Toast — Built to Serve

Dave Yuan in conversation with Matt Kaplan, SVP of Product at Toast — the case study for the rest of The Vertical SaaS Knowledge Project.

The numbers: 57k+ US locations, $0 to $568M ARR in ten years, first to embed things like payments and payroll. The market framing: restaurants are the third place people gather after home and the office, one of the biggest location TAMs, and incredibly dense — often several on a single city block.

The best argument in it is about working in vertical markets at all:

“For product folks, vertical SaaS is a dream job because you can discover so many adjacent problems just by staying very close to your customers.”

Kaplan’s diagnosis of the horizontal alternative: those companies fear that narrowing focus limits TAM, so they end up solving problems for everyone and lose the ability to go deep for anyone.

Two mechanisms for staying close to customers who aren’t at a computer: a Customer Advisory Board drawn from a deliberate cross-section of restaurants, and a “Test Kitchen” where customers taste features at alpha and beta. On inclusivity — 40% of restaurant owners and nearly half of all restaurant workers are minorities — they brought in a research service to run accessibility testing with people with disabilities.

And a correction to conventional wisdom: “We often say it’s easier to sell a product that drives revenue than one that lowers costs, but for vertical SaaS it may not matter where you start, so long as you solve an acute problem and then expand from there.”

Notes

• Toast Vision
  • Outside of home and the office, restaurants are the third place that we gather the most.
  • They are one of the biggest location TAMs and incredibly high density—oftentimes having multiple restaurants all on a city block.
  • Toast belongs in the pantheon of software companies. It serves 57k+ locations in the U.S., went from 0 to 500M+ in ARR ($568M at the end of 2021) in 10 years, and has been the first to embed things like payments and payroll.
  • Earlier this year, I interviewed Tidemark Fellow and Toast CEO Chris Comparato on the company’s “Better Together” corporate strategy.
  • Toast’s vision is to enrich the food experience for all. We do that by helping the restaurant community delight their guests, do what they love, and thrive.
  • For restaurant owners to thrive these days, it takes more than great food, great service, and hard work. They now need to be experts in digital marketing, technology, finance, HR, and law without having the benefit of an executive team. They have to manage it all, so having a trusted partner like Toast who provides technology solutions that “just work” is critical.
• Unique about working in vertical markets?
  • Vertical SaaS allows you to go really deep with your customers. As a product leader, I wouldn’t want to work in any other type of company now that I’ve experienced the difference. When I pitch Toast to prospective candidates, especially those in Product and Design, I talk about our ability to focus on a single customer type (i.e., restaurants) and solve their core problems.
    • I.e. you can build many products for one customers or a single product for a variety of customers
  • Oftentimes, horizontal product companies are too concerned that narrowing their focus on a single customer type will limit their TAM. As a result, they end up solving problems for everyone, which limits their ability to go deep into their customers’ business.
  • ==For product folks, vertical SaaS is a dream job because you can discover so many adjacent problems just by staying very close to your customers.==
• Staying close to customers who aren’t in front of a computer
  • One example of this is our Customer Advisory Board which is made up of a diverse cross-section of customers and represents a wide variety of restaurants whom we meet with regularly.
  • We recently launched the “Test Kitchen” which allows customers to provide feedback on early concepts and “taste” new features while they’re still in the alpha and beta stage.
• Inclusivity
  • When you look at the restaurant business, 40% of owners and nearly half of all restaurant workers are minorities. It’s our responsibility to ensure our products meet the needs of all owners, their employees, and guests.
  • As a result, we started using a research service called Fable which helps us connect with people with disabilities for user research and accessibility testing.
• Control Points
  • We tend to think of our control points as the interactions between restaurants and their key stakeholders (e.g., guests, employees, suppliers). We discovered this is more of a control tower or stack that’s made up of the stakeholder experience (e.g., guest) at the top, the interactions (e.g., ordering) in the middle, and the value exchange (e.g., payments) at the bottom.
  • We often say it’s easier to sell a product that drives revenue than one that lowers costs, but for vertical SaaS it may not matter where you start, so long as you solve an acute problem and then expand from there.
  • This is how one can disrupt the all-in-one, legacy players mentioned in the “Integrate and Surround” section. You can pick a place within the stack to innovate and expand from there.
• Toast’s Multi-Product Journey
  • We started with a cloud-based point-of-sale but now offer digital ordering apps, martech solutions, payroll and team management, back office automation, and financial products like lending and debit cards.
  • Better Together became a rallying cry within the organization and helped us prioritize cross-team improvements in product, packaging, and customer support.
• Super Angels