Toast: The Restaurant Operating System - [Business Breakdowns, EP.119]

This is Zack Fuss, an investor at Irenic Capital, and today we’re breaking down the vertical market software business, Toast. Toast is a software platform built specifically for restaurants. Their operating system gives restauranteurs all the tools they need to serve customers, from taking orders to allocating shifts. It was founded in 2011 and went public a decade later. Today, it’s used by nearly 80,000 restaurants across the US. To breakdown Toast, I’m joined by Will Schreiber, the co-founder and CEO of Bottle – an ecommerce platform built for subscription businesses. We cover the different ways that Toast minimises the complexities of operating a restaurant, how their deep vertical focus has helped them outcompete Square, and how much room there is for potential growth. Please enjoy this breakdown of Toast.   For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.  ----- This episode is brought to you by Tegus, the modern research platform for leading investors. Stretch your research budget with flexible expert calls you can trust. At a fraction of the cost of traditional expert networks, Tegus customers pay only what an expert charges – with zero markups and no confusing call credits – netting an average 70% savings. Don’t want to conduct a full hour call? Tegus offers the ability to schedule 30-minutes, an offer you won’t find anywhere else. And they don’t stop there. With white-glove custom sourcing for every project and robust compliance measures, including a dedicated 50+ analyst team that vets every call transcript, Tegus ensures your privacy and protection. As the industry innovator for qualitative insights, Tegus helps you find the right experts you need at a quality and speed that can’t be matched. For a limited time, as a listener, you can trial Tegus for free by visiting tegus.co/patrick. ----- Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss | @ReustleMatt | @domcooke Show Notes (00:01:42) - (First question) - An overview of Toast (00:04:16) - Toast's origins and pivot to Point-of-Sale (POS) solutions (00:07:35) - Convincing restaurants to switch from antiquated systems to modern POS solutions (00:09:48) - The complexity of restaurant operations requires efficient POS systems (00:13:04) - An overview of the POS revenue model (00:17:16) - Addressable market and limiting it intentionally with pricing  (00:20:04) - How their tech expertise enabled them to build a hardware and software ecosystem (00:23:23) - The Toast network effect and their potential margin profile at full scale  (00:26:19) - Their revenue mix impacts its margin profile, with transaction revenue dominating (00:27:37) - How they aim to dominate the restaurant industry with comprehensive services (00:29:59) - APIs enable integration, yet in-house features may risk partner relationships (00:33:45) - The key risks for Toast moving forward (00:38:40) - Why expanding beyond restaurants could challenge Toast (00:41:02) - Third-party integrations may erode Toast's point-of-sale dominance (00:44:36) - Lessons learned from studying Toast