Arena: Market Conditions Before Toast
Busy restaurants replacing a register or opening a new location · 2013 · United States
Disconnected workflowsSpecialist requirements
A busy restaurant ran orders, kitchen tickets and card payments through a point-of-sale system, usually from Micros or NCR, installed on the premises for $50,000 to $100,000 up front and replaced every five to seven years T2 T14 T21. Labor scheduling, bookkeeping and gift cards often came from separate vendors, and the register and the payment system could fall out of sync T27 T1. Newer tablet systems cost less but were built for any small merchant, from coffee shops to flower shops T14. A replacement had to handle menus, kitchen routing and staff routines, and be installed without stopping service.
How each step happened
Step 1 of 6 · 2013–15
All in on busy restaurants, built on site
Toast started from a failed product. Its 2012 app let diners pay by phone, but it worked with one point-of-sale system, and scaling it meant integrating with what felt like more than a hundred T14. Going door to door, the founders found operators uninterested in the app and eager to talk about the registers they disliked, so in early 2013 they decided to replace the register itself T14 T26. Other cloud systems served coffee shops, flower shops and small retailers alike. Narang says Toast went all in on busier restaurants, the kind that ran Micros or NCR T14, which needed more from a system and paid more for it.
That customer could only be served from inside the restaurant. The first, Dwell Time in Cambridge, went live in July 2013 and crashed within twenty minutes; the founders took orders on paper, then stayed on site installing, training and fixing T14. Fredette says they built five to ten features for each of the first ten or so customers until the requests converged T26. By December 2015 Bessemer found Toast closer in features to twenty-year-old enterprise systems than to iPad products, winning head-to-head against every major rival except on price at the low end; customers praised one system for ordering, kitchen routing, loyalty and online orders T2 T3.
Rivals Revel sold its iPad system to restaurants and retailers alike, from Dairy Queen to Goodwill, and configured it for movie theaters and grocery stores RVL-1 RVL-2. Bessemer judged it the only other cloud system able to compete for mid-market restaurant chains T2.
Vertical SpecializationCustomer DiscoveryEnd-to-End Workflow
Step 2 of 6 · 2013–18
Android hardware Toast could shape
The second founding choice was the hardware. Narang says the team chose Android because it was open enough for Toast to build its own devices, which he calls critical T14. For restaurants leaving on-premise systems, Android meant more device shapes at lower upfront cost than iPads T2, and David Jegen of F-Prime, an investor in Toast's 2015 round, says Toast expected Android devices to fall in cost faster T21.
Controlling the device let Toast fit it to the restaurant floor: servers carried table-side handhelds that sent orders straight to the kitchen, a feature customers praised by 2015 T2, and in 2018 Toast released Toast Go, a handheld it designed itself that combined hardware, software and payments T29. Because Toast supplied the terminals, handhelds and kitchen screens, the devices became one more part of the system a rival would have to replace (step 6).
Rivals Revel's founder says it built on the iPad because the device had just been released RVL-3. Jegen names Revel and TouchBistro as competitors that went to market on Apple tablets T21.
Step 3 of 6 · 2015–21
Processing in every account pays for hardware, installs and service
Software alone looked like a poor business. Kent Bennett of Bessemer declined to invest after seeing the first system: switching a restaurant was hard, and restaurants could not pay much for software T1. Months later Narang told him the team had built payments into the product, answering operators' complaints that registers and payment systems fell out of sync T1. Toast became the card processor in its accounts at each restaurant's existing rate and almost always won that business without objection T2; Chris Comparato, CEO from 2015, says it processed all of a restaurant's payments from the start T24.
The processing margin changed what Toast could charge. A legacy system cost $50,000 to $100,000 up front; Toast asked very little or nothing up front, then a monthly software fee T14. Subscriptions and processing together earned about 75% gross margin in 2015 T2, so Toast could treat hardware, installation and selling as costs recovered over the life of an account. In late 2015 it lost about $2,000 on each installation and earned back its acquisition spending in 14 months T2; the 2021 prospectus prices hardware and onboarding as customer acquisition tools T5. The margin paid for the on-site service in step 4 and fed the loans in step 5.
Rivals Revel connected payments through third-party integrations and launched its own processing, Revel Advantage, only in September 2017 RVL-4. By early 2017 its move from setup charges to subscriptions had raised its cash burn without making it profitable RVL-6, and Shift4's CEO later said Revel had overlooked payments for a long time RVL-7.
