How I Built This with Guy Raz - Toast_ Aman Narang. How a Long Wait for the Dinner Check Launched a _2 Billion Business

0:12We were installing this restaurant and they opened 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 on paper and like trying to do this manually and realized as part of the experience that these systems are mission critical and, like, can't break. Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Roz, and on the show today, how 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. There are about 700,000 restaurants in the United States.

1:25big chains, tiny neighborhood 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.

1:55It 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? A frustration. A frustration I am sure you've experienced.

2:20You finish 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 Amon 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,

3:18raise 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 Narang, he actually grew up in Nepal and in India and moved to the United States with his family when he was a teenager.

3:45In 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, you know, 25 years ago, if you went and searched, you know, Home Depot or Nike or Disney Store or J Crew or Pick Your Brand, and you wanted to say, like, show me.

4:14all 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 at Toast, Steve Fred and I joined a team out of college called Special Operations. And you didn't know Steve at, at, he also went to MIT. Did you know him from MIT or did you meet him there? I met him at INDECA. Yeah, I met him at my first day at INDECA and we were building this, you know, business intelligence, the beginnings of a business intelligence platform. And the reason that's important is it was, we were trying to break new ground with this technology. And so it was almost like a little startup, mini startup within INDECA.

5:12And so you got to experience all the failures, actually, the first couple of years of trying to get to product market fit and had very little success over the first couple of years and saw the grind of that together.

5:26So all right, so you're working there and and I guess while I mean while you're there because you've joined in 2006 So right around the time and right before the iPhone comes out right 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, we so when the iPhone came out we you know Like I'm a big believer that you've got these new tech and anytime you got tech shift like that, you've 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. We, uh, 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 want to go mobile. And so we built out their e-commerce mobile app.

6:20And then we were wondering whether we could build a business just scaling that. There was a bunch of mobile web companies at the time that you could power your mobile experience. You were doing this all while you were still at Indigah? All on the side, yeah. And we were fortunate that Steve Papa supported all of this. He was OK with it, I think. Yeah, and then Steve Papa. Actually, I remember sitting down in the office with Steve and Steve and saying, we're going to quit. We're going to go build a business with the iPhone. And they said, what are you going to build? I was like, we're not sure. We have a couple ideas. We're exploring.

6:46And then he said, why don't you build this ad in Decca? 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 in Decca'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 limited not on.

7:13demand, but even supply, just getting all these apps stood up. And that business ended up being a meaningful part of the revenue by the time Oracle bought Indeco, which was in, I think, end of 2011. 2011 Oracle acquires Indeco 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.

7:41Yeah, Steve actually to his credit was like hey like now's the time with the acquisitions. It's a good moment to quit and Without even telling me basically just quit. He's like, okay. Well, I'm quitting I don't know if you're gonna quit but I'm definitely going to go do this and then we were talking to John because John was one of the best engineers John Graham John Graham. Yep. And it's interesting that like is me and Steve initially and we're trying to convince 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, you sort of had rough ideas, but you didn't exactly know what it 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. Yeah. Right. Everything from, we had seen like, there's some local companies, for example, we'd seen, there's a company called Level Up, I think that was doing some food ordering locally. We'd seen what Groupon had done.

8:32Obviously, we'd seen what Square had done. We had some ideas that in the local space, there were some interesting opportunities, but we were looking at all sorts of ideas, frankly. There was a bunch of things to be explored. 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 got enough money to put it down payment in the house and not have to worry about a salary for a couple of years kind of thing.

9:00So you decide to to leave and I guess in December of 2011 so not 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. Yeah, 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 gonna 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 go after. And we'd spend time just discussing and debating. And we were still at and deck at Oracle. So it wasn't like we had to go. It wasn't a ton of pressure to be like, oh, we need to be like.

10:00When 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 on a busy night, you had a lot of folks after work there.

10:3010 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 with you, in 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 had to pay. People would be like, what is this, right? 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

11:26Gary Stark who you know, he was in the middle of Gary was the owner of the restaurant fire brand 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 the MIT's campus and and He felt bad for us, but you picked you basically said to him 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 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? Initially it was Stephen John on this app. I started to build once we pivoted to the point of sale.

12:23Okay, so you start with this app and then how long does it take for this app to be built a couple months 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 there it has the data on What's on your check? What have you ordered or the taxes? Adding tip right all that data sits in the point of sale That's why they can print the receipt tonight that you can sign And so we had to integrate with that. And so the app basically would, you'd identify the table, you would pull that data and then with your carton file you would pay and adjust the 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...

