Develop product strategy

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.

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.