Develop product strategy

To: CEO and Executive Team From: VP Product Subject: Next year’s strategy: win the mid-market, fix the cost to serve

Diagnosis

I think you’re wrong that enterprise should be our primary strategy next year. Enterprise can be a selective opportunity, but the evidence does not support building the company around it.

Mid-market is our strongest growth engine: it has the best retention (118% net revenue retention, 7% logo churn), a 61% win rate against our main competitor, and clear expansion paths through more locations and seats. Its requested improvements—multi-location reporting, payroll integrations and shift templates—reinforce the core scheduling product rather than pull us into one-off work. At $14,500 average ARR, it represents roughly $12.9 million of ARR across 890 customers.

Enterprise has only 34 customers and about $3.3 million of ARR. Its economics and delivery model are less attractive: 64% gross margin, $21,000 annual support cost per customer, 26-month reported CAC payback, and a nine-month sales cycle. Five of the last eight deals required custom features, consuming about 70 engineer-weeks in total. Hiring 10 AEs and building custom workflows would scale a motion we have not shown is repeatable. SSO and audit logs may be worthwhile if they serve a broader, standard product—not as the opening move in a bespoke enterprise program.

SMB is also not where we should prioritize growth investment. It has 6,200 customers, but 34% annual logo churn, 88% NRR, and 62% of support tickets. Unlimited phone support on the $79 plan appears poorly matched to the segment’s economics.

One caution: the reported payback figures do not reconcile consistently with ARR, gross margin and support cost. We should standardize their definition before using them to allocate capital.

Guiding policy

Play to win multi-location mid-market employers with hourly workforces. Make Cadence the easiest dependable way to schedule and track time across locations, with strong payroll connections and repeatable workflows.

Stop treating enterprise as the company’s growth thesis. Do not hire 10 enterprise AEs or build customer-specific workflows with the core team. Pursue enterprise deals only when they fit the standard product, support attractive economics and do not displace mid-market priorities.

Stop subsidizing SMB support through unlimited phone service on the entry plan. Keep serving SMB customers, but shift the offer toward scalable self-service and appropriately priced support—not a broad retreat from the segment.

Coherent actions for next year

1. Make the mid-market roadmap the top product priority. Deliver multi-location reporting, payroll integrations and shift templates in that order, validating scope with customers and tying releases to adoption and expansion. Build configurable, reusable capabilities; decline requests that create customer-specific branches.

1. Focus go-to-market on repeatable mid-market wins. Equip sales and onboarding around multi-location use cases, implementation playbooks and expansion from existing locations and seats. Invest in customer success where it can turn adoption into expansion and reduce avoidable churn.

1. Set an enterprise investment gate. Pause the proposed 10-AE hiring plan. Evaluate SSO and audit logs as reusable platform capabilities, but fund them only with evidence of demand beyond individual deals. Require enterprise opportunities to fit the standard product; price implementation and customization explicitly, and do not commit core engineering to bespoke workflows. Revisit enterprise hiring only when deals are repeatable and payback is demonstrably attractive.

1. Repair SMB service economics without breaking the customer experience. Move entry-plan support toward self-service, improve onboarding and help content, and test paid higher-touch support. Measure the effect on conversion and retention before making a broad pricing or support change.

1. Create one trusted segment-economics view. Reconcile CAC payback and consistently include gross margin, support, implementation and custom engineering costs. Review it quarterly before adding segment-specific capacity.

How we’ll know it’s working

• Mid-market: NRR rises from 118% to at least 120%; logo churn falls from 7% to 6% or less; win rate stays at or above 60%. Track ARR expansion from added locations and seats, plus adoption of the three roadmap investments.
• Enterprise: No broad AE expansion; custom core-engineering work falls sharply, with a target of no more than two engineer-weeks per won deal. Track fully loaded payback and sales-cycle length before increasing investment.
• SMB: Reduce support tickets per customer and support cost per customer; improve trial conversion from 4% without worsening churn. Make any support-tier changes conditional on those customer outcomes.
• Company-wide: Review segment ARR, gross profit after support and implementation, and fully loaded CAC payback together. Growth that depends on unrepeatable engineering or uneconomic service is not success.

This strategy does not abandon enterprise or SMB. It puts our next year’s scarce product and hiring capacity behind the segment with the clearest evidence of repeatable growth, while setting firm conditions for investing more elsewhere.

Memo: Next Year's Strategy

To: CEO From: VP Product Re: Where we play next year, and why I don't think it's enterprise

You asked me to tell you if you're wrong. I think you are, at least for next year. Enterprise isn't a bad market. But our numbers say our winning position is somewhere else, and an enterprise push would starve that position of the engineering time and sales capacity it needs. Below is the case and what I propose instead.

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1. Diagnosis

Cadence runs three different businesses, and only one of them is working well.

(Gross profit after support = ARR × gross margin − support cost. Total ARR is about $23M.)

Mid-market is the business. - It is 56% of ARR. - It pays back CAC in 9 months. - It grows on its own: 118% NRR on $12.9M means about $2.3M of net new ARR next year before we sign a single new logo. - We win 61% of the time against our main competitor. - Expansion comes naturally as customers add locations and seats.

Enterprise looks big per logo but is weak as a business today. - Gross margin is 64%, versus 81% in mid-market. - Each customer costs $21K a year to support. - CAC is $118K, payback takes 26 months, and the sales cycle is 9 months. - The hidden cost is engineering. 5 of the last 8 deals needed custom features, at about 14 engineer-weeks each, built by the core team. That is roughly 70 engineer-weeks diverted from the product that 890 mid-market customers pay for.

