Challenge an idea

MEMO

TO: CEO FROM: VP Product DATE: October 24, 2023 SUBJECT: Critical Assessment of Proposed US Expansion Plan

*

You asked me to challenge our US launch plan before next week’s board meeting. While expanding to the US is the right ambition eventually, taking this deck to the board in its current form exposes us to serious credibility and execution risks.

Below is an unvarnished breakdown of where the plan breaks down, the existential risks, what shouldn’t scare us, and an alternative path to present to the board.

---

1. What the Plan Gets Wrong

#### The TAM Calculation is a Fiction The deck calculates our TAM as 33M businesses $\times$ $150 = $5B. * 27.1M (82%) of those businesses are non-employers (sole proprietors). They do not run payroll. Selling payroll to someone with no employees is a non-starter. * Our true addressable market of employer SMBs is 6.1M businesses, not 33M. * The “even 1% is $50M” trope will instantly damage our credibility with board members who understand US market demographics.

#### The Sales Math is Mathematically Impossible Targeting $5M ARR in Year 1 at $150/year requires acquiring 33,333 net new customers. * With a team of 6 sales reps, that equates to 5,555 closed deals per rep per year, or ~23 closed deals per rep every single working day. * Even if we targeted our UK mid-tier ($620/year), each rep would need to close 5.5 deals per business day in a brand-new market with zero brand equity. Inside sales reps for SMB SaaS typically close 20–40 deals per month.

#### It Replicates Our Worst UK Cohort In the UK, micro-businesses ($\le$9 staff) represent 77% of our customers, but they suffer from catastrophic churn: * Sole traders: 18% 12-month retention (82% annual churn). * 2–9 staff: 33% 12-month retention (67% annual churn). Building a US go-to-market strategy around high-churn micro-businesses at $150/year guarantees we burn cash filling a leaky bucket.

---

2. What Would Sink Us

#### The 9-Month Compliance Wall vs. Q1 Launch US payroll is not a single product; it is a federation of 50 distinct state tax codes, local jurisdictions, reciprocity rules, and quarterly filing obligations. * Our engineering estimate is 9 months just to support the first 10 states. * Announcing a Q1 launch leaves product and engineering two options: launch a crippled product covering 2–3 states, or miss the launch date entirely. Selling payroll that cannot support a customer hiring an out-of-state remote worker leads immediately to compliance liability, tax penalties, and reputational ruin.

#### Dilution of UK Momentum & Budget Burn We have $3.9M ARR in the UK. A $2.5M capital outlay represents over 60% of our annual revenue. * Splitting engineering to build state tax engines will freeze UK product development for nearly a year. * $2.5M will vanish rapidly once factoring in 6 US base salaries, sales leadership, US legal/tax compliance, localized infrastructure, and paid customer acquisition. We risk running out of cash with a half-built US engine and a stalled UK business.

---

3. What’s Less Scary Than It Looks

#### The Competitor’s US Funding Round A competitor raising capital in the US does not mean they have won. * The US market is dominated by entrenched incumbents (Gusto, Rippling, ADP, Paychex). A UK competitor raising capital will face the exact same compliance, distribution, and CAC headwinds we would. * Raising money to chase micro-SMBs at low price points usually accelerates a competitor's burn, not their moat. We should let them spend heavily to educate the market while we execute deliberately.

#### Winning Larger SMBs (10–249 Staff) Our UK data shows that moving upmarket works: * 10–49 staff: 71% retention, $620 ARR (4.1x ARPU). * 50–249 staff: 78% retention, $2,400 ARR (16x ARPU). * Combined, these two segments represent only 23% of our UK customer count, but they generate over 60% of our revenue and virtually all of our net lifetime value. * In the US, there are 1.1 million businesses with 10–249 employees. We don’t need 33,000 customers; we need a few thousand high-retention accounts at a realistic US market price ($40–$100/month base + $6–$12/employee/month).

