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.

MEMORANDUM

TO: CEO FROM: VP of Product DATE: October 24, 2023 SUBJECT: Product & Go-To-Market Strategy for Next Year

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You asked for a strategy the executive team can rally behind, and stated your belief that our future lies in enterprise.

You are wrong. If we pivot our resources toward enterprise next year, we will stall our fastest-growing segment, burn cash on an unscalable product architecture, and distract the company from our true economic engine.

Here is our reality, our diagnosis, and the strategy we should actually pursue.

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1. The Diagnosis: Where the Numbers Really Point

To evaluate your enterprise hypothesis, we have to look at the unit economics across our three segments (SMB, Mid-Market, Enterprise):

• SMB Self-Serve (6,200 customers, $1,100 ARR): This segment is an anchor dragging us down. A 34% logo churn and 88% NRR means we are running to stay in place. Worse, 62% of our support tickets come from SMB accounts who pay an average of $79/month while demanding unlimited phone support. We are subsidizing their operations at a severe net-negative margin once support costs are factored in.
• Enterprise (34 customers, $96,000 ARR): Enterprise looks glossy on the top line, but the mechanics are broken. Our payback period is 26 months, our gross margin has cratered to 64% (due to heavy support and custom engineering), and NRR is a mediocre 104%. As noted in the enterprise detail, 5 of our last 8 deals required custom features built by our core engineering team—averaging 14 engineer-weeks each. We are currently operating as a custom software consultancy for large accounts, not a scalable SaaS business.
• Mid-Market (890 customers, $14,500 ARR): This is our crown jewel. Mid-market boasts an 81% gross margin, a lightning-fast 9-month payback period, a stellar 118% NRR, and a low 7% logo churn. We win 61% of deals against our main competitor here. Expansion happens organically as clients add locations and seats.

The Diagnosis: We are suffering from strategic schizophrenia. We are spending engineering cycles building bespoke features for 34 enterprise logos while burning support bandwidth on 6,200 low-end SMBs. Meanwhile, we are under-investing in the Mid-Market—the only segment where we have product-market fit, high retention, and clear competitive dominance.

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2. The Guiding Policy

Where We Play: We will focus our go-to-market, product development, and company roadmap entirely on the Mid-Market (companies with roughly 100 to 1,000 hourly workers).

What We Stop: 1. We stop custom enterprise builds. We will not pull core engineers off the roadmap to build one-off workflows for enterprise deals. If a whale customer requires custom engineering, we walk away. 2. We stop optimizing for SMB acquisition. We will sunset active acquisition efforts for self-serve SMBs and strip away unscalable touchpoints (like unlimited phone support for $79/mo accounts) to stop the margin bleed. 3. We stop treating Enterprise as our primary growth vector. We will not hire 10 enterprise AEs or build a dedicated solutions team.

By pulling back from Enterprise and SMB, we concentrate all our capital on scaling what is already working brilliantly in the Mid-Market.

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3. Coherent Actions for Next Year

To capture the mid-market opportunity, product and go-to-market will execute three synchronized moves:

#### Action 1: Productize for Mid-Market Expansion (Product & Engineering) Instead of building custom enterprise workflows (SSO, audit logs, and bespoke routing), our engineering team will build the top three requested features that drive multi-location expansion and stickiness in the Mid-Market: * Multi-location reporting: Giving regional managers roll-up visibility across disparate sites. * Robust payroll integrations: Deepening native syncs with major mid-market payroll providers to reduce administrative friction. * Advanced shift templates: Allowing complex scheduling rules to be deployed instantly across new locations.

#### Action 2: Pivot Go-To-Market to Land-and-Expand (Sales & Marketing) We will reallocate budget from SMB acquisition and enterprise pipe-dreams directly into Mid-Market account executive and customer success headcount. * Our motion will focus on landing a mid-market business at a single location or division, then leveraging our stellar NRR (118%) to expand horizontally into new locations. * We will introduce tiered packaging that naturally captures revenue as mid-market clients add locations and seats.

#### Action 3: Streamline or Harvest the SMB Tier (Operations & Support) We cannot drop our existing 6,200 SMB customers overnight, but we must stop bleeding margin on them. * Transition self-serve SMB support away from expensive phone queues to a self-service knowledge base and AI-driven chat. * Raise prices on legacy low-tier plans to match the true cost-to-serve, accepting natural churn as a feature, not a bug, which frees up support capacity for our mid-market clients.

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4. How We'll Know It's Working

If we execute this focus on the Mid-Market, we will see specific operational shifts within the next 12 months:

1. Mid-Market ARR Growth: Mid-market ARR growth rate accelerates by 35% year-over-year as we direct 80% of our sales and marketing capacity here.
2. Payback and Margins: Our blended gross margin climbs back toward 80%+ as high-margin mid-market revenue outpaces low-margin enterprise custom work and unprofitable SMB volume. Payback periods across the active customer base remain under 10 months.
3. NRR Expansion: Mid-market NRR increases from 118% to 122%+ driven by faster multi-location adoption of our new reporting and payroll features.
4. Engineering Velocity: Feature delivery velocity increases by 40% because engineering is no longer interrupted by 14-week custom enterprise implementations.

Summary

Pivoting to enterprise feels ambitious, but the data tells us it is a trap. We would be trading a high-margin, highly defensible leadership position in the Mid-Market to become a low-margin, high-friction consultancy for a handful of giants.

Let’s double down on where we win, where retention is highest, and where our unit economics sing. Let's own the Mid-Market next year.