A Conversation with Toast's Co-Founder
Aman Narang sees a strong future for independent restaurants and the tech that supports them.
Have a safe and happy, if weird, Thanksgiving!
Weeks before the Covid-19 pandemic would decimate the independent restaurant industry, Toast, the cloud-based point-of-sale system (POS), closed a $400 million round of funding that valued the company at $4.9 billion. It was poised for ambitious growth. Instead, in April, the company laid off half of its workforce due to Covid — though it has since hired many workers back.
On Monday, CNBC reported that Toast authorized current and former employees to sell up to 800,000 vested shares of its stock at $75 per share, valuing the company at close to $8 billion. The CNBC report did not mention the investor(s) who purchased the shares.
Also on Monday (but before this news broke), I spoke to Aman Narang, Toast president and co-founder. We didn’t talk valuation or a stock sale, though a Toast representative did confirm to CNBC that one had taken place. We didn’t talk potential IPO either, though I did ask. Here’s our conversation, which has been edited for length and clarity:
Expedite: I hear you’re optimistic about the future of the restaurant industry, even given where things stand right now.
Aman Narang: As a category we were all incredibly nervous about what’s going to happen to restaurants. We had nothing to go by. It wasn’t like we could look to a previous crisis. We were very concerned about what the world was going to look like and what restaurants would look like over the next year. And it’s been interesting — the first couple of months were obviously very tough. But the recovery back was very strong. Largely, until last month, we had something like 10 percent of our customers maybe inactive or temporarily closed. For the ones that were open, the 90 percent, a lot of them were not quite back to pre-pandemic levels but they’ve been able to make their businesses work. The volume is up in many cases back to normal levels or at least 80 to 90 percent of what it was pre-pandemic.
Now with what’s happening with Covid more recently, if we start to see hospitalization capacity follow the caseload, then I do think we’ll see some impact. But I think one of the reasons we’ve seen this relatively rapid recovery within the Toast customer base is that the access they have to capability and technology is very different than it was a decade ago.
People think of small business owners as, ‘they can’t compete on the digital front’ and so they’re just going to go out of business, but that’s not at all what we’ve seen in our data. That's what keeps me optimistic. Where I think this goes is that the appetite for local restaurants is bigger than it’s ever been. The diversity of food that’s available today and the access is something a lot of us really cherish, and that combined with the access we have to technology means this pandemic ends, I think there’s going to be a rapid resurgence.
One question I ask every executive I talk to: when will it feel OK to charge restaurants a full rate given how long this has been going on?
The world of software is very different from the world of restaurants. Profit margins of a software company are different than that of a restaurant. Businesses that are established, that have been around for a while, in theory they should have the ability to cut where they can and help where they can. But there's a balance there, if you can't survive yourself then it doesn't work. In the spring we did software relief for a month when restaurants were going through the worst of it. 
It depends on the model, too. Toast makes money when restaurants make money.
It’s a good reminder — it’s a conversation we’re having actively right now and we’re, like everyone else, trying to thread the needle in terms of what’s the best way to get through this period.
Are you fundraising right now? I’ve heard IPO rumors, I’ve heard rumors of an IPO via SAPC? Where are you?
The focus is on our customers. If we put all our energy as a business into helping our customers through Covid, that first of all has the biggest financial return for any investor and for us. Second, we also have an opportunity here where we can show our true colors and be the type of company that restaurants can depend on and partner with. That’s where our energy needs to be. I think all of these discussions around fundraises and investors and public markets, those are things that are always there, we’ve been having these discussions for many years. When the time is right we would consider it. It’s not any more important today than it was two years ago.
But it does seem that interest in restaurant tech investment is piqued right now in a way that it wasn’t in January. It seems like there’s more attention and interest, and things are moving faster than they previously did.
Absolutely, it’s a big category. Restaurants are one of the few categories where small business still thrives. There’s not that many categories left. The technology that they had access to until recently is very limited.
