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 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.