13:23I mean, how did it work? I remember we had a launch party with our friends and family and we invited them all to Firebrand Saints and convinced them to download the app and try it. I think some people got through it, but 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 cloud. These systems are built for in-store interactions.

13:49beyond 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 at the restaurant. 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 a couple months ago, which is at this is 2012, right? At the time, most restaurants had a point of sale system that was all

14:37Sort 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 server. I think there's a lot of learnings as part of that experience. One was, we grossly under-appreciated how much these systems did. These systems took orders in the restaurant and it was different workflows when you sit down at the table, versus you go through counter service, versus when you're at a bar, when you put a card on file, versus a drive-through. The kitchen had

15:34workflows to automate the efficiency of a kitchen. So if you have orders, you know, coming in across different stations, you got to bring them together. The prep times are different for a salad versus a steak versus 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 a typical laptop. You have to have hardware with a touchscreen. That was restaurant grade. And then the other 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 9pm 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, something happened to it. You have tech support come out and fix it. Yes.

16:32But the 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 Android hardware actually is open, which allows us to build our own hardware, which was critical to building something that was durable and it could work in a restaurant environment. But we also, I think, grossly underappreciated early on.

17:01What it would take yeah to build these systems so 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 gonna work and and maybe You know maybe you go back to the drawing board or you try something new or 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 as many restaurant tours and in the Cambridge area. And it was really hard to get people to really understand the value prop of like, oh, if you could check out faster, it would help you turn on the table faster. That just wasn't enough. Because you're thinking this is no brainer, 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 sale system.

18:00There's I think a system called Positouch, which was a local company at a Rhode Island, I think, if you recall. 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 what felt like over 100 different systems. Because if you couldn't integrate with a particular POS, you couldn't work with that restaurant. Exactly right. Because without the integration, there's no way to get the check data. So how long before do you guys kind of...

18:28decide to just call it a day on that on that product. So now we're in early 2013. Okay. So it's been about, you know, launched maybe in the fall and since 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 sale system. And you would hear things like, Hey, why can't this be simple like my smartphone? Because it's gotten used to downloading apps in a phone and and the management of all of this Came up and when we on the one hand we couldn't get time a 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

19:27hardware inside the restaurant, a touchscreen, and that enabled you to ring in orders, and then those orders would go to the restaurant, to the kitchen, and then they could see what to make, and then you could print the bill on it, and... Yeah, 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 data of the menu...

19:56and 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 the system that we have. It's like, it's bulky, it's complex. 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 Desserts, Chris Kane. 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.

20:54And people 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 people can discover you and order online and you get incremental demand. And then three, we talk about how you can access and manage everything.

21:24From 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 a good location Harvard Square and in the back bay and then a commissary for a lot of catering and It's like well, I've got the point of sale 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 inventory separate software for online ordering separate software for gift cards in store and online. I've got a payroll system, a separate scheduling system, and none of these systems talk to each other. To the point where, and this really shocked me, like the orders coming in online into the restaurant, this is in 2013, were coming into a fax machine. Yep. And so

22:24We had as part of that learning while 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 what are the pieces we're gonna 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 hell with let's just try to build as much as we can on our own Just a build basically to replace the entire system as much as we could yeah 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 on restaurants. 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 pick your small retail business. And we felt like our unique edge, because we had gotten a sense of the complexity of restaurants we're dealing with, was to go all in and build a purpose-built

23:25platform for restaurants. And specifically, we wanted to go after these busier restaurants that typically were supported by, you know, systems like Micros or NCR or PuzzyTouch and others. Like, we had to go in and actually support these busier restaurants right from day one. Right. Okay. So, you have this now very ambitious idea. Essentially, build a cloud-based system that would enable restaurants to do all or most or all of the things that they were doing now, but in a simpler way.

23:53I 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. So I quit in early 2013. And that's when we pivoted from the app to this point of sale.

24:23And Steve Papa, who was the founder of Indeca, invested, I think it was 500K to get started. He believed in this idea. I think he believed in us more than the idea. But what about like institutional investors? Did you go and pitch people? We did. It actually was pretty humbling because we had gotten good introductions into some great folks, but like the feedback we've got is along the lines of like one, like restaurant tours, restaurants that are tough business, they got a business, they don't buy online, margins are really thin, margins are low, 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

25:23you know, a Sisyphean 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, like, I knew that Steve and John and then we brought in a few folks.

25:52And 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 Raaz, and you're listening to How I Built This. Hey, welcome back to How I Built This. I'm Guy Raaz.

26:36So 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.

26:59Those 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 or eight 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. Yes. Was it your house? We were in my basement, so we, in fact, my basement was unfinished.

