We believe that many SMB and vertical SaaS companies are starting to exhibit platform characteristics. Some of these companies are beginning to build consumer and supplier networks that are dramatically expanding the SaaS model.
Toast is a pioneer in the space, powering restaurants of all sizes with a technology platform that helps them streamline operations, increase revenue and deliver amazing guest experiences. No one lights up a room on these topics more than Tim Barash, Chief Business Officer and CFO at Toast. I’m also excited to welcome Tim as an Executive Advisor to TCV, where he will be working with TCV portfolio companies and helping us to assess new opportunities.
Dave: Tim, welcome to TCV, and thanks so much for spending time to share your thoughts with us!
Tim: I am excited to be a part of the team — it’s been great to
meet with some of the founders of this incredible new class of companies,
changing the rules of what has traditionally been considered SaaS.
Dave: Tell us about Toast. What is the company today, what’s its mission, and where is it going?
Tim: Toast is a company that is transforming the hospitality industry
with an end-to-end platform, extending from a core commerce engine into guest
experience, employee engagement, and financial services. Our mission is to
empower the restaurant community to delight guests, do what they love, and
thrive. We as Toasters are very passionate about bringing this mission to life
for our customers. We launched our core offering in 2013 to the first few
restaurants and today are serving tens of thousands of customers while still
growing over 100%, with over 1,600 employees globally. It’s been a wild ride
these past five years and it’s a really fun space with a creative and diverse
Dave: You and I recently hosted an offsite on “SaaS as a Platform.” Why is Toast a platform to its restaurant customers? If you’re the CEO of a SaaS company, how do you know that you are or could be a platform?
Tim: Toast really extends all the way from
the front of house to the back of the house, bringing restaurants into the 21st
century with a cloud and mobility-first operating system, including hardware such
as self-ordering kiosks and handhelds for order & pay-at-the-table and
guest feedback. We’ve evolved from this core system of record into other high-value
offerings, including payment processing, payroll & employee management
software, credit and consumer-facing apps, and we’ve had great feedback from
our customer base that they want us to continue to solve more problems for them
between our first-party offerings and our deep partner network.
think being the Platform or System of Record generally means you
have the most mindshare and time spent on your system relative to others the
same user may have. As important is where the data
resides; in the restaurant vertical, the core data sets are menus, orders,
guest data, and employee data, whereas other verticals like doctor’s offices
might be more around scheduling, billing/invoicing, and insurance connectors. If the key personas are logging in
multiple times per day and using your tool as the system of record for their
most important data, it’s likely there are multiple platform opportunities to
exploit to make their lives even easier.
Let’s first talk about payments. Generically the opportunity in payments is for
SaaS companies to start monetizing flow through GMV. Why is this good for your
customers, the end merchant, and your customer’s customer, the merchant’s
Tim: A lot of companies are starting to integrate payments
mostly because it creates a much smoother, simpler experience for the merchant.
It starts with onboarding and spans ongoing support and easy reconciliation of
transactions and payments through the same software. Small businesses generally
do not like having to deal with multiple vendors when they can use one holistic
solution for what they are trying to get done.
What’s really compelling is what you
can do for the merchant and the end user once you have payments integrated by capturing
more data. An example is identifying the end user and better understand buying
patterns and be able to help small businesses market to their customers in a
more targeted and automated way.
There’s also very significant margin
enhancement if you can get payments right, which can fuel higher investment
levels in areas like Customer Success and R&D to deliver even more customer
value by displacing a horizontal payments vendor.
I know you could hold a master class on just payments, but quickly what are
three tips for getting started? Should you make them mandatory, or an option?
Tim: Understanding your strengths and weaknesses as a team here
is important — you can get started with a referral partnership or go full bore
and become a payment facilitator and handle all the risk, underwriting, and
merchant-facing tech. It really depends on the available talent, domain
knowledge, and capital access to get something off the ground. Once you’ve
decided what to go with, here are three tips:
- Build a dedicated team that
understands your payments space at a deep level — there can be a lot of new
complexity across product, tech, risk/underwriting, pricing, go-to-market
strategy, and customer success that may look and feel different from your
existing business. Make sure at least 1-2 people are coming in with real
payments or fintech experience. Card-present vs. eCommerce experience will
likely be something to think about here.
- Resist the urge to over-monetize or
make pricing overly complex — traditionally there have been some bad actors in
the payments world and, as a result, a lot of these companies have low NPS and
very high churn — great SaaS companies have the opposite, so don’t tempt fate
for a few extra basis points.
- If you are doing anything other than
an arms-length referral partnership, you should be taking payments-specific
risk, fraud, and security very seriously.
Dave: Ok, so once you’ve launched payments, how would you extend next? I know it depends, so maybe talk about where you would go if you were a front office offering and a back-office offering. Or better yet, what is the prioritization framework for the different offerings?
Tim: I think the prioritization framework begins with mission —
why does your company exist and what are the biggest problems in your industry
that you have an unfair right to help solve? As an example, Toast is the source
of lots of employee data and we kept hearing from our customers that, in the
current macro environment, labor was their biggest concern, so we had both the
market need and the natural entry point to get deeper into payroll and employee
On back-of-office solutions it’s
likely things like payments, credit, payroll, insurance, and B2B/vendor
marketplaces can be interesting depending on the platform and vertical. For
front-of-house it’s likely more about CRM, marketing tools, loyalty programs,
other commerce touchpoints, and the holy grail of leveraging supply of SMB’s to
create a two-sided consumer marketplace. That said, there
aren’t many companies that have made the B2B2C transition, yet it can be a tremendous value creator.
