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

[Music] We were installing this restaurant and they open and within 20 minutes of taking the first few orders, it's like the system is down. 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 in paper and like trying to do this manually and realises part of the experience that these systems are mission critical and I can't break. [Music] Welcome to How I Built This, a show about innovators, entrepreneurs, idealists and the stories behind the movements they built. [Music] I'm Guy Ross and on the show today, have a frustrating way to pay a dinner bill led to the launch of toast, one of the most popular point of sale services in the country. [Music] There are about 700,000 restaurants in the United States, big chains, tiny neighbourhood cafes, family owned diners, fancy tasting menu places, it's a huge market and if you could build something that even a fraction of those restaurants needed every day, you'd have a pretty good business. But restaurants are tough customers, margins are thin, they can't afford downtime and once they install the software that runs their business, they almost never switch it. For years, that software was clunky, it was expensive and really hard to update and it usually lived on the server somewhere inside the restaurant, totally disconnected from the cloud. Most owners hated these systems but replacing them felt impossible, which is where today's guest, Aman Narang, saw an opportunity. The idea began with, what else, pay frustration, a frustration I am sure you've experienced, you finished dinner, you're ready to leave, you're waiting for the check, you finally get the server's attention and then you wait again for your credit card to come back. And that everyday annoyance inspired Aman and his co-founders to build an app that would let people pay for their meals from their phones. But it didn't work, this was back in 2012 so the technology was a bit clunkier. But that failure uncovered a much bigger opportunity. The real problem wasn't just paying the bill, it was the technology running the entire restaurant, inventory, payroll, scheduling, kitchen operations, online ordering, loyalty programs, none of it worked very well. So Aman and his co-founders made a bold decision. Instead of building one feature, they'd replace the entire operating system for restaurants. They called it toast, and even after the technology started working, they still had to convince skeptical restaurant owners, raise money from investors who wanted nothing to do with restaurants, compete with companies that had been around for decades, and survive COVID. But today, toast supports nearly one in five restaurants in America and generates more than $2 billion in annual revenue. As for Aman or Ang, he actually grew up in Nepal and in India, and moved to the United States with his family when he was a teenager. In 2006, after graduating from MIT with a master's degree in computer science, he started working in Boston at a tech company called Indeka. Yeah, so Indeka was primarily e-commerce. And e-commerce search was their core business. So back in the day, like 25 years ago, if you went and searched Home Depot or Nike or Disney Store or J. Crew or Pick Your Brand, and you wanted to say, like, show me all of the washers and dryers and this brand and this price range that are available now. And so that was the beginnings. And then they went in and started to build merchandising tools. When I joined Indeka in 2006, they had already had a lot of success in e-commerce. And Steve Papa, who was the founder of Indeka, he wanted to build essentially a business intelligence platform because they had a lot of the underlying technology to be able to do that. And so myself and Steve Fredette, who is my co-founder, Steve and John are my co-founders at Toast, Steve Fredette and I joined a team out of college called Special Operations. And you didn't know Steve at -- he also went to MIT. Did you know him from MIT or did you meet him there? I met him at Indeka. Yeah, I met him at my first day at Indeka. And we were building this business intelligence -- the beginnings of a business intelligence platform. And the reason that's important is we were trying to break new ground with this technology. And so it was almost like a little startup, many startup within Indeka. And so it was -- you start -- you got to experience all the failures actually the first couple years of like trying to get to product market fit and had very little success really the first couple years and kind of saw the grind of that together. So you're working there and I guess while you're there because you joined in 2006, right around the time, right before the iPhone comes out, which I think has a huge impact on a good impact, positive impact on the business. And you are involved in sort of building out the mobile side of their product. Yeah, so when the iPhone came out, we -- I'm a big believer that you've got these new technical -- any time you got a tech shift like that, you got to try to lean in and there's so much tailwind. And so we almost quit to go build our own business at the time. And Steve. Steve and I almost quit. It started off with like -- we built these e-commerce apps for some local brands like Shubai.com, which is a Boston brand and a bunch of other companies who wanted to go mobile. And so we built out their e-commerce mobile app. And then we were like wondering whether we could build a business to scaling that. There was a bunch of mobile web companies at the time that could -- you could power your mobile experience. You were doing this all while you were still at Indika. All on the side, yep, yep. And we were fortunate that Steve Pop was supporter of all of this. He was okay with it, I think. Yeah, and then Steve Pop, I mean, we -- actually, I remember sitting down in the office with Steve and Steve and saying, we're going to go build a business with the iPhone and they said, what are you going to build? It's like we're not sure. We have a couple ideas. We're exploring. And then he said, well, why don't you build this at Indeka? Because we've got 50% or whatever of the top 100 retailers in the world using our platform. And they all want to go mobile and say you could build Indeka's mobile business. And we did that. And that was the first time I'd say we had real success. Because all these retailers wanted to go mobile. And in fact, we were like limited, not on demand, but even supply. It's getting all these apps stood up. And that business ended up being a meaningful part of the revenue by the time Oracle Botan Deca, which was in, I think, end of 2011. 