 years, 20,000 to 50,000 subscribers was a huge email newsletter for an individual creator. Today, it’s more like 2 to 3 million subscribers. 

You’re orders of magnitude larger, and revenue per subscriber is also going up. The same audience that used to make you $50K a year or $100K a year is now making you up to $500K.

Both of those trends will continue to accelerate—audience sizes will get bigger, and monetization per subscriber will get higher, and creators are going to win.

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