Credit is a big step change because it involves a balance sheet and
underwriting to risk. What is your take?
Tim: I think this really depends on the execution muscle of your
company — if you’ve already gone deep on something like payments, you may have
some experience on the fraud and underwriting side, but getting into credit ups
the ante in a big way. You need to feel confident you have some really strong
players on data science, finance, and risk to go after this yourself. Starting
with a partnership with a Kabbage, Fundbox, or OnDeck could be a way to dip the
toe in the water before putting your capital at risk or trying to attract
outside investors to supply the capital for a credit offering.
If you are going after this
yourself, you will almost definitely want to find outside capital to offload
most of the risk and balance sheet implications of a credit business, both for
optics reasons with investors and because your capital is better put to use
hiring engineering, sales, etc. than lending to your customers.
Dave: How about payroll? Big dollars given the per employee model. How do you know there’s real demand for payroll? Given the 50-state nature, would you do this in-house, partner, or buy?
Tim: If I think about this space, the only software business
that didn’t have HCM/HRIS at its core that’s done this really well is Intuit,
though Square is also starting to gain traction in their new offerings. Payroll/HCM
is its own beast with its own ecosystem of products from worker’s comp and
healthcare to newer technology offerings like same-day pay and employee
management solutions. Similar to payments, capital, marketplaces, and other
platform plays, the decision on whether to extend is all about whether you have
a natural right to play. For Toast, we have restaurant employees clocking in
and out every day on our platform, and managers/owners running staffing reports
and approving hours before downloading the data and uploading to a payroll/HCM
solution. This made it a pretty natural move to solve this disjointed
experience for our customers.
If you’ve got the natural right to
play, demand is probably dependent on the complexity in your vertical — if
your customers only have 1-5 employees and not a lot of complexity around time
and attendance, they may be using an offering from Intuit through their
accounting package, or Gusto, or some other inexpensive and easy solution,
making it more difficult to displace.
In terms of build/partner/buy, this
could be a long slog to build, because of all the regulatory/compliance
elements. Depending on your scale, partnering is likely the best way to enter
into the space and learn this side of the business. Just be careful as one of
the reasons to get into payroll/HCM is that it’s a fairly sticky product.
Ok, let’s get into the next-level network effects for SaaS companies. Most two-level
networks tend to be “Big B to small B” in a buyer/supplier relationship. TCV invested
in three of them over the years. To give the theme a plug — Ariba in
procurement, CCC in the auto industry, and Avetta in supplier information management and
compliance. You sell into large company buyers and help them connect more efficiently
to smaller/SMB consumers. Winning into the big buyers gives you a strong value
proposition to small suppliers and gaining more suppliers in your network makes
you even more attractive to the big buyers. It’s a virtuous cycle.
every SaaS company, particularly vertical and SMB providers, can look to
leverage consumer, employee, and supplier networks. What’s your take?
Tim: It’s a really exciting play that is starting to develop in
SaaS. If done correctly, it can be a game changer in helping SMBs get the scale
advantages of larger enterprises and change their businesses for the better.
Let’s take supplier networks first. Who is doing a good job getting into the
Tim: I think you just hit a few of the strong players earlier. What
CCC has done with the auto parts marketplace is really exciting and a playbook
that could be run by a lot of SaaS platforms in other verticals, especially
something like construction or home services. I’ve seen a lot of startups try
to create the supplier marketplaces in industries such as dental offices,
restaurants, and others, but the standalone model can be difficult because they
aren’t starting with one side of the marketplace already built up — that’s what’s
so exciting about these platform opportunities for existing SaaS companies.
How about employees?
Tim: There are lot of interesting companies out there. For
example, SnagAjob and ZipRecruiter are working on building out the marketplace.
I think ZipRecruiter has been a really interesting story as they did leverage
existing relationship with employers to create their marketplace. Over time, I
think we will see a lot more of these models. There have been a few entrants
into the “LinkedIn of hourly workers” space, and time will tell if something
like that will be created or if more mindshare will go to vertical-specific
SaaS/Employee Network plays. It’s interesting to think about the marginal
utility of a horizontal employee network, certainly there are some generalists
in this employee population but also a lot of specialization in specific trades
Consumers is probably where the big dollars are. Marketplaces regularly capture
10-40% of GMV to deliver consumers. How
can SaaS companies partake of the consumer opportunity?
Tim: I think it heavily depends on how valuable the supply side
of the marketplace is. There are verticals including food, certain home
services, hotels, etc. where quality and user-specific preference is going to
really matter. If you have really compelling supply (especially if it is hard
to access online), you can get real leverage in building out a consumer
marketplace. If it’s something like transportation, it may be harder to have
any real edge against a standalone marketplace startup.
If you are in a position to
capitalize on a consumer network, I think creating a separate team to go after
that opportunity in a big way is likely the right way to go as so many parts of
the business will be different than your core SaaS team is used to working on. You
want the unfair advantage of owning supply without a handicap of having a team
that hasn’t built a consumer business before.
Well Tim, I know we could go on for hours on this topic. Thanks so much for
taking the time today, and great to have you as part of the TCV team. I’m
excited to work with you.
Tim Barash is an Executive Advisor at TCV.
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