---

4. What We Should Propose Instead

Tell the board we are entering the US with a disciplined, phased strategy focused on high-retention economics rather than low-yield volume.

``` PHASE 1 (Months 1–6): UK Consolidation & US Technical Build ├── Target: Accelerate UK upmarket shift (10-249 staff) to self-fund expansion. ├── Product: Build US tax engines for Top 5 employer states (CA, TX, NY, FL, IL). └── GTM: Do NOT hire US reps yet. Evaluate payroll API partners (e.g., Check, Salsa) to eliminate the 9-month internal build entirely.

PHASE 2 (Months 7–12): Controlled Pilot (The 10–99 Staff Segment) ├── Focus: 10–99 employee segment; price at US parity ($1,500–$3,000/year). ├── Team: 2 senior US AE/consultative sellers + 1 US product compliance lead. └── Target: 250 customers, $500k ARR, >80% 12-month retention intent. ```

#### The Revised Board Pitch 1. Realistic TAM: Present the addressable market as 1.1M US businesses with 10–249 employees, representing a $2.5B–$4B TAM at standard US SaaS pricing ($2,000–$3,500 ARR per account). 2. Rationalized Y1 Goal: Target $500k–$750k ARR in Year 1 from a focused pilot in 3–5 key states, proving product-market fit and retention before scaling headcount. 3. Alternative Delivery Mechanism: Propose exploring white-label/embedded payroll infrastructure partners (e.g., Check Technologies) to compress our 9-month build into 60 days, offloading tax filing liabilities. 4. Capital Efficiency: Cap initial US allocation at $1.0M–$1.2M, tying the remaining budget to hitting retention milestones in the pilot cohort.

Let’s position Halyard to the board as a disciplined leadership team that understands unit economics and enterprise value, not one panicking over a competitor's press release.

MEMO

To: CEO From: VP Product Re: US launch plan: challenge before the board

You asked me to push hard, so I have. I think we should go to the US, but not with this plan. As written, the board will find the holes in it quickly, and the market will find the rest.

---

1. What the plan gets wrong

The market size counts businesses that won't buy payroll. Of the 33.2M US small businesses, 27.1M have no employees. A business with no staff has little use for payroll. Our own UK data points the same way: sole traders are 41% of our customers, but only 18% are still with us after 12 months.

The market that fits our product is the 1.1M US businesses with 10–249 employees. In the UK that segment:

• makes up 23% of our customers but about 63% of our revenue;
• keeps 71–78% of customers at 12 months, against 18–33% for smaller firms;
• pays a blended average of about $873 a year, not $150.

That puts the core US opportunity at about 1.1M × $873 ≈ $1B. The 5M employers with 1–9 staff add up to about $750M more at our current price, but UK retention suggests most of that revenue would leave within a year. The real figure is roughly $1–1.7B, not $5B. That is still huge compared with our $3.9M ARR. We simply don't need the inflated number, and leading with it costs us credibility.

The timeline is impossible. The deck says we launch in Q1. Engineering estimates 9 months to build tax rules for the first 10 states. We cannot sell US payroll before it calculates US payroll taxes. Realistically, the earliest launch is Q4, and only in 10 states.

The $5M year-one target fails on its own arithmetic. It took us five years to reach $3.9M in the UK.

At the mid-market price, each rep would need about 950 deals. These are considered purchases, and that volume isn't plausible. It is even less plausible when the product is only live for the last quarter of the year.

The budget is spent in the wrong order. If we hire six salespeople in Q1, we pay them for about nine months while they have nothing to sell. Much of the $2.5M would go on salaries before the product exists.

---

2. What would sink us

1. Payroll tax errors. Getting someone's pay or taxes wrong is not an ordinary bug. It creates penalties for our customers, refunds for us, and reputational damage in a market where nobody knows us yet. Rushing the tax engine to hit a sales date is the single biggest risk in this plan.
2. Selling to the wrong customers. If US sales chases volume at $150 among micro-businesses, UK data says we'd lose 67–82% of them within a year. We would be paying to acquire customers who leave, and the board would see revenue growth that isn't real.
3. Ten states may not cover our best customers. Companies with 10–249 staff are more likely to have employees in several states. If a prospect has people in a state we don't support, we lose the deal. We need data on how many states typical target customers operate in before we finalise the list.
4. Missing a target we set ourselves. If we commit to $5M and deliver a fraction of it, we lose the board's trust for the next fundraise. That is worse than setting a modest target and beating it.
5. Neglecting the UK. The UK business funds this expansion. Moving our best people to the US without a plan to protect UK growth puts our cash engine at risk.

---

3. What's less scary than it looks

• The competitor's raise. The US payroll market is not empty. Well-funded incumbents already exist, so "getting there first" isn't possible for anyone. Another entrant raising money doesn't change our costs, our product gaps or our timing. It is a poor reason to launch before we're ready.
• The 9-month build. It's real work, but it's bounded. We don't need 50 states on day one. We need the 10 states with the most 10–249-employee businesses. We should also assess licensing a US payroll tax engine instead of building one. That could shorten the timeline and reduce compliance risk, and we should know within a month whether it's viable.
• The smaller market size. A $1B core market means we need about 0.4% of it to triple the company. That is a stronger story than "1% of $5B," because it rests on segment data and retention we can prove.
• Our readiness. 71–78% retention in the UK mid-market is real evidence that the product works for these companies. We're not starting from zero. We're moving a proven product into a new market.

