toast’s aman narang and bvp’s kent bennett on how customer obsession is everything

Toast's Journey to a $5 Billion Valuation

Toast has successfully secured over $900 million in funding and currently boasts a valuation exceeding $5 billion. However, in 2011, the potential for such significant growth was far from certain.

Early Challenges and Founder Expertise

The company benefited from the expertise of its founder, Aman Narang, a former software engineer and product lead from Endeca, known for his rapid software development capabilities.

Despite this advantage, the ambitious scope of Toast’s vision presented considerable challenges, prompting initial skepticism from investors like Kent Bennett.

Toast: An Operating System for Restaurants

Toast functions as a comprehensive point-of-sale (POS) system for restaurants, essentially serving as an operating system for their operations.

It manages a wide range of functions, including online orders, delivery services, marketing initiatives, payroll processing, team management, and traditional point-of-sale transactions.

Initial Doubts and a Chance to Prove It

Bennett initially advised Narang against developing a restaurant POS system, citing its inherent complexity and the established nature of existing solutions.

Nevertheless, he offered the Toast team workspace within the Bessemer office, providing an opportunity to refine their product.

The Payments Platform Breakthrough

Bennett recounts a conversation with Narang where he learned about the team’s decision to build their own payments platform in response to customer frustrations with existing options.

Despite his initial reservations – “You’re not allowed to build payments!” – he recognized the potential impact of this addition on the product’s overall value and profitability.

A Turning Point: Margins and Business Viability

The combined margins from the payments platform and the POS system proved to be substantial, leading Bennett to realize the business’s potential.

“It hit me like a ton of bricks,” Bennett stated, recognizing the strong business model.

Bessemer's Investment and Continued Growth

This realization led to Bessemer’s leadership in the company’s Series B financing round in 2016.

A recent discussion between Bennett and Narang on Extra Crunch Live explored the details of their partnership, fundraising strategies, and key lessons learned.

The Importance of Passion and Problem Solving

Narang emphasized the importance of clearly articulating the problem being solved and demonstrating a unique ability to address it, particularly during fundraising.

He stressed the significance of genuine passion for the venture, acknowledging the long and challenging journey ahead.

Simplicity as a Core Principle

Narang highlighted that focusing on simplicity is not merely beneficial, but essential for Toast’s success.

This principle extended to product development and pricing, requiring a streamlining of the initial 100 SKUs into simpler, more accessible packages.

Pricing Strategy: Balancing Profitability and Customer Needs

Both Bennett and Narang underscored the continuous importance of evaluating pricing and packaging strategies.

Narang cautioned against prioritizing short-term gains over long-term customer relationships, emphasizing the need to balance profitability with customer needs.

Customer-Centric Approach to Success

Toast’s success is fundamentally rooted in its customer-centric approach, even extending to the development of a complex product tailored to a diverse industry.

The business model, fundraising efforts, and overall financial viability were all driven by a deep understanding of customer needs.

Product-Market Fit: The Key to Fundraising

Bennett emphasized the importance of demonstrating strong product-market fit to potential investors.

He favored “bottoms-up” pitches that showcased real customer experiences and tangible benefits over presentations focused solely on market size and macro trends.

Organic Growth and Investor Sensitivity

Strong product-market fit fosters organic growth, referrals, and higher close rates, making it a key indicator for investors.

This principle also applies to pricing strategies, which should be refined iteratively based on customer feedback.

Iterative Pricing and Customer Psychology

Bennett noted that pricing is a constant area of focus for companies, and rarely considered “perfect.”

He highlighted the psychological impact of pricing schemes, emphasizing the importance of avoiding complexity and ensuring a positive customer experience.

The Value of Continuous Improvement

The Extra Crunch Live episode, including the Pitch-Off segment, provides further insights into these strategies.

Extra Crunch Live is available every Wednesday at 3 p.m. EDT/noon PDT, with streaming access for members and an on-demand episode library.