Toast: Aman Narang. How a Long Wait for the Dinner Check Launched a $2 Billion Business.

28:34We did. And almost, it's actually, it was pretty humbling because we had gotten good introductions into some great folks. But the feedback we got is along the lines of like, One, like restaurateurs, restaurants are a tough business. They've got a business. They don't buy online. Margins are really thin. Yeah, margins are low. Yeah. They're not tech forward. And you're trying to build like, you know, this like platform that's going to take you years to build. And also they're looking at giants like Micros and NCR. To take them on, right, probably seemed like a, you know, a Sisyphean task. Yeah.

29:16You know, like the reason we had so much conviction is one, fundamentally, this was a big category in restaurants that hadn't benefited from the cloud, hadn't benefited from Android and mobile. But yeah, I think we also knew that, I knew that Steve and John, and then we brought in a few folks, and we just knew we had some great engineers that we had worked with who had experience building systems like this. And I had a lot of confidence that as long as we understood the problem well, we could build it. When we come back in just a moment, Amon and his team build the next iteration of Toast, and then comes the hard part, getting restaurants to buy it.

30:06Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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34:25Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2013, and Amon and his partners have a small pot of money, a handful of engineers, and an idea to launch a point-of-service payment platform for restaurants. Their next step? Find customers. The business development was largely at this point, initially at least, just talking to restaurateurs. It wasn't anything more than that. I mean, we had to figure out some key partnerships, but that was the focus to try to see if we could get restaurateurs to try it. And so we had some, I mean, of course, there's only so much you can do with seven or eight people.

35:01But we got our first customer live in July of 2013. And I think you basically, from what I read to save money, you also didn't get an office, right? You had everybody working. Yes. Was that your house? We were in my basement. So we, in fact, my basement was unfinished. when we were trying to figure out office space. I did the math and realized it was a lot cheaper to just put some carpet down and put some drywall. There wasn't even heat down there. This is in Boston. And we just bought a bunch of space heaters and just set up shop. And so we just did that to save money and eventually had 10 people there, I think at the end, in the end of 2013.

35:43All right, so by July of 2013, you have enough of a product, I guess, to test this out with one or a few restaurants. Walk me through the first restaurant because I imagine they have a system in there. I'm assuming they're not going to get rid of it right away because I don't know if this is going to work, but it's a big deal to shift from one system to another system entirely. I mean, you know, and then train everybody on it and to try to do that while still running a restaurant. So how did you convince the first restaurant to do this? The first restaurant was Dwell Time, and this was in Cambridge Port.

36:26And the pitch we made to him was, we can build you something that's a lot more restaurant-specific than the system he was using. And he was using one of these cloud solutions that weren't purpose-built for restaurants. and and then i remember you know we worked really hard for a bunch of months to try to get get to what we felt like was something ready for production and i still remember we were getting installing this restaurant and they open and within 20 minutes of taking like the first few orders it's like the system is down and now they've got a line and they were like physically writing down the order on a piece of paper and dropping it off in the kitchen and taking the credit card number down on paper and like trying to do this manually and realize as part of the experience that these systems are mission critical and like can't break.

37:27So there's a lot of learning just in that first day. I mean, obviously you guys would start to work out the kinks, right? And get the technology to be more reliable. But I want to ask about the overall challenge of getting people to adopt this, right? Because a lot of restaurants were not, obviously they weren't happy with their point of sale systems, but still like this was going to be a huge overhaul for most of them, right? So, I mean, did you have restaurants who were like, I don't know if I even want to do this. Like this is just going to be such a pain. All the time. You know, we would, I mean, I think I must have pitched hundreds of restaurateurs in the first couple years and very few said yes but i think there are a couple things that mattered one was it's not just existing restaurants it's also new restaurants that open and when restaurants open they've got to do the work anyways to set up something and our value proposition was instead of spending like for a restaurant like finale for them to go buy a legacy on-prem system you know you might spend 50 to 100k up front and so our pitch was very little up front and sometimes nothing up front uh then we had a sas fee and then we had built into the platform um capabilities that uh you know that the staff and the ownership loved and so we had a few data points um and i remember we would we would code at the restaurants because the best thing you could do is you know when we got some of these early restaurateurs up and running is is to get steve and john and tim and others like you know actually at location helping install helping train getting feedback and then improving the software uh with restaurateurs i always say that the restaurateurs in boston helped us build the platform because you know we had a hypothesis for what we we thought we needed to build but until we got this up and running with with customers like you know there was that's that's when the rubber hits the road, and you learned a lot about what was apps actually needed.