---

4. What I'd propose instead

Position: the US launch targets employers with 10–249 staff, priced like our UK mid-market (around $600–2,400 a year, validated with US prospects), not £120.

Phases, with spending released at each milestone:

Year-one targets, replacing $5M ARR: - payroll runs with no tax-filing errors; - 20–30 design partners, then a few hundred paying customers by year end (roughly $0.2–0.4M ARR at mid-market prices); - at least 70% of US customers staying through early renewal checkpoints, matching the UK mid-market; - evidence on deal size and sales cycle, so a year-two ARR target is grounded in data.

In parallel: keep investing in UK customers with 10–249 staff. They are our highest-value, highest-retention segment, and they fund all of this.

Before the board meeting, two housekeeping items: - Our segment table adds up to about $4.7M in revenue, but we report $3.9M ARR. We should reconcile this, likely churn timing or discounting, before the board asks. - We should remove the "1% of $5B" line entirely.

---

Bottom line: the US is the right ambition, but this plan has the wrong market size, the wrong customer, the wrong timeline and the wrong sequence. If we fix those four things, we go to the board with a plan they can approve and we can deliver.

To: CEO Subject: US launch — don’t take this plan to the board as written

Bottom line: The US could be a real opportunity, but this deck turns a large headline market into an unsupported year-one sales forecast. The biggest risk isn’t arriving late; it’s selling payroll before we can run it reliably in the states we promise to support.

What the plan gets wrong

• The TAM math is arithmetically fine and commercially misleading. The 33.2 million small-business count includes 27.1 million firms with no employees—about 82% of the total. That is not a credible proxy for payroll buyers. There are 6.1 million employer firms, including 1.1 million with 10–249 employees. Even those are not automatically our customers. Applying our UK price to every US small business assumes identical need, willingness to pay, and product fit.
• The UK data argues against targeting everyone. Retention is 18% for sole traders and 33% for firms with 2–9 staff, versus 71% for 10–49 and 78% for 50–249. Our best evidence points toward employers with more staff—not a mass-market pitch built on the largest, weakest-fit segment.
• The price and revenue baseline need reconciling. At $150 per year, $5 million ARR means roughly 33,300 customers. That is more than twice our current UK customer base, which took five years to build. Also, the UK segment counts and stated average revenues imply about $4.66 million in annual revenue, versus the reported $3.9 million ARR. These may use different definitions, but we must explain the $760,000 gap before using UK economics to price or forecast the US.
• “A competitor raised” is not a launch strategy. It may validate investor interest, but it tells us nothing about buyer demand for Halyard, our differentiation, acquisition cost, or which states and customer segments we can serve profitably.

What would sink it

The timeline is incompatible with the product plan. We estimate nine months to build payroll tax rules for the first 10 states; the deck promises a Q1 US launch. A launch without dependable tax calculations, filings, registrations, and support creates compliance exposure and destroys trust. “Ten states” is not the same as nationwide coverage, and the deck does not say what launch actually means.

The target compounds the problem. At the proposed price, we need 33,300 customers in year one—without a validated US product, channel, conversion rate, or sales cycle. Six sales hires do not make that forecast credible. The $2.5 million budget also needs to cover product, tax expertise, support, and go-to-market; the deck gives no cost or hiring ramp to show it can.

What’s less scary than it looks

The market does not need to be 33 million businesses to matter. The 6.1 million employer firms are a meaningful starting universe; at $150 per year, that price would imply a crude ceiling of about $915 million, not a forecast. The 1.1 million firms with 10–249 employees alone imply about $165 million at that same price. Those figures are still not a serviceable-market estimate, but they show we can pursue a focused wedge without pretending every sole proprietor is a prospect.

We also have useful evidence: five years of operating experience, 14,800 UK customers, and better retention among larger employers. That is a foundation for testing the US—not proof that the UK playbook transfers unchanged.

What I’d propose instead

Approve a staged US entry, not a Q1 national launch or a $5 million year-one commitment.

1. Choose a narrow first customer and geography. Start with employer businesses, prioritizing 10–49 staff; select states using verified prospect demand and implementation feasibility. Defer sole traders and the weakest-retaining segment until we have evidence they can work.
2. Build and validate before scaling sales. Recruit US design partners, test willingness to pay and workflows, and ship only when payroll accuracy, filing operations, and support are proven in the launch states. Treat the nine-month estimate as a planning constraint, not a promise to cover 10 states by Q1.
3. Stage the investment. Fund discovery, state selection, and the first production-ready footprint now. Hold most sales hiring until pilots demonstrate successful payroll cycles, repeatable acquisition, and acceptable retention and unit economics. Consider accountant or payroll-partner channels before assuming six direct sellers are the answer.
4. Return to the board with evidence. Bring a state-by-state scope, reconciled UK revenue data, tested US pricing, customer pipeline, launch-readiness criteria, and a bottom-up forecast tied to conversion and sales capacity.

We should move with urgency—but urgency should accelerate learning, not turn an unvalidated forecast into a launch promise.