Develop product strategy

MEMO

To: CEO & Executive Team From: VP of Product Subject: FY Strategy: Why We Must Bet on Mid-Market, Not Enterprise

You asked for a strategy the executive team can rally behind, and you asked me to tell you if you’re wrong about Enterprise.

Looking at our data, you are wrong about Enterprise. Pursuing an enterprise-first strategy next year will burn cash, hijack our engineering roadmap, and starve the exact part of our business that has already found product-market fit: Mid-Market.

Here is the diagnosis of where we stand, where we should play instead, and how we will execute next year.

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1. The Diagnosis: Where Value is Created (and Destroyed)

Today, Cadence is generating ~$23M in ARR across three segments, but the underlying economics tell three completely different stories:

Mid-Market is a compounding growth engine ($12.9M ARR | 890 customers) Mid-market is our largest and healthiest segment by every metric. We have an 81% gross margin, a 9-month CAC payback, and a 61% win rate against our main competitor. Most importantly, Net Revenue Retention (NRR) is 118% with just 7% logo churn. Mid-market customers buy Cadence, stay, and expand naturally by adding locations and seats.

Enterprise is a bespoke consulting trap ($3.26M ARR | 34 customers) The $96k average ARR is seductive, but the unit economics are broken. Gross margins drop to 64% (dragged down by $21k/year in support costs per customer), CAC is $118k, and payback takes 26 months. Worse, 9% logo churn and 104% NRR prove that even when we land enterprises, they don't significantly expand, and they churn faster than mid-market.

Furthermore, we do not have a repeatable enterprise product. Five of our last eight enterprise deals required custom features built by our core engineering team, costing ~14 engineer-weeks each (nearly 1.5 engineering years spent on just five deals). If we hire 10 Enterprise AEs right now, they will spend 9 months ramping and hunting, only to pressure R&D into becoming a custom dev shop to close their pipeline. Building SSO, audit logs, and custom workflows gets us to the table, but it won't fix a broken 26-month payback model.

SMB is a support-heavy leaky bucket ($6.82M ARR | 6,200 customers) SMB looks like a 78% gross margin business on paper, but that appears to ignore the $3.78M we spend annually supporting them ($610/customer across 6,200 accounts). We are giving customers paying $948–$1,100/year unlimited phone support, allowing them to generate 62% of our support ticket volume. Combined with 34% annual churn, 88% NRR, and a 31-month payback, we are losing money on the average SMB customer before they ever pay back their CAC.

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2. The Guiding Policy: Double Down on Mid-Market, Fix SMB, Pause Enterprise

Our strategy for next year is to dominate multi-location Mid-Market businesses while turning SMB into a true self-serve cash cow to fund our growth.

Where We Play: * Mid-Market is our primary growth engine. We will align Product, Engineering, Marketing, and Sales around multi-location businesses with hourly workers. We win here 61% of the time without custom code, and every dollar of ARR we land turns into $1.18 a year later. * SMB becomes strictly low-touch. SMB should only exist as an automated, high-margin feeder system that requires near-zero human intervention and graduates growing customers into Mid-Market.

What We Stop Doing: * Stop custom engineering for sales deals. Effective immediately, we no longer trade core engineering weeks for enterprise logos. * Stop outbound Enterprise expansion. We will not hire the 10 Enterprise AEs or the Solutions team. Existing enterprise accounts will be supported, and inbound enterprise leads can buy our off-the-shelf product if it fits, but we will not build for them next year. * Stop unlimited phone support for SMBs. We cannot afford a $610/year support cost on a $79/month plan.