2011 Oracle acquires Indeka for about a billion dollars. And you guys have an opportunity, presumably, to stay there. But I guess this was sort of a sign that maybe you should go off on your own. Yeah, Steve, actually, to his credit was like, hey, like now's the time with the acquisition. It's a good moment to quit. And if that even telling me basically just quit, he's like, okay, well, I'm quitting. I don't know if you're going to quit, but I'm definitely quitting to go do this. And then we were talking to John because John was one of the best engineers for that. John Graham. John Graham. And it's interesting that like, it's me and Steve initially, and we're trying to use John to join. He wasn't sure. But then Steve quit and then John quit, but I didn't quit because I was like, I'm not sure what we're going to work on. You didn't know you didn't have a sort of had rough ideas, but you didn't exactly know what was going to be. You were just going to kind of get together and start to. Yeah. Yeah. We were exploring again a bunch of ideas, right? Everything from. We had seen like, there's some local companies, for example, it's seen, there's a company called Level Up. I think that was doing some food ordering locally. We had seen what Groupon had done. Obviously, we'd seen what Square had done. So we'd seen a bunch of, we had some ideas in like local space. There were some interesting opportunities. But we were looking at all sorts of ideas, frankly. Like there was a bunch of things to be explored. And did you, I mean, you guys were, you know, you're relatively young. You'd been there for five years, but presumably you got a little bit of money when the company was acquired. Yeah. We, I mean, we got enough money to put a down payment in the house and just get, you know, have the, like not have to worry about a salary for a couple of years kind of thing. So you decide to leave? And I guess in December of 2011, so not too long after the acquisition, you guys incorporated to what would become toast. I guess it was initially called like opti system, but you called it toast. You changed the name in 2012. But before we get there, tell me about about what you start to work on. I mean, you don't have a, you sort of have rough ideas, but you don't know exactly what it's going to be. And I read that you, you spent about three, four months trying to figure out what it was going to be. So tell me a little bit about what you were doing during that three month period before you came up with the first idea. We were doing more of what we were doing, frankly, which is we were exploring what are different ideas that we could credibly, you know, go after. And we'd spend time just like, you know, discussing and debating. And we were still at an end, and Oracle, right? So it wasn't like we had to go, it wasn't a kind of pressure to be like, oh, we need to be, [BLANK_AUDIO] You haven't quit. It's a little different, right? When it comes to the pressure. And then once Steve quit, it became a lot more real. And so there was this bar downstairs from where we used to work. This is in Kendall Square in the Boston area. It was called Firebrand Saints. And they had this big patio outside right on Main Street. And you know, like on a busy night, you had a lot of folks after work there. And it like, you know, take you 10 plus minutes to get your check. Right. And when you just want to leave. And the restaurant also wants to turn that table because if people actually want that table, you have to get the attention of the server. And you're like waiting and yeah, everyone's been in that situation. Okay. So you guys are in that situation. And so we just looked at each other and said like, hey, like should we just build this? Like should we build an app where you could use your phone to pay? And we didn't, to be honest, we've been fairness. We didn't know a lot about the restaurant space at the time. Short of just going, being diners and going out. But I mean, it's like the way to think about it is like imagine today. If in an Uber, we went back to a credit card machine and that's how you have to pay. Right. People would be like, what is this? And I think that option exists even today in restaurants, but which we can discuss. But so we started to build this, which is like, okay, like what would it take? We convinced Gary, Gary Stark, who was in the middle of the owner of the restaurant, Firebrand Saints. That's right. Yeah. We joke now that I think he only let us build it because he felt he thought we were a bunch of nerds on, you know, next to MIT's campus and he felt bad for us. But you picked, you based the system, hey, if we build this way, this app to make it easy to pay, would you be up for trying it? Yes, we, yeah. So we convinced him to give us a shot. Okay. It wasn't easy, but we did. And then we went about saying, okay, like, how would we go about building it? Yeah. And then we debated. You could have built it in Mobile Web, but we felt like the right way to build it was to build an app that people could download and then put a card on file and pay. And so the three of you guys were actually writing the code building this app just a few minutes. Initially was Stephen John on the app. Okay. I contribute, I started to build once we pivoted to the point of self. Okay. So you start with this app and then how long does it take for this app to be built? Couple months. Yeah, a couple months. And what does it do? So imagine like, you know, you go to the table, server comes up, takes your order. And so the point of sale system is the, it has the data on what's on your check. What have you ordered? What the tax is adding tip, right? All that data sits in the point of