39:32I'm curious. I mean, from what I gather, you very deliberately only focused on initially restaurants in the Boston area. That makes sense. But you didn't want to go, you stayed on the East Coast. You didn't want to go to California. I mean, at this time, by 2013, there were, I mean, some competitors today. Square wasn't, I don't think they were quite doing restaurants or focus in restaurants yet, they were small business. Clover, another competitor, was starting out as well. Were you very, like, did you want to kind of stay under the radar intentionally? Well, I think initially it was, we didn't have the capability to get out of Boston.

40:12Yeah. Because, as I said, like a lot of these restaurateurs would buy in person, they needed service in person, our technology wasn't hardened, and so we had lots of issues. And then we, about six months in, maybe this is like early 2014, we were chatting with Steve Papa, who was the investor. And Steve mentioned to us that one of the customers that we had at Indeca was a company called Gordon Food Service, GFS out of Grand Rapids, Michigan. And this is a distributor, right? A food distributor. Food distributor, yeah. That's the core business, yeah. And so we got a meeting with GFS through Steve and walked them through the potential of what Toast could do for restauranteurs in terms of helping them run more efficiently, drive sales, help them drive their sales as a result.

41:05And that was a really important partnership for us that helped us get outside of Boston. So we launched in Miami and Chicago thanks to GFS and their support and then went from there. It's interesting because on the one hand, it seems like a huge opportunity, but it's also surprising that there weren't many people doing it. There were, though, some. And I wonder when you guys found out or learned about some competitors also working in this space, how did it affect how you guys operated? Did it make you move faster? Did it make you more vigilant? What did it mean for what you guys were doing at Toast?

41:48Well, when you talk to customers that were using Toast, that further reinforced for me that we were on to something because we didn't have the brand or the distribution or the funding, really, that some of these startups had. And yet, you'd hear them say, of the cloud solutions, because some of them had tried a few, Toast was the best one. I'm a big believer by the way in like customer obsession and not being too competitor obsessed yeah and um it we were already working as hard as we could you know we were like all in on this like there was no you know the only plan was to make this thing successful and uh and so we didn't need any motivation to try to work harder or faster and in fact the hardest thing was once we got to 100 customers, we actually, and we had this GFS partnership, we actually started to see a lot of interest.

42:49And we weren't ready to scale. There were lots of things in the way we had built the company to start was not scalable. An example of that is just, I remember one of our early customers in Boston was this restaurant and nightclub. And when we met with the owner, Billy there, he asked me, hey, like, what happens at one in the morning when you've got an outage or an issue? Like, what am I going to do? And I said, look, you know, we're small and scrappy, but we have great 24-7 support. So he went to the rest, our website, Toastab.com. And to his credit, he called the phone number. And that was a Google voice number, because we had six or seven of us.

43:36And my phone started ringing in my pocket. And I remember we all kind of by then had realized that like we would wait for two or three rings to see if someone else would pick it up because no one really loved picking up the support calls. So on the third ring, I picked it up and I said, I told you, you've got really good 24-7 support. We'll personally pick up these calls. And they're still a customer. But I think that just speaks to how there's so many examples like that that we weren't ready to set up to scale and make customers successful. And that was the blocker, not the competitive pressures.

44:08In fact, no one had cracked the code. And, you know, it was clear that our execution was getting in the way, to me, of us actually scaling this company. When we come back in just a moment, how a new CEO helps Toast hit its stride, and how COVID sends it right back to the startup stage. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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46:15Hey, welcome back to How I Built This. I'm Guy Raz. So it's early 2015, about a year and a half after launch, And Aman and his partners have been able to grow Toast to a few hundred customers. But on a day-to-day basis? The business was frankly struggling. On the one hand, there was some customers who were using it and they were happy, or at least cheering us on. But there were a lot of issues. I remember at one point, all of the hardware we would ship would come back. And we had lots of outages and downtime. Our customers were not happy with our support experience. I remember that was one of those times actually even more than when we pivoted to point of sale that was like in my mind one of the low points for us because there was actually a good signal here that customers wanted what we were building and in hindsight it just seems so obvious like some of the things that we did wrong but at the time you know part of the problem here was like I was so focused on trying to grow the business and grow revenue that they probably didn't take enough time to step back and to work with Steve to build the systems to scale, the capabilities we needed to scale.

