#080: The Story of Toast, Land & Expand Strategy, Happy July 4th!

One vSaaS breakdown. One biz story. One 'how to'. In your inbox once a week.

Jul 08, 2024

Toast: vSaaS for Restaurants

While drinking at a bar, three friends came up with an idea.

That idea would ultimately turn into a $13B publicly traded business.

Here is the CRAZY story:

It's 2011. Steve Papa, founder of Endeca, a software company he just sold to Oracle, calls Bessemer Ventures with a hot tip. "Three of my best engineers are working on something new that you would be crazy not to fund."

Steve Fredette, Aman Narang, and John Grimm founded Toast in 2011. They started as a mobile payments app. But, there wasn't a lot of demand for it. "It was not solving a big enough problem," Fredette said.

Fredette, Narang, and Grimm spent hours hanging out in Boston bars and cafes trying to figure out what to build. They eventually stumbled onto something interesting: For restaraunts to run their business, they had to work with 5+ different softwares.

One for payments, one to pay salaries, one for restaurant menus, one for maintaining inventory, etc. That's stupid. What if there was end-to-end solution that packaged all of these into one? Enter Toast.

So, in 2013, Toast started building and began with a better point-of-sale as their initial wedge. They raised a $500,000 seed round from their previous boss at Endeca, Steve Papa. Today, Steve's investment is worth billions.

In 2013, Toast acquired its first pilot customer. The Point Of Sale device

Fast forward to today, Toast is used by more than 25k restaurants and employs over 2,000 people. In FY 2021, the annual revenue for Toast was $1.70 billion, an increase of 107% from 2020.

Toast is a vertical SaaS company. They found a niche (restaurants) and started building tailor-made solutions for them. Initially, when the founders observed the old-fashioned POS devices, they decided built a better one.

But they didn't stop there. They built a solution that would enable restaurant owners to run their entire business. It was so good that Bessemer VP wrote in a 2015 investment memo: "Feature for feature, Toast is already in parody with the >20 year old enterprise systems."

Restaurants were passed by when it came to modern all-in-one software to run their businesses. They found themselves stitching together 5+ antiquated tools that were slow and painful. When Toast came along with something much newer and better, it hit.

If their old systems crashed, a customer would have to pay a tech guy $200 to come fix it. With Toast, since everything was on cloud, fixing tech problems became a cakewalk. 5 minutes and the issue was solved.

The strategy to grow as a vertical SaaS company is actually quite simple:

Get your foot in the door with a wedge product
Build more and more features until you have something that can run an end users entire business

Toast did just that.

But it wasn’t all rainbows and unicorns.

After COVID-19 jolted the whole world, the restaurant industry was at its worst.

Toast HAD to expand quickly to include features needed in a COVID-19 world. They built and iterated FAST, launching:

🚧 Curbside notifications for takeout

🚚 Flat-fee deliveries

📱Contact-free mobile payments

They never stopped listening to their customers. They looked at the problems they faced, and quickly solved them with maniacal, relentless focus.

What you can learn from Toast's story:

Pick a market and launch an awesome wedge product
Get this wedge into as many peoples hands
Expand product suite based on customer feedback
Build and ship fast

The next era of software will be industry focused.

We've seen it with:

Procore for construction
Veeva for life sciences
Squire for barbershops

My reccomendation?

Find an old-school industry with old-school technology
Build a vertical SaaS platform
Change the world

One ‘How To’:

Land & Expand

Many Silicon Valley software companies use the SAME strategy to grow like crazy. It's called Land & Expand. WHAT IT IS and HOW TO use it to become an industry titan:

The LAND & EXPAND (L&E) strategy is widely used in the software world. What is it?

Land: Selling an initial product(s) to net NEW customers.
Expand: Selling other products, seats, or usage to EXISTING customers.

Land products should have as little friction as possible. Low friction equals:

Pricing is NOT a blocker.
Implementation is NOT a blocker.
The value proposition is crystal clear.

You're just trying to get in the door with a new customer and prove your value. Docsend is a great example of a KILLER land product. What does it do? Enables you to send documents that are SECURE (they're watermarked with the end users email), password-protected, and come with a timer (you can only access them for a certain period of time).

Why is it a great land product?

There is no initial cost, with a freemium model you're taking zero risk when you jump in.
You don't have to talk to a sales person to start.
You can implement the product without a customer success team.

Another great LAND product? Twilio. What does it do?

White label text messaging plug-in. Wan't texting in your product? You can build it entirely on your own, or just plug-in Twilio.

Why is it a great land product?

Initially, it's very cheap.
You can implement it with a few lines of code.
Developers don't have to talk to anyone (Big secret with engineers? They don't want to talk to anyone!)

When you nail the 'land' part of SaaS, you can 'expand'.

So let's talk expansion.

Expand products are often MUCH easier to sell because you've already proven your value.

The client trusts you
They know you can deliver

They're willing to take bigger risks when it comes to cost, implementation timelines, etc.

Dropbox is great at expansion. It does so via storage limits. This is SO sticky. You're already in it. You're not going to move a bunch of files elsewhere at this point. The pricing preys on your laziness.

The result?

Dropbox HAS you now as a paid user.

Airtable is also fantastic at expansion. They do so via freemium SaaS features as well as seats. Wan't to unlock more rows because you've spent the last week building out the first part of your project? Wan't to invite co-workers to the board you just spent hours on?

GOT YA !

When you nail Land+Expand magic happens:

As a company scales the only way to continue to grow quickly is via strong customer expansion (I understand this is a bit outdated and the market has definetly turned but you get the point…).

Net Revenue Retention (the performance metric that shows how you grow pricing with existing customers) is the 8th wonder of the world...

So how does one implement the Land & Expand strategy into their software business?

Step #1. Break up your software offering.

Most first time software founders build out their offering and bundle the entire thing under one price. This is such a big mistake. I did this at one point.

DON'T DO THIS. The amount of revenue you'll miss out on is MASSIVE.

Step #2. Identify your LAND products.

Identify which part of your software offering is best for land. Remember, land products should have as LITTLE friction as possible. Expensive pricing, a lot of change required, long implementation cycles are all examples of high friction.

Step #3. Focus your marketing/sales teams on LAND products.

They need to be hyper focused on JUST getting people in the door. Their effectiveness should dramatically increase because they don't need to learn the ins and outs of every tool you offer.

Step #4. Identify your EXPAND products.

The customer trusts you now. You can introduce more cost and more risk at this point. Identify which parts of your software fit better as an expansion offering.

Step #5. Focus your customer success teams on EXPAND products.

Customer Success teams should be focused initially on implementing your LAND products, and then going ALL IN on your expansion products.

Show your customers what they're missing out on!

One America Appreciation Post
vSaaS Breakdown:

Hope you all had a great July 4th filled with family, friends, fireworks and/or food!

Never forget the brave men and women who risked or gave up their lives, wealth, land, etc. to pursue independence.

Ben Franklin, John Adams, George Washington, and many many more.

We are the benefactors and we can't ever forget what they did for us...

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