sale. That's why they can print the receipt today that you can sign. Yeah. And so we have to integrate with that. Right? And so the app basically would, you'd, you'd identify the table, you would pull that data. And then with your card on file, you would pay an adjusted tip. But it was largely the app experience and the integration into the system of record that ran the restaurant. Okay. So you have the app and it launches at, you launch it with this restaurant and, I mean, how to work? Well, I remember we had a launch party with our friends and family and we invited them all to fire brand sands and convinced them to download the app and try it. And I think some people got through it, but it was, it was actually quite buggy, I remember. Because the infrastructure we were building on top of wasn't as reliable. It wasn't built for, for cloud, right? These systems are built for in-store interactions. And, and so beyond that first day when we had that launch party, when we got maybe, you know, 50 or so people paying, we were never able to figure out how to get users to pay with any sort of velocity after that first day. And we would, like, I remember we'd go out, Steve went out there a bunch of times and spent time to try to, like, get people to understand how this works and to download the restaurant. Yeah. Yeah. But it just, it never really took off. And I think part of it was the experience was just not consumer grade if I'm honest. Okay. Just to kind of set this up for a moment, because this is my understanding of it and maybe you can fill in the gaps. Because you alluded to it at Kavanaugh's go, which is at this is 2012, right? At the time, most restaurants had a point of sale system that was all sort of, it was hardwired into the restaurant. I think it was like, micros and NCR, the two companies that kind of dominated this at the time. And basically what it meant was that you had a PC and you had, like, literally, servers in the restaurant. And that was your point of sale system. So, like, if you wanted to get any data about your restaurant, you had to be in the restaurant inside the system. You could not do that remotely. It was not a cloud-based system. Every restaurant was like its own, its own server. I think there's a lot of learnings as part of that experience. One was, I, like, we grossly underappreciated how much these systems did. The systems took orders in the restaurant and it was different workflows. When you sit down on the table, where CZ goes through counter-service, where we need to add a bar, we put a card on file, where CZ drive through. The kitchen had workflows to automate the efficiency of a kitchen. So, if you have orders coming in across different stations, you got to bring them together. The prep times are different for a salad, where CZ is a steak, where CZ is a fried chicken. You had employees that were clocking in, you had schedules. Then there was software and there was hardware because it didn't work on the typical laptop. You had the hardware with the touchscreen. That was the restaurant grade. And then the only thing that was important was, well, we could have built these systems in the cloud, but the reason they were built with these physical servers is if you've got a busy restaurant that's bustling at 9 pm at night and your internet goes out. You can't have the restaurant stop working. Right, and that would literally happen if the internet stopped or the system, you know, there's something happen to it, you have like tech support come out and fix it. Yes, and I think the naive, naive maybe realization that we had was we could make this technology a lot better by moving it to the cloud and by taking advantage of Android hardware because the Android hardware actually is open, which allows for, which allows us to build our own hardware, which is critical to building something that was durable and working in a restaurant environment. But we also, I think, grossly underappreciated early on what it would take to build these systems. So this was not from what I gathered. This was not working. And so, like, was there a period of time where you guys thought, well, we can still make this work? Or was it clear pretty early on that this was not going to work and maybe you know, maybe you go back to the drawing board or you try something new or what? We were trying to find a way to make it work. And the mindset we had was, was, you know, let's go talk to Asmi Restaurant tours in the Cambridge area. And it was really hard to get people really understand the value prop of like, oh, if you could check out faster, it would help you turn the table faster. That just wasn't enough because you're thinking this is an obranor, but restaurants are not, they're just not that interested in it. And even for folks that said, yes, one of the other challenges we had was our system was integrated to one point of cell system. There's, I think, a system called Pazytouch, which was a local company at a Rhode Island, I think, we call. But there was a long tail of providers. And so the only way we could even make this experience work at scale is to integrate into, it was felt like over a hundred different systems. Because if it couldn't integrate with a particular POS, you couldn't work with that restaurant. Exactly right. Yeah, because without the integration, there's no way to get the check data. So how long before you guys kind of decide to just call it a day on that product? So now we're in early 2013. Okay. It's been about, you know, launched maybe in the fall. And so it's been three or four months of us trying to find a path. And as part of that experience, we got to know a lot of the restaurant tours in Boston and Cambridge. And the one thing we started to realize is like, nobody really liked their point of cell system. And you would hear things like, hey, why can't this be simple like my smartphone? Because I, because it got used to downloading apps on a phone. And, and the management of all of this came up. And when we on the one hand, we couldn't get time of day when we talked about this app. But when we pivoted the conversation to talk about their restaurant technology platform, it spent a