Aman Narang: 5 Lessons Scaling Toast to $14BN Market Cap | E1192
21 Aug 2024 (28 days ago)
Intro
- Speed is a crucial factor in the business world, especially after identifying a product-market fit. (00:00:03)
- Toast's existence was made possible by three key trends: Android, cloud computing, and embedded payments.
- A common error among founders is their reluctance to relinquish control, stemming from a desire to stay informed, but it's advantageous to leverage the expertise of specialists in specific domains.
Childhood & Background
- He attended boarding school for one year and was bullied during that time.
- He worked at a company called Endea, which sold e-commerce software, for six or seven years. (00:02:57)
- He and his co-founder received funding from the founder of Endea, who did not understand the restaurant industry but respected their work ethic.
The Importance of Speed
- Speed is crucial in business, especially in the early stages, as it allows for rapid iteration and learning from user feedback.
- Hiring managers early on is essential for leverage and scaling the company effectively.
- Maintaining a balance between specialists and entrepreneurs within a company is vital for long-term success and innovation.
The Right Time to Bring In Specialists
- Companies can benefit from specialists when they are ready to rapidly expand and have a clear understanding of their growth strategy.
- It is crucial to recognize when a company is ready to scale, as premature scaling without a solid product can lead to setbacks.
- Toast's initial product idea, using QR codes for ordering and paying at restaurants, failed to gain traction, leading to a pivot towards developing a point-of-sale (POS) system.
How Do Startups Compete When They're Always Behind?
- Startups can succeed by being gritty and capitalizing on emerging trends, even with limited resources.
- Focusing on essential customer needs and providing exceptional service can give startups a competitive edge.
- Building software quickly and adapting to customer demands are crucial for startups to thrive in a competitive market.
Investing Story with Bessemer
- The company was initially focused on revenue and scaling, which led to signing up customers without having the infrastructure for onboarding and support.
- The lack of infrastructure and leadership resulted in customer dissatisfaction due to issues such as onboarding delays, lack of support, and incomplete products.
- The company lacked a team capable of scaling effectively, highlighting the need to transition from doing to coaching and teaching others how to perform tasks, hire effectively, onboard efficiently, and establish a strong company culture.
Why Aman Didn’t Take a Role of CEO Earlier
- There was a point when the company was approximately two years old, had $2 million in annual recurring revenue, and needed to scale. It was decided to hire a CEO with experience scaling companies. (00:25:29)
- One of the challenges the company faced was determining how many products and market segments to pursue simultaneously. It was decided to focus solely on the restaurant industry.
- The company initially chose to build its platform on Android because it was perceived as easier to build on than iOS. However, this decision led to hardware compatibility issues, resulting in high return rates.
Is Toast a Fintech Business or a SaaS Business?
- Toast is considered both a Fintech and a SaaS business, but its software is the primary reason customers choose it.
- Toast's product expansion strategy evolved over time, starting with addressing basic restaurant needs through the point of sale system and expanding to include integrated solutions like payments, loans, online ordering, and more.
- Toast Capital, the company's lending arm, emerged from research into embedded finance and the realization that Toast's position as a payments provider gave it valuable data and an opportunity to offer loans to restaurants more effectively.
Biggest Miss on an Ancillary Product
- Toast has teams dedicated to scaling existing products and teams focused on developing new products.
- Toast has a Ventures program, separate from its core business, that enables individuals to build new products within the company.
- The Ventures program aims to provide the benefits of being part of Toast while minimizing the challenges of working within a large organization.
The Worst Product Expansion
- One lesson learned was that simply integrating commodity products into a point-of-sale system is not sufficient for success, as they need to be demonstrably superior to existing solutions.
- Another lesson learned was that the company's primary strength lies in serving restaurant owners and operators, and while they are expanding to serve other stakeholders like employees and guests, it is not yet a core competency.
- The company has developed applications for guests and employees, but acknowledges that there is room for improvement in serving these stakeholders, and they are actively working on enhancing their offerings in these areas.
Biggest Lessons in Expanding to SMB & Enterprise
- Toast has a significant market penetration in the mid-market restaurant segment, including restaurants with hundreds of locations, but larger enterprise chains often rely on custom or legacy on-premise solutions.
- Toast's approach to expansion involves balancing short-term and long-term strategies, including hiring sales representatives in successful markets while also establishing foundational teams in new areas.
- To ensure employees understand the product and industry, Toast requires all new hires, regardless of their role, to spend a quarter selling Toast, giving them context and experience.
Build vs. Buy: How To Approach International Expansion
- A company's international expansion can involve building its own solutions or acquiring existing ones.
- A company prefers to build its central point-of-sale system due to its critical role as the core operational platform for restaurants.
- While acknowledging the difficulty of switching systems, the company believes in providing the best solutions and sees ample opportunities in international markets.
How Far You Can Push Revenue from Restaurants
- Companies should prioritize creating value for customers over focusing solely on driving metrics.
- Hiring talented individuals who can independently solve problems is crucial for scaling a business.
- Sustainable growth involves a long-term strategy, acknowledging that significant achievements often take time and cannot be accomplished in a single year.
A Flaw That Led to Aman’s Success
- A potential weakness, being overly fixated on details, can be perceived as annoying or passionate depending on the perspective.
- While strategizing and problem-solving provide energy, effective communication and inspiration are crucial for managing large teams.
- Authenticity is key for leadership, as people connect with genuine individuals rather than feeling like they are being sold to.
Is Humility a Good Value?
- Values should be able to withstand scrutiny and have a valid counter-argument.
- Leading with humility is important because leaders need to stay connected with their teams and customers to make informed decisions.
- While humility is important, leaders also need a degree of self-confidence to inspire their teams.
Quick-Fire Round
- Toast almost shut down early in its development when the founders were working on QR codes and were about to give up.
- The most difficult decisions often revolve around people rather than business or strategy.
- One piece of advice given is to avoid raising excessive capital, as it can lead to early dilution and may stifle the drive for efficiency and creativity.