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3. Coherent Actions for Next Year

To execute this strategy, every department will align around three core initiatives:

#### A. Product & Engineering: Unlock Mid-Market Expansion & Velocity Instead of spending the year on enterprise security plumbing (SSO, audit logs) and custom workflows, 80% of R&D capacity will go to the three capabilities our Mid-Market customers are actively asking for—all of which directly drive seat/location expansion and retention: 1. Multi-Location Reporting (Q1–Q2): Make it effortless for regional managers and VP Ops to see labor costs and attendance across 5 to 50+ sites. This directly fuels our 118% NRR expansion loop. 2. Deep Payroll Integrations (Q1–Q3): Build native, bi-directional integrations with the top mid-market payroll providers. This increases stickiness, reduces support burden, and removes friction during competitive switch-outs. 3. Cross-Location Shift Templates (Q2): Allow operations teams to standardize and deploy scheduling templates across new locations in minutes, accelerating time-to-value when customers expand. 4. SMB Onboarding & Deflection (Remaining 20% R&D): Improve in-app guided setup and self-serve help tooling to lift our 4% trial conversion rate and cut ticket generation at the source.

#### B. Go-To-Market (Sales & Marketing): Pour Fuel on the 9-Month Payback 1. Reallocate Headcount to Mid-Market: Take the budget earmarked for the 10 Enterprise AEs and Solutions engineers and hire Mid-Market AEs and Expansion/Account Managers instead. With a 9-month payback and a shorter sales cycle, these reps will generate net-new ARR this year. 2. Run the Competitive Displacement Playbook: Focus marketing spend and SDR outbound exclusively on multi-location businesses currently using our main competitor, leveraging our 61% win rate and new payroll integrations. 3. Incentivize Location Expansion: Structure AM compensation around getting existing Mid-Market logos to roll Cadence out to100% of their locations.

#### C. Customer Success & Pricing: Restructure SMB Economics 1. Eliminate Phone Support on the $79/mo Plan: Transition SMB to digital-only support (AI/chat deflection, community, email) and self-serve help centers. 2. Monetize High-Touch Support: Introduce a paid "Premier Support" add-on or require upgrades to a Mid-Market tier for phone support and dedicated onboarding. Even if this causes a one-time spike in SMB logo churn, shedding unprofitable, high-ticket accounts will immediately free up millions in support capacity to service Mid-Market.

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4. How We’ll Know It’s Working (2025 Targets)

We will track our progress quarterly against five shared company metrics:

1. Mid-Market ARR Growth: Grow Mid-Market ARR by >45% (from $12.9M to ~$19M+), taking it from 56% of total company revenue to over 70%.
2. Mid-Market Efficiency: Maintain CAC payback < 12 months, win rate > 60%, and NRR ≥ 118% as we scale the Mid-Market sales team.
3. Engineering Focus: Zero core engineering weeks spent on single-customer custom features (down from ~70+ engineer-weeks).
4. SMB Support Cost: Cut SMB support cost per customer from $610/year to < $200/year, and reduce SMB share of total support tickets from 62% to < 30%.
5. SMB Payback & Trial Conversion: Lift free trial conversion from 4% to > 6% via better self-serve onboarding, bringing SMB CAC payback under 18 months.

A Final Note on Enterprise: Saying "no" to Enterprise right now isn't saying "no" forever. Once we dominate Mid-Market, our product will naturally mature, and our largest Mid-Market customers will pull us upmarket from a position of strength. Right now, Mid-Market is working. Let’s pour everything we have into winning it.

Cadence: Next Year’s Strategy

To: CEO and Executive Team From: VP Product Decision: Make multi-location mid-market businesses our growth engine—not enterprise.

1. Diagnosis: Our constraint is focus, not deal size

I believe the enterprise-first plan is wrong for next year. Enterprise may become an attractive market, but our current evidence does not justify hiring ten enterprise AEs or orienting the roadmap around their deals.

Cadence has three materially different businesses:

Customers × average ARR.

Mid-market already generates 56% of ARR. It combines our best retention, strongest expansion, fastest acquisition payback, and highest gross margin, at 81%. A 61% win rate against our main competitor suggests a defensible product advantage. Expansion through locations and seats gives us a repeatable growth mechanism.

Enterprise offers larger contracts, but not yet a better business. Gross margin is 64%, the sales cycle averages nine months, and five of the last eight deals required custom development. Those five deals consumed approximately 70 engineer-weeks. Hiring sellers before fixing this delivery model risks scaling commitments faster than reusable product capability.