27:29When 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 some 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 of 2013. All right, so by July of 2013, you have enough of a product, I guess, to test this out.

27:59with 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. 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?

28:27The 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 get to what we felt like was something ready for production and I still remember we were getting installing this restaurant and they opened 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 think we're like physically writing down the order on a piece of paper and dropping it off in the kitchen

29:23and 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. So 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 We're not obviously they weren't happy with their point of sale systems But still like this was gonna be a huge overhaul for for most of them, right? So I mean, did you have restaurants who are like I don't know if I even want to do this like this is good Just gonna 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 years and very few said yes But I think a couple things that mattered one was

30:21It'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 $50,000 to $100,000 up front. And so our pitch was very little up front and sometimes nothing up front. Then we had a SaaS fee. 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 and we got some these early restaurant tours 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 in

31:20Proving the software with 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, that's when the rubber hits the road and you learned a lot about what was apps actually needed. 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 the East Coast 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

32:19the capability to get out of Boston. Because, as I said, a lot of these restaurant tours 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 at a Grand Rapids, Michigan. And this is a distributor, right? A food distributor. Food distributor. Yeah, that's the core business. And so we got a meeting with GFS through Steve and walked them through the potential of what toast could do for restaurant 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.

33:17that 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 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? 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.

34:15startups had and yet you'd hear them say all of the cloud solutions because some of them I tried a few. Toast was the best one. I'm a big believer, by the way, in like customer obsession and not being too competitive obsessed. 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 so we didn't need any motivation to try to work harder or faster.

34:46And 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. And we weren't ready to scale. There was 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, 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, and my phone started ringing in my pocket.

35:46And I remember we all kind of, by then, had realized that we would wait for two or three rings to see if someone else would pick it up, because no one really loved picking up these support calls. So on the third ring, I picked it up, and I said, I told you, I'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 the scale and make customers successful. And that was the blocker, not...

36:15the 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 its 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. Hey, welcome back to How I Built This. I'm Guy Roz.

37:00So it's early 2015, about a year and a half after launch, and Daman 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.

37:29lots 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. I think 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?

38:27It actually did not change at all because, you know, when you're smaller and you're just trying to know when we weren't concerned about titles or any of this, we're 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 because obviously we had to show revenue growth.

38:57Because 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 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. 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...

39:53potentially disastrous moment, which is COVID, which had a hugely negative effect in many ways on many restaurants in the United States. And I think by 2020, you guys had raised now by this point $400 million, your $5 billion valuation, and then within weeks, the country shuts down. 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 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 software fees.

40:53And 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, well, 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 that you see 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.

41:54in the speed with which we were building because we knew that it was 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 2014 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.

42:24Coming out of the pandemic you went public in in 2021 and now you're publicly traded stock and and and I'm gonna fast forward for a moment to 2024 because you actually Come back to a well, I mean you had been you know in an executive position before but you come back to you 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 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, 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 blank spots you have. You have to learn, but.

43:20It'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 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.

43:47the 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 of profitability. 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 over 20%.

44:15And so you have an opportunity to get to 80, to remaining 80%. And I'm sure there's a fierce competition with some of your rivals in this space. What's the unlock? How do you get to that, that 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.

44:46because 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 built for busy because 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.

45:13And 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 about in the McDonald's franchise, for example, there's a lot they do to set them up for success.

45:45In 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 plus percent of restaurants that are using toast.

46:16Help try better outcomes for these customers. Yeah You know when you think about about where you guys got to right here you are Thirteen 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 right and it's and you have really found You know a strong position within this category Where do you?

46:46You know, how do you protect? The you know the mode. I mean, it's a bit of a sort of a cliche question But I mean you guys really took on huge players NCR micros 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 ahead of the curve when it comes to you know, what what might come next in this industry Yeah, I'm a big believer and 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 like 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,

47:46Dublin, Ireland, we've got a team there in Australia. And we've built a 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 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 you had to do with luck and timing? You know, it's one of the best decisions I made. I remember when 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.

48:45that have good values because you go through a lot together and and you need 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 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 13 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 when things could have gone a lot worse, I think. There's so many breaks that went our way.

49:40But it's a combination, I think, you know. Harder you work, the luckier you get. That's Aman Narang, co-founder and CEO of Toast. By the way, 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 Scheiberg. And when we called them up to ask which payment method they happened to use, they told us, Toast.

50:11Hey, 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 GuyRoz.com or on Substack. This episode was produced by Sam Paulson with music composed by Rum Teen Air Bluey.

50:34It was edited by Neva 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 Seifer, Kerry Thompson, John Isabella, and Elaine Coates. I'm Guy Ross, and you've been listening to How I Built This.