Develop product strategy

MEMORANDUM

TO: Chief Executive Officer FROM: VP of Product DATE: October 24, 2023 SUBJECT: Next Year Strategy: Diagnosis, Guiding Policy, and Execution Roadmap

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Executive Summary: The Direct Answer

You asked: “I believe it’s enterprise. Tell me if I’m wrong.”

You are wrong. Going all-in on Enterprise next year would be an expensive strategic error.

Enterprise is currently acting as a high-friction, low-margin professional services trap. It requires 9-month sales cycles, consumes massive engineering resources (70 engineer-weeks burned on bespoke code for just five recent deals), and yields an uninspiring 104% NRR at a 26-month CAC payback. Hiring 10 enterprise AEs and a solutions team right now will accelerate cash burn while starving our real growth engine.

That growth engine is Mid-Market. Mid-market is exceptional: 81% gross margin, 9-month CAC payback, 118% NRR, 7% logo churn, and a 61% win rate against our primary competitor.

Next year, our rallying cry must be: Dominate Mid-Market, automate SMB into positive cash flow, and gate Enterprise until our core platform is ready.

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1. Diagnosis: Where Value Is Created and Destroyed

Our current ARR is ~$23M across three starkly different businesses:

#### Three Key Findings:

1. Mid-Market is an elite SaaS business. Customers expand by adding locations and headcount (118% NRR). Our sales efficiency is world-class (9-month payback vs. industry average of 14–18 months). Most importantly, their feature requests (multi-location reporting, payroll integrations, shift templates) are repeatable, software-native, and scale across the entire cohort.
2. Enterprise is a bespoke distraction masquerading as scale. At 64% gross margin, 26-month payback, and only 104% NRR, our Enterprise motion does not scale. 5 of our last 8 deals required custom development—averaging 14 engineer-weeks per deal. We are acting as a subsidized software development shop for 34 accounts, pulling our best product talent away from core roadmap investments.
3. SMB is drowning our operations. SMB accounts for 62% of all support tickets. We charge $79/month ($948/yr) while spending $610/year in support per customer due to unlimited phone support. With 34% logo churn and 88% NRR, the 31-month CAC payback means a significant portion of SMB customers churn before breaking even on acquisition and service costs.

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2. Guiding Policy: Where We Play, Where We Win, and What We Stop

Our guiding policy for next year is Repeatable Scale over Bespoke Revenue.

``` ┌──────────────────────────────────────────────┐ │ MID-MARKET: ACCELERATE │ │ Core growth vector; 118% NRR; 9-mo payback │ └──────────────────────┬───────────────────────┘ │ ┌─────────────────────────┴─────────────────────────┐ ▼ ▼ ┌─────────────────────────────┐ ┌─────────────────────────────────────┐ │ SMB: AUTOMATE │ │ ENTERPRISE: DISCIPLINE │ │ Eliminate phone support │ │ Freeze custom dev; sell off-the- │ │ Product-led self-service │ │ shelf MM product at premium tier │ └─────────────────────────────┘ └─────────────────────────────────────┘ ```

#### Where We Play: * The Sweet Spot: Multi-unit hourly employers with 50–500 employees (Mid-Market). These buyers have acute scheduling complexity across locations but lack the bureaucratic demands for custom software architectures.

#### What We Stop: * Stop custom engineering for individual deals. Zero custom branching or deal-contingent roadmap commits. * Stop hiring 10 Enterprise AEs. We will not deploy massive quota capacity into a 9-month sales cycle with an unstandardized product. * Stop offering phone support on sub-$5,000 ARR plans. Unlimited phone support for $79/month ends in Q1.

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3. Coherent Actions for Next Year

To execute this guiding policy, our actions across Product, GTM, and Operations must reinforce each other.

#### A. Product & Engineering: The Repeatable Core * Deliver the Mid-Market Trifecta (H1): Allocate 70% of product capacity to build: 1. Multi-location reporting & dashboarding (enables regional managers to view compliance and labor costs across units). 2. Tier-1 payroll integrations (ADP, Gusto, Paychex, UKG) to make scheduling-to-payroll frictionless. 3. Advanced shift templates & auto-scheduling to drive rapid store-level adoption. * Enterprise Baseline, not Bespoke (H2): Build only standardized administrative features (SAML SSO, SCIM provisioning, audit logs, role-based access control). If an enterprise buyer cannot deploy our standard multi-tenant product with these enterprise rails, we walk away. * SMB Self-Serve & Deflection: Revamp onboarding flows to drive the 4% trial conversion rate upward and deploy in-app guided setup, chat deflection, and an updated knowledge center to cut incoming tickets.

#### B. Go-To-Market: Scaling the Engine * Reallocate Capital from Enterprise to Mid-Market: Instead of 10 Enterprise AEs, hire 6 Mid-Market AEs and 2 MM Sales Engineers. With our 9-month payback and 61% win rate, MM sales hires will reach cash-flow break-even within the year. * Establish an Enterprise Gatekeeper Rule: The existing enterprise sales team may close deals only under two conditions: (1) standard product only (contractually zero custom dev), and (2) minimum contract value of $100k ARR with standard pricing. * Refocus Inbound & Outbound: Concentrate marketing spend on multi-unit franchisees, regional hospitality groups, and mid-sized healthcare operators.

#### C. Operations & Support: Unit Economic Realignment * Tiered Support Model (Effective Q1): * SMB / Self-serve: In-app digital assistant, community, and email support (target: reduce support cost from $610 to <$150/year). * Mid-Market: Priority email, live chat, and scheduled onboarding calls. * Enterprise: Dedicated CSM and SLA-backed escalation. * Grandfathering/Pricing Migration for SMB: Shift low-tier customers requiring phone support to an “Assisted Support” add-on ($99/month), turning a cost center into a margin-accretive tier.

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4. Scorecard: How We’ll Know It’s Working

We will monitor operational health and strategic traction via four quarterly benchmarks:

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Conclusion

Enterprise is seductive because the contract sizes are large. But right now, chasing it will turn us into a bespoke agency with depressed margins and burnt-out engineers.

Mid-Market is our path to category leadership. It gives us high win rates, compounding expansion, rapid payback, and product leverage. Once we harden the platform with multi-location mid-market capabilities and standardized enterprise controls, we can attack the enterprise from a position of structural strength—not structural compromise.

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.