1Mby1M Deal Radar 2011: ONOSYS, Cleveland, Ohio

At the beginning of the 1995 movie “The Net,” Sandra Bullock is seen ordering a pizza online. What seemed like a novel concept back then is almost commonplace today. According to the twentysomething founders of ONOSYS (Online Ordering Systems), Stan Garber, Alex Yakubovich and Oleg Fridman, online ordering sales are growing at 30% to 50% annually. Small wonder the founders created a software product that would make it easy and affordable for restaurants to offer their customers an alternative take-out ordering method.

ONOSYS is a Cleveland, Ohio–based company that develops mobile and online ordering systems for restaurant chains. The company services over 75 brands including Papa John’s International, Panera, Applebee’s, Jersey Mike’s Subs, Panda Restaurant Group and numerous others.

Garber, who leads the company’s sales effort, started marketing ONOSYS by knocking on restaurateurs’ doors to persuade them to trust their online ordering systems to a tiny tech startup run by three college guys. Yakubovich, who emigrated with his family from Moscow, Russia, to the U.S. when he was six years old, leads operations and makes sure every client’s system functions correctly. Fridman, who emigrated with his family from Kiev, Ukraine, to the U.S. when he was five, leads all technology efforts.

Garber, Yakubovich and Fridman founded their first company, O-Web Technologies, while studying at Case Western Reserve University in 2003, to provide interactive media services to Cleveland area businesses. To get the business started, each chipped in $75 to buy a business license and pay for a tank of gas to meet the company’s first client. The founders sold O-Web Technologies to Thin Solutions in 2008 to focus on ONOSYS.

In 2005, there was a huge explosion in buying products online, and the founders saw an opportunity to capitalize on the lack of restaurants selling food through online ordering. The first version of the company’s online ordering software was developed for a local pizza restaurant that the founders frequented. The company received major traction in that segment by building a solid product that could handle myriad pizza modifications like toppings, crust, sizes and specialties. ONOSYS also developed a simple pricing model that everybody could understand.

Garber, Yakubovich and Fridman started marketing the software door to door. At that time, the company’s leading competitors, of which they had few, were Kudzu Interactive, OrderTalk, and Takeout Tech, none of which, the founders say, offered the full package of a solid online ordering system with attractive feature sets, great customer service and support for the restaurant’s corporate branding. ONOSYS’s goal was to build upon those three pillars.

Today, the founders focus on several segments of the food industry. A part of the current go-to-market strategy is to have the product be an extremely low entry cost to the restaurant chain, which typically incurs large costs when implementing a large technology platform.

At first, clients paid $50 per month and $0.07 per transaction. The founders switched to a model of $2 a day per location when those clients started saying that ONOSYS was charging too much. Today, pricing is determined on a client level but the range is $2 to $3 a day per location, depending on the technology integration requirements. Additionally, a setup fee is charged to help reduce the large up-front expense, which will vary based on the restaurant chain’s requirements.

Most of the industry still charges transaction fees or a percentage of each order. ONOSYS, on the other hand, continues to charge its clients a flat rate, regardless of the number of orders they receive. For its flat monthly fee per location, a restaurant chain receives an online ordering solution, a mobile ordering solution, a means to see the average ticket increase 25% to 30%, a tool that will collect all the chain’s customer history and marketing data, and so on. All of these factors result in the restaurant’s ROI being achieved within a few months of launching online ordering.

The U.S. market has more than 500,000 restaurant chain locations. ONOSYS currently focuses on restaurant chains with more than 50 locations that do over 5% of their business through takeout sales. Garber, Yakubovich and Fridman intend to get as many restaurant chain locations as possible up and running with online ordering. The top target segments are Pizza (i.e., Papa John’s), Fast-Casual (i.e., Tropical Smoothie), Catering (i.e., Panera), Sandwiches (i.e., Jersey Mike’s) and Casual Sit-Down (i.e., Applebee’s) restaurants. ONOSYS currently supports 75 restaurant chains and will have more than 4,000 locations online before the end of 2011, and its system has more than 2.1 million users across all restaurant brands.

The company’s internal costs can range from $10,000 to $40,000 per implementation, and clients typically start generating profit six months after launch. ONOSYS has passed the early-adopter stage and is moving toward the growth stage, doubling its revenue/install base every year for the last four years. Revenue for 2011 reached $1.5 million to $2 million.

The founders largely bootstrapped the company and saved money on business travel by sleeping at the airport instead of getting a hotel or by sharing one room. After graduating from college in 2007, Garber, Yakubovich and Fridman raised one round of financing for $500,000 from Zapis Capital. The discussion of raising another round in 2012 to enhance the ONOSYS product offering has come up, but the company has all the funds it needs to keep up with its current growth rate.

Garber, Yakubovich and Fridman provide perks for their team of 15 full-time employees like a ping-pong table, massage chair, popcorn machine, and darts. The founders also offer unlimited vacation days as well as a personal space budget that allows each team member to create the ideal work space, which helps with productivity and comfort.  At each units-launched milestone, the team does something fun together outside of work such as baseball games, a barbecue and even a trip to Washington, DC for the Jon Stewart “Rally to Restore Sanity” show.

Rather than thinking about a possible exit, Garber, Yakubovich and Fridman plan to focus on expanding ONOSYS to be a $10 million company and beyond.

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This segment is a part in the series : 1Mby1M Deal Radar 2011