What Is Satisficing in Growth Strategy? Why Leadership Teams Drop Their Best Options

Oct 16

5 min read

Satisficing is choosing the first option that clears the bar instead of searching for the best one. In growth strategy, it is how most leadership teams decide where growth will come from next: they research three options and drop the rest untested. AIPath ranks whole growth strategies against each other and tests the strongest before you fund one, so the options a leadership team drops get compared instead of argued away.

By David Isaac, Founder and CEO of AIPath.

The word comes from Herbert Simon, who coined it in 1956 by blending satisfy and suffice (Wikipedia). Simon won the 1978 Nobel Prize in economics for his research into how organizations make decisions. His point was not that people are lazy, but that when the options outrun the time and information available, settling for good enough is the rational move.

Where growth can come from

Ask a leadership team where its next growth will come from and you will usually get different answers, because the types of growth get blended together instead of explored separately. That makes each one hard to execute precisely. There are three main sources, and each one fails in its own way.

Innovation has the highest potential payoff, but it pays back slowest and least reliably, because the market may not be ready for it yet.

Product development is the fastest to execute and the easiest to fund, which also makes it the easiest to mistake for a strategy when it may only be a feature list. Pendo's 2019 research found that 80 percent of features in the average software product are rarely or never used.

Go-to-market is the cheapest to test and the fastest to learn from, but it cannot fix a product, or help it adapt as competitors move.

Why satisficing happens in growth strategy

The pick is usually made implicitly, and it tends to be the option the most confident function already owns. Sales argues for go-to-market, product argues for the roadmap, and innovation gets whatever budget is left.

The arithmetic makes it worse. Multiply the three sources by your target segments, your price points and your channels, and the number of whole strategies far exceeds what any company has the time, budget or ability to research. So the leadership team works on three and drops the rest. That is satisficing, and under those constraints it is a rational response.

What satisficing costs a growth strategy

The options that get dropped are never disproven. Nobody tests them side by side with the shortlist, nobody examines their opportunity cost, and nobody records which elements of each idea worked better than others.

Then the strategy resets: a target is missed, a win arrives that nobody planned, or three good ideas compete for the same quarter. Each reset splits the budget one more way and throws away what the last cycle taught, which is why growth strategy restarts every quarter at so many companies. There is no way to build on wins or losses.

How to tell if your leadership team is satisficing

The rejected options were never written down. If nobody can name the strategies that were considered and dropped, the choice was made by default.

The winning option belongs to the loudest function. If the strategy matches the budget owner's existing plan, it was probably inherited rather than chosen.

Dropped options have no evidence against them. If the reason an option was dropped is that there was no time to look at it, it was not disproven.

Every reset starts from a blank page. If last quarter's results do not change how the next options are ranked, nothing is compounding.

A worked example

Take a hypothetical software company planning next year's growth. It sells to three segments, at three price points, through three channels. Combined with the three sources of growth, that is 81 whole strategies before any feature or message is varied. The leadership team has one quarter of planning time, so it researches three, picks the one the head of sales favors, and funds it.

Six months later the target is missed. Nobody can say whether it was the strategy or the execution, because none of the other 78 strategies was ever compared against the one that was funded. The next planning cycle starts the same argument again.

The limits of fixing satisficing

Satisficing is often the right choice. Some decisions do not deserve a full search, and a team that tries to research every option never ships. The cost only matters when the decision is large, hard to reverse and made once a year, which is exactly how most growth strategies are set.

How AIPath helps a leadership team compare more options

AIPath lets a leadership team compare whole growth strategies before funding one, instead of settling for the three it had time to research. AIPath explores hundreds of thousands of ways a company could grow, across innovation, product development and go-to-market, and ranks them against a digital twin of the company's customers and competitors. The leadership team then tests the strongest in market and decides, with the dropped options compared side by side by AIPath.

Every test narrows the field. AIPath writes each result back into the model of your company, re-ranks the remaining options and paths, and the model becomes more predictive with each cycle.

Proof. Financial services company: acquisition cost from USD 240 to USD 43 across ten weeks of sequenced testing, using the iteration program AIPath now runs.

Frequently asked questions

What does satisficing mean?

Satisficing means choosing the first option that meets an acceptable threshold instead of searching for the best possible option. Herbert Simon coined the term in 1956 from the words satisfy and suffice.

Is satisficing bad for growth strategy?

Not always. Satisficing is rational for small, reversible decisions. For a large growth strategy set once a year, it means the best options may be dropped without ever being tested.

What are the three sources of growth for a company?

Innovation, product development and go-to-market. Innovation has the highest ceiling and the slowest payback, product development is the easiest to fund, and go-to-market is the cheapest to test.

This page expands part 3 of David Isaac's strategy versus execution series on LinkedIn. Read the original post and its six-page guide.

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