Embedded FinancePenetration PricingSubscription Pricing
Step 4 of 6 · 2014–23
On-site service sold neighborhood by neighborhood
This step began before payments: from the first installs Toast sold and served restaurants in person, and the processing margin later paid for it. Narang says Toast stayed in Boston at first because restaurateurs bought in person and needed service in person T14. It hired from restaurants; Comparato put the share of staff with restaurant experience at two in three T24. Support stayed in the United States, and Bessemer's calls and visits to 30 customers produced an informal net promoter score (a survey of how many customers would recommend a product) above 80 T2.
Selling followed the same local logic. To leave Boston, Fredette used an Endeca relationship with Gordon Food Service, a food distributor serving more than 100,000 locations, which sold Toast with its own food-costing service, opened Miami and Chicago, and supplied about a quarter of 2015 bookings T14 T2. Jonathan Vassil, head of sales from 2017, says owners on one block know one another, so small territories worked deeply won more often; Toast went years without a rep in California because the next rep did more good in Boston T6. By 2023 about three in four reps sold in the field, owning a territory, and about one deal in five came from a customer referral T6.
Rivals Bessemer recorded that Revel relied on cheaper offshore support that many customers disliked T2. In 2014 Revel's founder said its sales were ready and support had to catch up, and in 2015 customers publicly described its onboarding as a disaster RVL-1 RVL-6.
Implementation ServicesTerritory SalesDistribution PartnershipsCustomer Referrals
Step 5 of 6 · 2016–21
Payroll, loans and partner tools on the same records
With terminals, payments and menus already running through Toast, each new product started from the restaurant's own records. Bessemer's 2015 memo already recorded an open API, an inventory add-on that 10% of customers took in its first month, and single-location pilots that grew into multi-unit deals T2. In April 2016 Toast opened its point-of-sale data to five back-office, scheduling and loyalty vendors T27, and in July 2019 it bought StratEx to offer payroll built to work with the point of sale T23.
Processing made lending possible. Toast Capital, launched in November 2019, lends $5,000 to $250,000 and collects a fixed share of daily card sales T28. Because Toast already processes the payments, has done the anti-money-laundering checks and holds the bank account, Fredette says, it can underwrite automatically and fund the next day T22. By December 2021, 59% of Toast locations used four or more core products beyond the point of sale and payments, up from 37% two years earlier T7. Net revenue retention, a year's revenue from existing customers against the year before, was above 110% every year from 2015 T5. Michel Rbeiz, who runs fintech, says restaurants have little patience for extra offers, so each must solve a large problem T15.
Rivals Revel connected outside tools through its marketplace from 2016 RVL-4, but its investors took control and replaced the founder CEO in February 2017 RVL-5. With its own processing only from late 2017, Revel had no card-sales history to lend against RVL-4.
Multi-ProductLand and ExpandEmbedded Finance
Step 6 of 6 · 2015–26
Switching costs
Each earlier step left something in the restaurant that a rival would have to replace. Toast supplied the devices T29 and processed every payment T24; menus, kitchen routing and ordering hours are set up in its system T13; staff are trained on it T12; payroll runs on its time records T23; and Toast Capital loans are repaid from its card sales T28. Because the products are linked, a rival has to move all of them at once in a restaurant that cannot stop serving; Narang says owners compare switching systems to a root canal T14. In December 2015 Bessemer found churn came almost entirely from closures, none to another cloud system, with annual gross churn under 3% T2.
The hold has limits. In July 2023 Toast withdrew a new 99-cent fee on online orders after customers objected T9, and Toast itself won Tios Mexican Cafe from TouchBistro by handling installation and training on site T12. A rival that funds the move can cross the barrier, so the on-site service of step 4, paid for by the processing margin of step 3, mattered most: it put Toast into the restaurant first. By June 2026 Toast reported about 180,000 locations T10.
Rivals Revel sold to Shift4 in 2024 for $250M with about 18,000 locations; Shift4 planned to fold its product into SkyTab and move its merchants onto Shift4 payments RVL-7 RVL-8. Clover and Square hold the same kind of processing relationship with their restaurants T20.
Switching costsProduct tying & default bundles