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.

Cadence strategy memo: next year

To: CEO and exec team From: VP Product

Short answer

I don't think enterprise should be the strategy. I think mid-market should. Enterprise should stay an option we keep cheap and revisit with evidence. You're right that we need a higher ceiling than SMB gives us, but the data says mid-market is the route to it.

Diagnosis

Approximate ARR is customers × average ARR. Contribution is ARR × gross margin, minus support cost.

1. Mid-market is the business. It is about 56% of ARR and roughly 75% of contribution. It pays back in 9 months, expands on its own as customers add locations and seats, and we win 61% against our main competitor. Customers are telling us what they want: multi-location reporting, payroll integrations, shift templates. We are under-serving our best segment.

1. SMB is a leaky bucket that we subsidize. It is 62% of tickets, which matches its ~61% share of support spend. The $79 plan includes unlimited phone support, so a $1,100 account costs $610 a year to serve. Trial converts at 4%, churn is 34%, and payback is 31 months. That is roughly the average customer lifetime, so we barely break even on the typical account. But SMB is still 30% of revenue and a cheap feeder. The fix is to repair it, not to exit.

1. Enterprise, as currently run, has the worst unit economics we have. Gross margin is 64%, support costs $21k per customer, the sales cycle is 9 months, and payback is 26 months. Five of the last eight deals needed custom features at ~14 engineer-weeks each, which means we are paying for product work out of the core team's capacity. NRR of 104% and churn of 9% are fine but not special.

1. The proposed plan scales the weakest model. Ten AEs plus a solutions team plausibly costs on the order of $3M+ a year fully loaded (my estimate, so finance should check it). That is about the size of today's entire enterprise ARR, with 9-month cycles and ramp time, so most revenue lands after next year. Custom workflows would deepen the bespoke-work problem. And 34 customers is a thin sample to bet the company on.

What I don't know. I have no enterprise pipeline data, no enterprise win rate, and no view of mid-market market size or channel saturation. I also don't know whether SSO and audit logs are blocking mid-market deals. Those gaps shape the tripwires below.

Guiding policy

Win multi-location mid-market. Make SMB profitable. Keep enterprise as a gated option.

Where we play - Core: hourly-workforce businesses with multiple locations, in the mid-market range. Growth comes from landing and expanding across locations. - Feeder: SMB self-serve, run for margin and for conversion into mid-market, not for volume. - Option: enterprise deals we can close with the standard product and little custom work.

What we stop - Hiring the 10-AE enterprise team and the dedicated solutions team. - Bespoke feature builds for individual deals. Any enterprise requirement must be built as a standard product capability or declined. - Unlimited phone support bundled into the $79 plan. - Spending acquisition dollars on SMB channels that can't pay back within about 18 months.

Coherent actions

1. Point the roadmap at mid-market (about 60% of product and engineering capacity). Ship multi-location reporting first, then payroll integrations (starting with the two or three most requested), then shift templates. Sequence by expansion impact: which features most increase locations and seats per account.

2. Put the sales investment where payback is 9 months. Redirect the headcount budget to mid-market: a handful of AEs plus customer success focused on expansion. Add a multi-location expansion motion, such as account reviews triggered when a customer opens a new location. Size the hiring to what mid-market pipeline can absorb. Prove that first with a small cohort before scaling.

3. Fix SMB economics (about 20% of capacity). - Move phone support off the $79 plan. Offer it as a paid add-on or a higher tier, with chat, email, and in-product help as the default. Grandfather existing customers for a period and test the change on a cohort before a full rollout, because churn is already 34%. - Work the trial: onboarding, templates, and time to first published schedule. Moving conversion from 4% to 6% beats buying more traffic. - Build a clear upgrade path for SMB customers who add locations.

4. Run enterprise as a disciplined option (about 10–15% of capacity). - Serve and renew the existing 34. Set a target for support cost per account and margin, and review the biggest cost drivers. - Pursue inbound and referral enterprise deals with a small team: one senior AE plus existing sales leadership, no new organization. - Build SSO and audit logs as standard platform features, but only after win/loss analysis confirms they block mid-market and upper-mid-market deals. If they do, they pay off in both segments. If not, they wait. - Stop custom workflows. Where customers need them, define a configurable, productized version or turn the deal down.

5. Instrument everything first (first 60 days). Get win/loss reasons by segment, enterprise pipeline and win rate, and fully loaded cost per enterprise deal (including those custom builds). This turns the open questions above into data.

How we'll know it's working

Proposed targets, to be pressure-tested with finance:

Tripwires. I'd revisit the enterprise question at mid-year, and invest more if all of these hold: - At least 3 enterprise-sized deals closed with minimal custom work (about 2 engineer-weeks or less each). - Enterprise support cost per account falling. - Pipeline data showing a repeatable motion, not one-off wins.

I'd pull back on the SMB support change if churn among affected accounts rises beyond the savings. I'd slow mid-market hiring if win rate or payback degrades as we scale.

The ask

Align on mid-market as the center of next year's plan, with SMB repaired and enterprise as an option. If you still believe enterprise is the bigger long-term prize, the way to get there is to make mid-market large and stable first. That funds the bet and gives enterprise buyers a product with SSO, audit logs, and multi-location reporting built for real customers. I'd rather be wrong about enterprise on a small budget than be right with the team stretched across three segments.