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Scott Kirsner | Innovation Economy

Toast finds its bread-and-butter business

Aman Narang and Steve Fredette, two of the cofounders of Boston startup Toast. Scott Kirsner For the Boston Globe

Six years ago, I went to a Kendall Square gastropub for lunch with Steve Fredette, an entrepreneur who wanted to show me a new mobile app he had built. It would let a group of diners see what each person had ordered, split the check equitably, and pay with a credit card as soon as they were ready to leave — without waiting for the server to make two more trips to the table.

The demo didn’t go well. And Toast, the company that Fredette had started with two former colleagues, didn’t exactly make the jump to light-speed afterward. Its app was never launched in a second restaurant.

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“I’d been sitting on my couch for nine months,” Fredette says. “My wife was wondering when I would get a real job.” He and cofounders Aman Narang and Jonathan Grimm started taking hourly consulting work to pay the bills.

Today, Toast has 1,000 employees. The Boston company has raised $249 million in venture capital funding. Last year, Toast was ranked third on a list of the fastest-growing tech businesses in North America, a list compiled by Deloitte, the consulting firm.

What happened?

Toast’s founders started off by focusing on some obvious problems they’d run into themselves, Narang says: the need to split a check when dining with a group, and the frustration with having to get a waiter’s attention to settle the bill.

But that initial product didn’t really click, he admits. Instead, in the process of building it, Toast’s founders noticed that most restaurants still relied on antiquated and expensive Windows-based cash-register systems from the 1990s.

“We had this light bulb moment,” Narang says. “It was the tech infrastructure in restaurants that kept us from building something better in that first phase of the company.” So why not build an entire order-taking and cash-register system from the ground up, using cloud-based technology and hardware that could run Google’s Android operating system? It was a much more ambitious vision, he says, but “once we started working on that, the customers sort of led us.”

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The customers — restaurant owners and managers — were fairly demanding.

Stone Hearth Pizza needed the ability for a customer to specify different toppings for the left and right halves of a pizza. Others wanted to capture diners’ e-mail addresses and give them credit for each visit, as part of a loyalty program. Fancier restaurants needed course and table numbers attached to each dish, so the kitchen would get information on what to prepare when, and whom to deliver it to.

Toast not only coded those needs into the software, but designed its own hardware, like a hand-held device used at the casual seafood spot Eventide Oyster Co. to take orders when lines are long, capture your phone number, and send you a text when your order is ready.

“When we invested, I spoke to over 100 customers and asked them what feature they loved from the product,” says Kent Bennett, an investor at Bessemer Venture Partners who sits on Toast’s board of directors. “Normally, I’d hear one killer thing, but here I heard five or 10 things, all meaningful, but different restaurants had a different favorite feature. The reality is that the legacy players had run an oligopoly for decades and were severely lacking on the feature front.”

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Those big “legacy players” were established register makers like NCR (founded in 1884) and Micros Systems (founded in 1977, and now part of Oracle.) But there also were fast-moving startups in the market — companies like Revel Systems, Clover, and Square.

Initially, even people who knew Toast’s founders were wary of how difficult it would be to sell technology to the restaurant industry. You typically have to visit an eatery in person to make the sale, as opposed to selling by e-mail or phone.

“My initial concern was the cost of selling,” says Steve Papa, the former CEO of Endeca, the software company that Narang, Fredette, and Grimm had worked for before starting Toast. And Fredette ackowledges that as the company tried to expand beyond Boston, there were other cities where “we had sort of a ragtag band of sales reps. It didn’t feel like it was smooth.” Some of the early sales representatives needed the boot, he says. Now, Toast has sales reps in 30 US cities.

The sales pitch that eventually resonated, Narang says, was helping restaurants to turn over tables faster when they’re busy, and to generate additional business through online ordering and loyalty programs when they are less busy.

Also, it was key to explain that managers could access their financial and inventory data from a laptop or phone, rather than by showing up early or staying late at the restaurant to do that work. “That was huge,” Fredette says. “It meant that they could spend more time with their family.”

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For Toast as a business, it was crucial that it would generate revenue from selling hardware (a basic register setup starts at $900), software ($80 per month), installation services, and credit card processing. “I think that it is important for all companies to have multiple revenue streams,” says Papa, who was Toast’s first investor.

Six years after that lunch in Kendall Square with Fredette, Toast has “tens of thousands of restaurant customers across all 50 states,” according to spokeswoman Karen DeVincent. When Forbes Magazine this month released its list of 100 of the most promising privately held cloud-based software companies, Toast showed up at number 29 — the highest spot for a Massachusetts firm.

After the company’s latest funding infusion, in July, Toast’s backers pegged its value at $1.4 billion, which creates some intense expectations for continued growth, and an eventual public offering of stock or acquisition by a larger company.

Toast has become one of the hottest startups in Boston, but it hasn’t forgotten how tough it was at the start. As the company has designed and installed its own register technology, the developers have been conscientious about making it easy for smaller players to build software and apps that easily tie into their systems — just as they’d tried to do in the early days.


Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner and on betaboston.com.