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.

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.