Steve Fredette, Aman Narang, and Jonathan Grimm faced a lot of skepticism, if not downright resistance, as they pitched the idea of revamping the technology restaurants use to ring up sales, manage finances, and glean insights about their customers.
It was about a decade ago, and venture capitalists viewed the restaurant industry as too narrow a market. Restaurant owners were reluctant to commit money they viewed as better spent on food, staff, and advertising. The dominant positions of Oracle, NCR, and other big players in point-of-sales systems made it hard for new companies to break in.
Toast overcame not only these obstacles, but also a pandemic that shut down its clients and kept customers away from restaurants for months. Today, Toast has systems in some 79,000 restaurants, employs 4,500 people, and generates nearly $3 billion in annual revenues.
But Toast and its founders have had far greater impact than building a company valued at about $9 billion. They are seeding startups, acting as mentors, and advancing diversity in a tech industry notoriously white and male. “It was always our goal to build a pillar company in Boston,” Fredette says. “And a big part of our success is seeing the ecosystem that builds from that and from our team and from others that are inspired by us.”
These contributions to technology, business, and the community have made Fredette, Narang, and Grimm The Boston Globe’s top Tech Power Players in 2023. Their influence reaches throughout the innovation ecosystem, from established companies, to startups, to aspiring entrepreneurs.
Fredette, for example, recently addressed hundreds of college students on starting a business. After his talk, Fredette spent another hour chatting with students on topics from locating a startup in Boston to Toast’s strategy of hiring experienced restaurant workers to sell systems to restaurant owners.
Among those who have benefited from the counsel of Toast’s founders is Nick Belsito, founder of OpenCity, a startup developing artificial intelligence assistants for restaurants. Belsito launched the company in 2016 after several conversations with Narang and Fredette. “Toast has proven that you can create billion-dollar companies here in Boston,” Belsito says. “You need that reality to prove to investors that we’re more than life sciences and banking and accounting.”
Fredette, Narang, and Grimm met while working for Cambridge ecommerce company Endeca Technologies. When Oracle Corp. bought Endeca for $1 billion in 2011, the trio were among at least 20 former employees who went on to start their own companies.
The three friends hadn’t decided on a focus for their startup when they began meeting at coffee shops and bars, where they noticed inefficiencies — including waiting for their checks. They initially tried to build a mobile payment app, but pivoted to point-of-sale terminals when they realized how little technology had penetrated the restaurant industry.
The Toast founders spent hours talking to restaurateurs and built features such as real-time communication with the kitchen about special orders and dishes that have sold out, and a way of tracking loyalty rewards. Another hit was adding a mobile payment terminal that servers could bring to tables so customers could pay their checks more quickly.
Before Toast, most venture capitalists avoided business software startups targeting specific industries, preferring companies developing products with broader applications. California startup Square, for example, offered payment tech for any retail outlet and immediately gained backing from Silicon Valley firm Khosla Ventures. It helped that Square cofounder Jack Dorsey had already started Twitter.
Toast’s founders had no previous entrepreneurial successes. (Fredette’s first startup, a Facebook competitor called wickedparty.com, flopped while he was still in college.) One investor after another turned them down.
But the restaurant industry was vast — now close to $1 trillion in annual sales in the United States alone — and ripe for change. Most restaurants had outdated computer systems that weren’t connected to the cloud. Endeca founder Steve Papa was so impressed by the trio when they worked for him that he invested $500,000 — and eventually a total of $10 million.
Within three years, Toast had more than 1,000 customers and millions of dollars in revenue. Kent Bennett, partner at Bessemer Venture Partners, led the first VC investment round, $30 million, in January 2016. Major local customers today include Joanne Chang’s Flour Bakery chain.
Kathleen Turner, who runs two seafood restaurants on Boston’s North Shore, has used Toast’s offerings since 2019. Her labor costs had doubled over the previous five years, but Toast’s hand-held terminals and other products helped servers handle more tables and meant she needed support staff for fewer hours. Turner won’t put a number on the savings, but will say this: Without the improvements, “We would have been out of business.”
“Toast is becoming an increasingly important part of the restaurant model,” she says. “They’re a bright spot for the restaurant industry.”
Efficiency was never more important than during the pandemic, as restaurants navigated lockdowns and capacity limits, and shifted to takeout. Toast was not unscathed; it laid off half its workforce — 1,300 people.
Toast scrambled to enhance online ordering systems and QR code technology to let diners order and pay at outdoor tables. With the new features in high demand, revenue doubled to $1.7 billion in 2021 and gained another 60 percent last year, to $2.7 billion.
The company employs 2,000 more people than it did before the pandemic.
Toast’s success opened doors for other startups aiming at specific markets with cloud software and payments features, including auto repair shop-focused Shopmonkey and laundromat server Cents. Venture capitalists now seek such niche players, describing them as the “Toast of dentists” or the “Toast of parking lots.”
Toast has opened other doors, too. Narang, who was born in India and went to MIT, with his partners has focused on increasing diversity. Women make up 43 percent of Toast’s workforce, compared with an average of 25 percent at all local tech companies, according to estimates from industry group CompTIA. About 10 percent of Toast’s workers are Black or Hispanic, compared with 8 percent across the local industry.
Even while making progress on diversity, Toast’s stock took a beating as interest rates rose, recession threats grew, and consumer spending slowed. Toast’s stock is trading at less than half the $40 per share price from its September 2021 initial public offering.
Toast’s founders, however, have navigated difficult times before. They are positioning the company for the rebound, following new advances in robotics, payment systems, and artificial intelligence as they develop new products for restaurants.
“Innovation is kind of like catching a wave in surfing,” Fredette says. “If you’re not already swimming in the same direction, the wave is going to pass you by.”