In pursuit of the flywheel

Toast’s growth strategy depends on it.

Photo via Unsplash

Can a point-of-sale system go viral? Toast hopes so. 

In its first quarter results, Toast beat analyst revenue estimates but posted a slightly larger-than-expected net loss of $83 million. During the company’s first-quarter earnings report this week, Toast founder and CEO Aman Narang reiterated the company’s priorities for the year that include “setting up the company to scale and deliver ongoing operating leverage.”

Achieving the “flywheel state,” as Narang calls it, is as an ideal (and necessary) outcome. The term refers to a kind of self-sustaining condition with limited friction that helps the business keep growing, and in Toast’s case, it involves expanding its market share in particular locations, speeding up its referral process, and netting more restaurant customers that buy more products and services. You could call it “critical mass” or even, in my opinion, going viral. One success leads to another, which increases odds of another and then another, around and around and around again, like a snowball rolling down a mountain. 

A few days before announcing earnings, Toast angled for a different kind of virality. Its point of sale hardware showed up in a shot during an episode of the wildly popular reality TV show, “Vanderpump Rules,” which, I will concede, is at least sort-of related to the restaurant business. (A restaurant-facing piece of hardware as a consumer brand making a cameo on a Bravo reality show? Okay!) 

For the last few years, Toast has clearly stated its plans to grow: gain market share by adding more restaurants, and sell those restaurants more products. To Toast, a “flywheel market” is one where it has 25 to 30 percent market share. The company says it’s sitting at 13 percent in the overall U.S. market today; Narang said in small independent and mid-market restaurants, penetration is slightly higher — “mid to high teens.”

And apparently, for Toast at least, the flywheel state is the answer to a variety of questions about its future success. Here are three: 

“The number-one focus of the team is to get all of our markets into flywheel state.”