47:26Right. And I think things got to the point where you decided to bring in a new CEO who could deal with some of these challenges. And this was Chris Comparato, who I guess you knew from your days at Endeka. Yeah, we knew Chris through Endeka. And so what did that mean for you? Like, how did your job change? It actually did not change at all because, you know, when you're smaller and you're just trying to, no one, we weren't concerned about titles or any of this stuff. We were just concerned about trying to make the company survive. And so we were doing whatever it took. And I was largely focused at the time, even before Chris joined, on distribution and getting the partnerships in place and the sales team in place to get the customers.

48:12Because obviously, you know, we had to show revenue growth. because we were burning quite a bit of capital. And so I think in many ways our jobs didn't change. But I think one of the first things that Chris did was when we got together was to step back and spend time with us to try to understand, to articulate to everybody who we are and what we do. There was this, I think, maybe a 4 ,000-square-foot office and a cafeteria where everyone got together. And there was someone taking a support call from a customer. who was fired up. And Chris is very passionate about customer experience. And our support rep just hung up on the customer because he was unhappy with the way he was being treated.

49:00And Chris remembers saying, we need to step back and rethink how we do things here. Okay. So you guys are growing and then you hit a potentially disastrous moment, which is COVID, which had a hugely negative effect in many ways on many restaurants in the United States. And I think, you know, by, you know, because I think by 2020, you guys have raised now by this point$400 million, your$5 billion valuation. And then within weeks, the country shuts down. You know, we, for years, between 2015 and 2020, we were this business that was growing over 100 percent it was this this moment where we felt like we're ready to really take off we had aggressive plans that year and then i think early april of 2020 we'd gone from this company that was growing like this to maybe revenues down over 90 percent because restaurants weren't taking payments and when restaurants aren't open they can't really pay their software fees and so we had to make the hard decision to cut i think it was like 55 percent of the team and then also to like get on a call with the team and explain what's the plan now i remember like none of us really knew but the one thing that we knew was we had gotten here by being obsessive over what customers needed and what our customers told us was they need tools to manage off-premise better off-premise sales that's the beginnings for us of the qr codes now you that you see at a table to pay or to scan a qr code to look up menus and order and i think i that period especially is It just felt like the basement stage in terms of just the level of maniacal focus that we had and the speed with which we were building because we knew that everything was at stake.

51:17I think it was the first time since really 2014 where it was like, oh, this thing could be over. and unlike in 2013 or 14 when it was like hadn't really ever taken off we had a business with thousands of employees and tens of thousands of customers at that time so that was just really tough to even fathom coming out of the pandemic you went public in in 2021 and now you're publicly traded stock and and and i'm i'm gonna fast forward for a moment to 2024 because is you actually come back to a, well, I mean, you had been in an executive position before, but you come back to, you become the CEO. So tell me about that.

52:06I mean, did it feel like, okay, I mean, probably, you know, maybe Chris wanted to move on, but I'm assuming he'd been there for almost 10 years and you felt like, okay, I'm ready to do this now. yeah i mean i think chris was um had always said to us i think the words he used were like this was a tour of duty and i think one of the things that i remember someone i trust told me was like something on the lines of like you know no one's perfect you're not perfect there's a lot of blind spots you have you'll have to learn but it's not obvious to me that someone from the outside is going to come in and do it better than you given the context and history you have in this business and the passion you have for this business.

52:46And so that got me comfortable to want to step back in. And I also felt like it was a partnership. I never felt like, even one of the things that Chris, I think, did really well is it was always a partnership on the top. And that was important to me heading into this phase as well. So I wanted to make sure that the key people around me were in it for the next leg of the journey. I think in the last quarter, you guys had reported profitability, I think, or maybe it was in 2024, it was in that year, first full year profitability. But in the latest quarter, I saw that I think you now are between 15 % and 20 % of restaurants in the U.S.

