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.

To: CEO From: VP Product Re: Next-year strategy

Bottom line: I think you're wrong. We are a mid-market company, and the enterprise plan would spend our scarcest resources, engineering time and hiring budget, on the segment with the weakest economics. Enterprise can be a real option later. It shouldn't be the strategy for next year.

Diagnosis

Annualized from the unit economics file (my calculations, not reported figures):

Mid-market is our engine. It produces most of our ARR, expands at 118% NRR, pays back in 9 months, and churns at 7%. We win 61% of head-to-head deals against our main competitor. Customers are asking for multi-location reporting, payroll integrations, and shift templates, which are the features that drive expansion.

SMB is a support sink. SMB accounts generate 62% of support tickets. Support costs about $3.8M a year against roughly $6.8M of SMB ARR, so over half of SMB revenue goes to support. Most SMB customers are on a $79/month plan with unlimited phone support. Churn is 34%, trial conversion is 4%, and lifetime contribution barely covers CAC.

Enterprise is a real market but a poor fit for us today. We have 34 logos. Sales cycles run nine months. Gross margin is 64%, and payback is 26 months before custom work is counted. Five of our last eight enterprise deals needed custom features built by the core team at about 14 engineer-weeks each. That is roughly 70 engineer-weeks, or about 1.5 engineer-years, in eight deals. The plan doesn't account for that cost.

Root cause: We've let the loudest requests set the roadmap and support model. Enterprise asks for custom builds, SMB asks for phone support, and neither request is what drives our best economics.

Guiding policy

Where we play: Mid-market multi-location employers with hourly workforces. This is the customer we win, keep, and expand, and where our product is strongest.

What we stop: 1. Custom builds for individual deals. No bespoke engineering without a paid statement of work that covers full cost and passes a "does this generalize?" test. 2. Unlimited phone support for SMB. SMB moves to self-serve, chat, and knowledge-base support, with paid priority support as an option. 3. Dedicated enterprise hiring and outbound. Enterprise becomes inbound-only, served by the mid-market product. We don't build a headcount plan around it. 4. Single-segment edge-case features that don't help mid-market or the platform.

What we don't stop: The 34 enterprise customers keep full service. We don't reprice or abandon them. SMB remains our top-of-funnel, but it stops being a support-heavy product.

Coherent actions for next year

1. Build the mid-market expansion product. Ship multi-location reporting first, then shift templates, then the two payroll integrations that come up most in mid-market accounts. This gets roughly 70% of core product capacity.

1. Move the enterprise hiring budget to mid-market. Use it for mid-market AEs (where a 61% win rate and 9-month payback make each dollar work faster) and for expansion coverage on multi-location accounts.

1. Restructure SMB support. Remove unlimited phone support. Create a clear upgrade path to mid-market plans when an SMB account adds a second location. Use product changes to deflect the most common tickets. The goal is to halve support cost per SMB customer.

1. Productize enterprise table stakes, nothing more. Build SSO and audit logs once as standard features. Some mid-market buyers need them too, and building them once is cheaper than building them repeatedly for deals. Don't build custom workflows. Keep the 34 enterprise accounts well served through CS.

1. Govern the roadmap. A product council with exec sign-off reviews any request that isn't on the mid-market or platform roadmap. Every custom request must pass the segment-fit test.

Capacity split (proposed): ~70% mid-market roadmap, ~15% platform (SSO, audit logs, reliability), ~15% SMB self-serve and ticket deflection.

How we'll know it's working

Mid-market (primary): - NRR ≥ 120% (from 118%) - Logo churn ≤ 7% - Win rate vs. main competitor ≥ 61% - Payback ≤ 9 months on new mid-market CAC - Share of expansion ARR from added locations and seats, tracked quarterly

SMB: - Support cost per SMB customer down from $610 to ≤ $300 - SMB tickets per customer down year over year - Gross profit after support positive per customer on the new support model - SMB churn trending down; we accept some SMB logo loss as the price of the change

Enterprise: - Zero unplanned custom engineering weeks outside approved SOWs - Enterprise gross margin trending up toward 70%+ - No loss in renewals among the 34 existing accounts

Company: - Blended gross margin up, driven by the mix shift - Total ARR growth on the mid-market base

Revisit enterprise in 12 months if mid-market hits its targets and we see a steady flow of inbound enterprise deals (for example, three per quarter) that fit the standard product without custom work.

Risks

• We'll lose some SMB and enterprise revenue. The bet is that mid-market growth and margin improvement outweigh it. We should show the exec team the expected net effect before we commit.
• Mid-market buyers may demand SSO and audit logs sooner. Building them as standard features in the platform bucket covers this.
• The enterprise story matters to investors and some of the team. We should explain it as focus with a defined path back, not as retreat.

I'm glad to walk through the model and the capacity assumptions with you before the exec session. My recommendation is to take this to the team as the choice between being a strong mid-market company now and a weak enterprise company later.