Think about all the different workflows that restaurants have to manage. To digitize some of these processes can simplify what it means to run a restaurant.
That’s why I think there’s a lot of investor interest because people are seeing that this stuff really matters. Let alone the growth of delivery, even things like handhelds , the ability to take orders and payments at a table, until five years ago wasn’t a thing at restaurants. Now you see so many brands scale it because they’re realizing that it allows them to increase throughput and collect data at the time of transaction to understand their customers better which makes a big difference in their businesses without being technologists. In the past you had to hire a technology team to do some of these advanced things. That used to be a heavy lift and now it’s becoming a lot more automated. So I think there’s a lot that’s been done and a lot to do over the next 10 years or more.
Especially in independent and small business marketplace, as you said earlier. Toast seems to be focusing on independent restaurants, those are the majority of your customers? 
Certainly that’s true that the bulk of our customers are small business but our mid-market enterprise business is not by any means a small business. It’s still a significant number of brands that are relying on Toast. That part of our business is growing just as fast as the SMB business. 
You are planning to grow that as well?
You can’t do everything from day one. You have to pick and choose. Our focus from day one is that we’re going to focus on small business and certainly there’s a lot to do, even today, to fulfill our mission for these small businesses. We have gradually gone upmarket to these enterprise chains. Interestingly enough there’s just as much demand for a true cloud-based program upmarket as there is for SMB.
Do your enterprise customers and SMB customers have the same needs though?
They're different in many ways but within the four walls of a restaurant there’s a lot of overlap. Whether you run one restaurant or a hundred the GMs still have some of the same challenges to work through. But as you go beyond from a corporate standpoint — how you manage your digital presence, how you manage your rewards, how you manage your employees, and how you manage your menus and pricing strategies, obviously it’s very different, the software needs are different.
At Toast we’re not going to specialize in something that’s not core to our business if there’s someone else who does it better.  On the tech side I think even a lot of the big chains are realizing this. They don't want to keep up with these [software-as-a-service] providers who are investing hundreds of thousands of dollars in [research and development]. They’d rather move the ball forward and would rather partner than build. I think you will see a progression where more and more groups partner with these companies as long as the roadmaps map to what they need.
Salesforce is a great example of this. Google Suite is a great example. I think we and many others will follow a similar trajectory as these bigger businesses have.
 Here’s a quick rundown of what Toast offered its customers in March.
 Toast introduced a handheld device in spring 2019. Recently, in mid-November it unveiled its second generation device.
 Narang wouldn’t confirm the exact number of restaurants using Toast, but agreed that the latest figure I suggested — around 50,000 — was “in the right ballpark.”
 An October report from Reforming Retail said that Toast decided not to renew its contract with Jamba Juice under the headline “Toast Abandons Enterprise.” Jamba Juice was identified in the piece as Toast’s largest customer.
 I find this sentiment to be growing among restaurant tech companies — partner rather than build.
What else is happening?
Restaurant tech companies might be the key to drawing diners back amid higher Covid-19 rates, new survey data finds. Here’s my latest for Business Insider ($) featuring some new data that shows how consumers are interacting with restaurants — and how they plan to do so in the near future.
Resy’s co-founder and CEO stepped down. Ben Leventhal has left his position as general manager of the Amex global dining team 18 months after American Express acquired Resy. Terms of the deal were not reported at the time.
DoorDash released its list of winterization grant recipients. 360 restaurants in six cities will receive $5,000 each to help prepare for the winter months. Full list of recipients here.
New data suggests that digital will make up over half of quick service restaurant (QSR) sales by 2025. It’s a 70 percent increase over pre-Covid expectations.
Uber reached a $90 billion market cap. As the stock market claimed to record heights, so did Uber. (This number was at the top end of its potential IPO valuation in 2019.)
Gift guide season is upon us. A few early suggestions:
I like this list of giftable restaurant merch (and more) from Resy
...and this one of NYC cookbooks on Grubstreet,
And this one from the San Francisco Chronicle featuring Bay Area food gifts.
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