lot of time with us. And just to be clear, the technology platform, it was probably very expensive, because it was hardware inside the restaurant, a touch screen. Yeah. And that enabled you to ring in orders. And then those orders were the restaurant to the kitchen. And then they could see what to make. And then you could print the bill on it. And so typically the weedy systems worked as they offered a lot out of the box. And there's differences across different systems. And one of the things that was really important was that the core date of the menu and what's available and what's in stock. And when it's open and all that data sat in the point of cell system. So it was very central to the entire operation. All right. So you're talking to restaurant tours and they're saying, you know, the thing that really is really annoying is a system that we have. It's like it's bulky, it's complex, it's, and this is getting the sort of the gears in your head to start to spin about. Well, maybe that's actually the problem. Absolutely. In fact, I remember I had a conversation with the owner of a restaurant called Finale Deserts. Chris Cain, he was one of the first I'd say like full service like busier restaurants that was open to giving us a shot. And I remember sitting with him and pitching toast and my pitch was anchored on a few things because these systems are hard to switch and people will describe these switches as like root canals. And so I pitched it as like, yes, of course we can do all the things you do today. But there are a few things that are unique and better. One, we have these handhelds so you can take the order and payment at the table. Two, it's got integrated e-commerce as online ordering was becoming bigger. So you can, you can, people can discover you in order online, you get incremental demand. And then three, you know, we talk about how you can access and manage everything from anywhere. And so when we sat down with Chris, he said it's a good vision. But like, let me show you like what it takes from this, I think it was like a good location, Harvard Square and in the back bay and then at a, at a, a commissary for a lot of the catering. And it's like, well, I've got the point of cell system. I've got a company providing payments. I've got a loan with somebody. I've got the separate software for accounting, separate software for inventory, separate software for online ordering, separate software for gift cards in store and online. I've got a parallel system, a separate scheduling system. And none of these systems talk to each other. To the point where this really shocked me, like the orders coming in online into the restaurant, this is in 2013, we're coming into a fax machine. Yep. And so we had as part of that learning while the, the, the potential of making these systems better was there was also quite complicated because we had to then go figure out, okay, not only are the pieces we're going to build. But how do we integrate into the ecosystem? And the truth is like nobody wanted to integrate with us because we were nobody. And so we couldn't get these folks on the phone. So we just said to help with it. Let's just try to build as much as we can on our own. Just to build basically to replace the entire system. As much as, as we could. Yep. One of the other realizations we had was we felt like in order for us to create our niche, we were going to go all in in restaurants. Yeah. Because there were a bunch of providers that were building something more horizontal where you could be a restaurant or a coffee shop or a flower shop or a picture of a small retail business. And we felt like our unique edge because we had, we had gone in a sense of the complexity of restaurants we're dealing with was to go all in and build a purpose built platform for restaurants. And specifically we wanted to go after these busier restaurants that typically were supported by, you know, systems like micro serencier or fuzzy touch and others. Like we have to go in and actually support these busier restaurants right from right one. Right. Okay. So you have this now very ambitious idea. Essentially, the cloud-based system that would enable restaurants to do all, all or most or all of the things that they were doing now, but in a simpler way. How, I mean, at this point, it's still the three of you. And I imagine to actually do this in 2013. You would need a lot more people to start to build this. So let's talk about money. I mean, did you start to raise money at that point? We did. We did raise a little bit of money. We, so I quit in early 2013 and that's when we pivoted from the app to this point sale. And Steve Papa, who was the founder of Indeka invested, I think it was 500K to get started. He believed in this idea. I think he believed in us more than the idea. And what about institutional investors? Did you go and pitch people? We did. And almost, it's actually was pretty humbling because we had gotten good introductions into some great folks. But the feedback we got is the long lines of one restaurant tour, restaurant sort of tough business. They got a business. They don't buy online. Margin's are really sick. They're low. They're not tech forward. And you're trying to build platform that's going to take you years to build. And also they're looking at giants. Like, Mike Gross and NCR to take them on, right? Probably seemed like a, you know, a Cicophian task. Yeah. You 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 like, 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 experienced 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, Aman and his team build the next iteration of toast and then comes the hard part, getting restaurants to buy it. Stay with us. I'm Guy Roz and you're listening to how I built this. Hey, welcome back to how I built this. I'm Guy Roz. So it's 2013, and Aman 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 restaurant tours. It wasn't anything more than that. I mean, we had to figure out some key partnerships, but those were just, but that was the focus to try to see if we could get restaurant tours to try it. And so we had some, I mean, of course, there's only so much you can