🕳️ The sunk cost fallacy

This may appear as a counterpoint to the above at first, but I promise it isn’t. With many things in business, you should keep going. But there is a time to call it a day.

Projects or ideas can quickly become a financial black hole if you let them. It can be difficult to give up on something that you think should work, or that you are passionate about, or that you have spent lots of money on. Just because you have spent $500 on conference tickets doesn’t mean you should go. Just because you spent $8k or 20 hours on a new website it doesn’t mean you should use it. $150k on fitting out a new restaurant doesn’t mean the restaurant should ever open.

How do you know if you should continue or if you should stop? Data.

You need evidence that the thing will or won’t work. You probably already have that evidence, but maybe cannot see it. My friend recently became interim CEO of an angel investment company. That company is in dire straits but the original board won’t let it go because it hasn’t yet delivered the ROI they expected, despite an objective strategic summary from my friend showing that the future is bleak. They have invested and find it hard to quit because they have put so much into the project. What they have put in is “sunk”, it is done, used, finito, gone. It is irrelevant. The future is what matters. Past actions should not dictate future actions. Your future need not be dictated by your past. That company is bleeding money without any realistic future prospects. It is causing significant reputational damage to all involved. It is time to cut it loose.

It can often be hard to ‘zoom out’ and see the situation for what it really is, but you must seek out an objective opinion. An objective opinion can make you aware of evidence that you are otherwise blind to. There are lots of reasons why you may be blind to the evidence, from your emotional connection to misattributing or misunderstanding the importance of some evidence. Objective opinions will help you see things that are otherwise impossible to see.

Remember: there is an opportunity cost to continuing with anything. Have the courage to cut a problem project, regardless of what you have spent. What has happened in the past pales in comparison to the future. People in pop-culture when time travelling often worry about how a tiny change in the past will impact the present, but rarely consider how a tiny change in the present can impact the future. The past is done. Learn from it. Focus on the future.

💡 Quote I'm pondering

"Winners quit fast, quit often, and quit without guilt” - Seth Godin 

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I shared this in my Work Smart Wednesday newsletter. Want the full set of related insights? You can read them here: https://worksmartwednesday.substack.com/p/work-smart-wednesday-august-16-2023

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