SMB is roughly break-even and pulling capacity away from everything else. - Each customer generates $248 a year after support. - With 34% annual churn, the average customer lives about 3 years. Lifetime contribution is roughly $730, against $740 of CAC. - SMB produces 62% of our support tickets. The cause is structural: we offer unlimited phone support on a $79/month plan, so support costs ($610) eat more than half of revenue ($1,100). - Trial conversion is 4%.

The core problem: we are trying to be everything to everyone. The cost shows up in two places. The roadmap gets hijacked by single enterprise deals, and the support budget gets consumed by SMB.

Why the enterprise plan makes this worse. Assume 10 new AEs close 20 enterprise logos next year, which is optimistic given a 9-month cycle and ramp time. - That adds about $1.9M of ARR. - It costs about $2.4M in CAC. - If 5 of every 8 deals still need custom work, it consumes about 175 engineer-weeks, or 3–4 engineer-years, on custom features alone. - That is before the work on SSO, audit logs, and custom workflows. - Most of that ARR would land late in the year and pay back in year three.

Meanwhile, the mid-market roadmap would stall in the segment where we already win.

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2. Guiding Policy

Where we play: We will be the best scheduling and time-tracking platform for multi-location operators with hourly workforces, from roughly 10 to a few hundred locations. Mid-market is the core. Every product, sales, and support decision should first answer one question: does this help a mid-market customer win, stay, or add locations?

What we stop: 1. Custom feature builds for single deals. If a feature isn't on the roadmap for a segment, we don't build it to close one logo. 2. The 10-AE enterprise hiring plan. We redeploy that budget (see below). 3. Unlimited phone support on the $79 plan. That plan moves to in-app help, chat, and a knowledge base. Phone support becomes a paid tier. 4. Custom workflows as a product initiative. This is a services business disguised as a feature.

What we deliberately keep: - Our 34 enterprise customers, served well on the standard product. - Inbound enterprise deals that can close without custom work. - SSO and audit logs. Upper mid-market buyers increasingly expect these, so they serve the core rather than a new segment.

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3. Coherent Actions for Next Year

These actions reinforce each other. Product makes mid-market expansion easier. Go-to-market (GTM) captures that expansion. Fixing SMB frees money and support capacity to fund both.

Product (mid-market roadmap, Q1–Q3) - Multi-location reporting. This is the top request, and it directly drives location expansion, our main source of NRR. - Payroll integrations. We will prioritize the top 3–4 providers by customer count. Integrations increase switching costs and reduce churn. - Shift templates. This reduces setup time for each new location, so expansion becomes cheap for the customer and for us. - SSO and audit logs. These are table stakes for larger mid-market accounts. We will scope them tightly and avoid gold-plating. - Engineering capacity rule: zero engineer-weeks go to one-off custom builds.

Go-to-market - Redirect the enterprise AE budget. Fund roughly 4–5 mid-market AEs and 3–4 account managers whose job is location and seat expansion inside existing accounts. A 9-month payback and 118% NRR make this the most efficient growth dollar we have. - Build a competitive playbook. Codify why we win 61% against our main competitor, and target that competitor's mid-market base. - Handle enterprise inbound on the standard product. One senior AE and the existing team qualify enterprise leads. A deal requiring custom work is a no unless the feature is already on the roadmap.

SMB economics - Restructure support. Move the $79 plan to digital-first support and introduce a higher tier that includes phone support. The target is cutting SMB support cost per customer from $610 to under $350. - Overhaul onboarding and trials. A 4% conversion rate signals weak activation. Fixing onboarding should also reduce tickets. - Find out whether SMB feeds mid-market. We need to learn how many mid-market customers started on SMB. If SMB is a real feeder, we keep it as a low-cost funnel. If not, we run it purely for margin.

Enterprise - Improve margins on the existing base. Standardize their configurations and reduce bespoke support. - Track demand without chasing it. We log every enterprise request, so that if we return to enterprise later, we can build a standard product rather than custom one-offs.

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4. How We'll Know It's Working

Leading indicators (quarterly) - Multi-location reporting and payroll integrations shipped by end of Q2. - Engineer-weeks spent on custom deal work: 0. - SMB support tickets per customer down 30% by Q3. - Mid-market win rate against our main competitor: 61% → 65%.

Outcomes (year-end) - Mid-market NRR ≥ 120%, up from 118%. - Mid-market new-logo ARR grows at least 25%, with payback held at ≤ 12 months. - SMB support cost per customer under $350, and SMB contribution per customer roughly doubled. - Enterprise gross margin above 70%, up from 64%, with no logo churn among the top 10.

When we would revisit enterprise: I'm not saying never. I'd reopen the question in Q3 if either of these happens: - Mid-market customers are outgrowing us into enterprise-scale deployments, meaning enterprise becomes the natural next step for our core. - We close at least 3 enterprise deals on the standard product.

Either signal would mean enterprise has become an extension of our strength rather than a separate bet. At that point, a focused enterprise motion built on a product we actually have would make sense.

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Bottom line: The exec team can rally behind this: win multi-location mid-market, stop subsidizing segments that don't pay. It builds on where we already win, funds itself by fixing SMB economics, and keeps enterprise open as a future option rather than a costly bet. I'd welcome the chance to pressure-test this with you before the offsite.