do with seven-way people, but 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. Was it 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 awesome. And we just bought some 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 and the end of 2013. All right, so by July of 2013, you have enough of a product, I guess, to test this out with one of a few restaurants. Walk me through the first restaurant because I imagine they have a system in there. Yeah. What are they? I'm assuming they're not going to get rid of it right away because there's 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. And 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 then I remember, you know, we worked really hard for a bunch of months to try to 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 the first few orders, it's like the system is down. And now they've got a line and they think we're 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. 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 when I 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 from for most of them right. So I mean, did you have have restaurants who are like, I don't know if I even want to do this. Like this is just going to be such a pain. Oh, all the time. You know, we would, I mean, I think I must have pitched hundreds of restaurant tours in the first couple of years and very few said yes. But I think there are a couple of things that matter. 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 prime system, you know, you might spend 50 to a hundred K up front. And so our pitch was very little up front. And sometimes nothing up front. Then we had a sassy. And then we had built into the platform. Capabilities that the staff and the ownership loved. And so we had a few data points. 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 restaurant tours up and running is, is to get Steve and John and Tam and others like, you know, actually at location, helping install, helping train, getting feedback. And then in proving the software, uh, what's restaurant tours? I always say that the restaurant tours in Boston helped us build the platform because, you know, we had a hypothesis for what we thought we needed to build. But until we got this up and running with customers, like, you know, there was, that's when the rubber hits road and you learned a lot about what was apps actually needed. Yeah, I'm curious. I mean, from what I gather, you very deliberately only focused on initially restaurants in the Boston area. That makes sense. Yeah. But you didn't want to go, you stayed on these coasts. You don't want to go to California. I mean, at this time by, by 2013, there were, I mean, some competitors today, square wasn't, I don't think they were quite doing restaurants or focus on restaurants yet they were, but small business clover. Another competitor was starting out as well. Were you very like, did you, 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 on a bus. Yeah. Because as I said, like a lot of these restaurant tours would buy in person, they needed service in person or technology wasn't hardened. And so we had lots of issues. And then we, 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 Indeka was a company called Gordon Food Service, GFS, at a Grand Rapids Michigan. And this is a distributor, right? A food distributor. Food distributor, yes. The core business, yep. And so we got a meeting with, with GFS through Steve and walked them through the potential of what toast could do for restaurants tours in terms of helping them run more efficiently, drive sales, help them drive their sales as a result. And that was a really important partnership for us that helped us get outside of Boston. So we launched in Miami, 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 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 speed you? Did it make you move faster? Did it make you more vigilant? What did it mean for what you guys were doing at toast? Well, 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 somebody's startups had. And yet you'd hear them say, all 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 to competitor obsessed. Yeah. And 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, 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 the 100 customers, we actually, and we had this GFS partnership, we actually started to see a lot of interest. And we weren't ready to scale. There were lots of things in the way we had built the company to start was not scalable. You know, an example of that is just, remember one of our early customers in Boston was this restaurant and nightclub. And when we met with the owner of Billy there, he asked me, hey, like, what happens at one in the morning when you've gotten out of your 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 of 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. And my phones started ringing 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 also picked it up, because no one really loved picking up this 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're personally picking up these calls and they're still a customer. But I think that just speaks to how we, there's so many examples like that that we weren't ready to set up for the scale and make customer successful. And that was the block or not the competitive pressures. In 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 it stride, and how COVID sends it right back to the startup stage. Stay with us. I'm Guy Roz, and you're listening to How I Built This. I'm Guy Roz. So it's early 2015, about a year and a half after launch, and the mon 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, you know, customers who were using it and they were happy, or at least cheering us on. But there were a lot of issues. Like, I remember at one point, all of the hardware we would ship would like 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 a sale. That was like in my mind one of the low points for us, because there was actually good signal here that customers wanted what we were building. And in hindsight, it just seems so obvious. It takes 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 work with Steve to build the systems to scale, the capabilities we needed to scale. Right. 