53:31Does that sound about right? Small business restaurants, over 20%. And so you have an opportunity to get to the remaining 80%. And I'm sure there's a fierce competition with some of your rivals in the space. What's the unlock? How do you get to those other, the remaining 80 %? I think it's the first of all, one of the things that we focused on from day one was these busier restaurants. So even though we have 20 plus percent of the restaurants, we actually have more of the sales volume. Because the average restaurant that's on toast has more sales than the average restaurant in America. And so one of the things, in fact, our marketing campaign that we just launched was called Build for Busy.

54:15Because the busiest restaurants choose toast. Because again, we are purpose built for restaurants. We have a tremendous amount of opportunity now with AI. We know, for example, that if a guest comes into a restaurant three times, they're more likely to become a regular. And so how do you create the right campaigns to bring those people back? As an example, we launched this product recently called Toast IQ Grow. Toast IQ is the branding behind our AI platform. And customers that have switched to it have seen sales go up 8%. the analogy i like to use is you think about as a mcdonald's franchisee for example there's a lot they do to set them up for success and in the restaurant business a lot of the decisions that are made about how much food to buy which suppliers to pick how to price your menu what marketing to do how to schedule your staff is not driven by data often In fact, it's often driven by gut and some data, but I think the opportunity for Toast within the restaurant business specifically is to leverage our data across the 20 plus percent of restaurants that are using Toast to help drive better outcomes for these customers.

55:38Yeah. You know, when you think about where you guys got to, right? Here you are 13 years in. I mean, I think your market cap is like 15 billion. It's gone up and down, obviously. But it's still – I mean it's a huge business, right? And it's – and you have really found a strong position within this category. Where do you – how do you protect the moat? I mean it's a bit of a sort of a cliched question. But I mean you guys really took on huge players, NCR, Micros. And back in the day where they kind of dominated this business. and they may still be involved heavily in the business, but how do you make sure that, you know, you are ahead of the curve when it comes to, you know, what might come next in this industry?

56:31Yeah, I'm a big believer in, like, not forgetting where you came from. And one of the things we always push on culturally internally is what got us here was the hunger, the scrappiness, and the customer centricity. I also think for the company on the offensive side, there's a tremendous amount of opportunity to extend beyond what we have done for the first 10 years. So the past two or three years, we've gone into new markets. We launched in Canada, UK, Dublin, Ireland. We've got a team there in Australia. And we've built a product to support retail. And so think of grocery stores, convenience stores that have a gas station, liquor stores, hardware stores.

57:22We're starting to build out the platform to really support local neighborhoods, not just local restaurants. And so we see a lot of opportunity to actually expand the capabilities we offer while continuing to scale within the restaurant business. When you think about the journey you took and where you were and where you've come to, how much do you attribute to the work you guys put in? How much do you think had to do with luck and timing? You know, it's one of the best decisions I made. I remember when we were, someone gave me some advice that said, you know, when you think about your team, your co-founders, try to find people that are good people, that have good values, because you're going to go through a lot together and you need that.

58:09And I'm very fortunate in that, whether it's Steve or John or Chris and really a lot of the management team. And so, of course, a big part of what got us here is the incredible skills that the team had and all the work we put in. But I think there's a lot of luck too. I think had we not raised that capital right before COVID, we may not have survived. Had we launched the business in 2009 versus 2012, we may have tried to build it on iOS which would have been the wrong call back in 2012 and 2013 is when payments were opening up without which the business model may not have worked frankly Chris joining us at that time was important to helping us scale things could have gone a lot worse I think and there's so many like this, there's so many breaks that went our way but it's a combination I think the harder you work the luckier you go.

59:06That's Amman Narang, co-founder and CEO of Toast. By the way, you remember the very first restaurant where they got their start? Firebrand Saints in Cambridge? It actually closed down in 2017, but was replaced by another restaurant, a rotisserie chicken place called Shybird. And when we called them up to ask which payment method they happened to use, they told us Toast. Hey, thanks so much for listening to the show this week. please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And as always, it's free. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, sign up for my newsletter at gyros.com or on Substack.

59:48This episode was produced by Sam Paulson with music composed by Ramtin Ederblui. It was edited by Neva Grant with research by Casey Herman. Our audio engineer was Kwasi Lee. Our production staff also includes Chris Messini, Alex Chung, Carla Estevez, JC Howard, Catherine Seifer, Carrie Thompson, John Isabella, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built This.