SMB is a different problem: substantial revenue with weak retention and disproportionate service demand. It generates 62% of support tickets; annual support cost averages $610 against $1,100 in ARR. Unlimited phone support on a $79 monthly plan is misaligned with self-service economics. A 4% trial conversion rate compounds the acquisition problem.

The central challenge is therefore allocating scarce product, engineering, and commercial capacity toward repeatable, retained revenue. Enterprise customization and SMB service demands are drawing capacity away from the segment where our model works best.

2. Guiding policy: Win multi-location mid-market

Where we play

Our primary customer is a mid-market business with hourly workers across multiple locations, where scheduling consistency, consolidated visibility, and payroll handoffs create recurring operational pain.

Our promise: make running the next location easier than running the first.

We will deepen that advantage and turn successful initial deployments into additional locations and seats. We will first target industries and acquisition channels where our own mid-market cohorts show the strongest retention and payback; the supplied evidence does not yet support choosing a specific vertical.

Enterprise remains a selective adjacency. SMB remains a supported, increasingly self-service business—not our primary acquisition investment.

What we stop

• Do not approve the ten-enterprise-AE hiring plan or a dedicated solutions-team buildout.
• Stop letting individual enterprise deals dictate core-team custom workflows.
• Do not commit to the entire enterprise feature bundle. SSO and audit logs must earn priority through demonstrated, reusable demand—not their “enterprise” label.
• Stop scaling SMB paid acquisition under current economics.
• End unlimited phone support as the default for new low-priced plans, while honoring existing commitments and managing any migration carefully.
• Stop broad roadmap work that cannot demonstrate a connection to mid-market acquisition, retention, expansion, or essential platform health.

We will continue supporting existing enterprise and SMB customers. Focus is not abandonment.

3. Coherent actions for next year

A. Build the multi-location growth loop

Product and Engineering: Give mid-market the clear majority of discretionary roadmap capacity, after reliability, security, and contractual obligations.

Sequence three connected capabilities:

1. Multi-location reporting: Give central operators visibility into staffing and hours across their estate.
2. Payroll integrations: Prioritize providers used by the largest share of our target accounts; reduce recurring payroll friction.
3. Shift templates: Make successful scheduling practices reusable across locations.

In Q1, validate scope with retained, expanding customers and establish adoption and workflow baselines. Release reporting and the first prioritized integration in the first half; expand integrations and template-based rollout in the second half. Measure customer outcomes and subsequent location adoption, not merely shipment.

B. Sell and expand the same repeatable product

Sales and Customer Success: Redirect incremental commercial investment toward mid-market rather than enterprise hiring.

Package a standard multi-location deployment, define onboarding milestones, and build expansion reviews around customers’ remaining locations. Align incentives with retained recurring revenue and successful activation, not bookings alone.

Increase acquisition spending in stages only while segment payback remains within our guardrail. Do not assume today’s economics survive unlimited scaling.

C. Repair SMB service economics

Support, Product, and Finance: Identify the largest ticket drivers in Q1. Improve onboarding and in-product guidance around those problems; test appropriately priced phone support and service tiers for new customers.

Pilot changes before broad rollout. Evaluate support savings alongside conversion, retention, and revenue effects. A lower ticket count caused by driving customers away is not success.

D. Keep enterprise as a bounded learning option

Sales and Product: Accept new enterprise opportunities only when they fit the standard product, require no bespoke core-team development, and meet Finance-approved deal economics.

Review enterprise quarterly. Reconsider a larger investment only after multiple customers buy and deploy substantially the same product, with improving margin and acquisition payback. One marquee logo is not proof.

E. Establish a shared economic scorecard

Finance: In Q1, reconcile acquisition costs, implementation costs, support allocation, and payback definitions across segments. Confirm whether support is already included in gross margin before subtracting it again. Track custom engineering separately so its opportunity cost remains visible.

4. How we will know it is working

These are proposed operating targets, not forecasts:

The executive team will review results monthly and resource allocation quarterly. Leading indicators are faster location activation, adoption of the new workflows, and expansion pipeline; financial outcomes remain the test.

The strategy is not “avoid enterprise.” It is “scale the repeatable business we have earned.” Mid-market gives us the strongest foundation for growth next year—and a healthier route into enterprise later.