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 Endeca. Yeah, we knew Chris through Endeca. And so what did that mean for you? Like, what had your job changed? 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. Yeah. And so we were doing whatever it took. And I was largely focused at the time, even the focus joined on distribution and getting the partnerships in place and the sales team in place to get the customers, because obviously, 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 grab just hung up on the customer, because he was unhappy with it. We used to be treated, and 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%. It was this moment where we felt like we were ready to really take off. We had aggressive plans that year. And then, I think early April of 2020, we had gone from this company that was growing like this to maybe revenues down over 90%. Because restaurants weren't taking payments, and when restaurants aren't open, they can't really pay their suffer fees. And so we had to make the hard decision to cut, I think it was like 55% 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 better off-premise sales. That's the beginnings for us of the QR codes, now you see it at a table to pay or to scan a QR code, to look up menus and order. And I think that period, especially, it just felt like the basement stage, in terms of just the level of maniacal focus that we had, and the speed of which we were building, because we knew that everything was at stake. I 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 2021, and now you're probably treated stock. And I'm going to fast forward for a moment to 2024, because you actually come back to a, well, I mean, you had been in an executive position before, but you come back to become the CEO. Yes. So tell me about that. I mean, did it feel like, okay, I mean, probably, you know, maybe Chris wanted to move on, and 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, he had always set 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 lines of like, you know, no one's perfect, you're not perfect. There are a lot of lines, but you have the left to learn. But it's not obvious to me that something 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. And so that got me comfortable to want to step back in. And I also felt like it was a partnership. Like 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. Yeah. 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, was in that year, first of all, your profitability. Right. But in the latest quarter, I saw that, I think you now are between 15 and 20% of restaurants in the US. Does that sound about right? Small business restaurants is over 20%. And so you have an opportunity to get to 80%, 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 that? Those other 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% 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, because the busiest restaurant to choose toast. Because again, we are a 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, think of it 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 gut and some data, but I think the opportunity for toast within the restaurant business specifically is to leverage our data across the 20% of restaurants that are using toast to help try better outcomes for these customers. Yeah. You know, when you think about where you guys got to right here, you are 13 years in and 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. And you have really found a strong position within this category. Where do you protect the mode? I mean, it's a bit of a sort of a cliched question, but I mean, you guys really took on huge players, NCR, microbes, and you know, 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? Yeah, 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's interest. I also think like for the company on the offensive side, there is a tremendous amount of opportunity to extend beyond what we have done for the first 10 years. So in the past two or three years, we've gone into new markets, we launched in Canada, UK, Dublin, Ireland, we got a team there in Australia, and we've built the, you know, product to support retail. And so think of grocery stores, the convenience stores that have a gas station, liquor stores, hardware stores, we'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 you know, where you were and what 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, you think about your team, your co-founders, try to find people that are good people, that are good values, because they even go through a lot together and you need that. And 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, like, you know, 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. Like I think had we not raised that capital right before the COVID may not have survived? You know, 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. You know, 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 and things could have gotten a lot worse, I think. And so there's a lot of like, and there's so many like this, there's so many breaks that went our way. But it's a combination, I think, you know. Harder you work, the luckier you get. That's a modern array, co-founder and CEO of Toast. By the way, remember the very first restaurant where they got their start? Firebrand Saints in Cambridge? Cambridge, it actually closed down in 2017 but was replaced. released by another restaurant, a rotisserie chicken place called Shivert. And when we called them up to ask which payment method they happen 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 it's 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. This episode was produced by Sam Paulson with Music Composed by Ramteen Ederblui. It was edited by Niva Grant with research by Casey Herman. Our audio engineer was Quacy Lee. Our production staff also includes Chris Messini, Alex Chung, Carla Estevez, JC Howard, Catherine Cipher, Carrie Thompson, John Isabella, and Elaine Coates. I'm Guy Raaz and you've been listening to How I Built This. [Music]