Get Off the Wrong Train: The Sunk Cost Fallacy in Business
It is 7.42 on a grey Monday morning.
The doors are already beeping as you sprint down the platform.
You squeeze through the closing doors with a second to spare, coffee somehow still in your hand.
You find a seat, catch your breath and settle in with your coffee. For the first few minutes, everything feels fine.
Then the train pulls into the first stop, and the station name does not look familiar. A small knot forms in your stomach, but you tell yourself the line must take a different route.
The doors close, and you stay in your seat.
At the second stop, you check the map on the carriage wall. Your station is nowhere on it, and the knot in your stomach pulls tighter.
But you have been on board for twenty minutes now, and you paid good money for that ticket. Everyone around you looks perfectly calm, so surely you cannot be the only one who has made a mistake.
By the third stop, you know for certain that you are heading the wrong way.
Yet getting off would mean admitting the last half hour was wasted, then waiting alone on a cold platform for the next train back.
So you stay on, and every minute carries you further from where you need to be.
It sounds ridiculous when you think about it. But that is exactly what so many of us do in business.
What Is the Sunk Cost Fallacy?
The sunk cost fallacy is our tendency to keep investing in something because of what we have already put in, rather than because of what it will give us from here.
The time and money are gone whichever way you go, so they should never be the reason you stay on board.
Psychologists have studied it for decades, and it even has a second name.
Some researchers call it the Concorde fallacy, after one of the best-known sunk cost decisions in history.
The Concorde Fallacy
Concorde was the supersonic jet that flew passengers from London to New York in about three and a half hours.
Britain and France built it together, and it went into service in 1976.
During development, the costs spiralled far beyond the original budget.
Both governments could see that the plane would never earn back what it cost to build, yet they kept funding it because they had already spent so much.
If two governments can stay on the wrong train, any business owner can.
The difference is that most of us do not have a national budget to fall back on.
Why Business Owners Fall Into the Sunk Cost Trap
In business, the wrong train doesn’t always look obvious.
It might be the product line you spent two years developing.
Or the client who pays late and drains your team.
It could also be the hire you championed, or the marketing channel you swore would take off next quarter.
Letting any of them go can feel like letting yourself down.
There is pride involved too, along with a fear of what other people will think.
The longer you stay, the more you have invested, and the harder it becomes to leave.
Every extra month on the wrong train is a month you are not spending on the right one.
Signs of the Sunk Cost Fallacy in Your Business
Most business owners only spot the sunk cost fallacy once it has cost them dearly. These three signs will help you catch it sooner.
You Defend It by Talking About the Past
When someone questions the project, you talk about how much time and money has gone into it. You rarely talk about what it will deliver next year.
That is a sure sign that the past is making your decisions for you.
The Goalposts Keep Moving
It was meant to work by the summer, then by Christmas, and now by next spring. Each new deadline buys the project more time and costs you more money.
If you keep moving the finish line, it may be time to admit the race is over.
You Would Tell a Friend to Walk Away
If a friend described the same situation, you would tell them to cut their losses straight away. Yet you cannot bring yourself to do it.
That is the real giveaway. We are brilliant at spotting the wrong train for other people, and terrible at spotting it for ourselves.
How to Overcome the Sunk Cost Fallacy in Business
Ask Whether You Would Buy the Ticket Today
Ask yourself one simple question about each big commitment in your business.
If you were starting today, with everything you know now, would you buy this ticket?
If the honest answer is no, the only thing keeping you on board is what you have already spent.
Set Review Points Before You Commit
Decide in advance what success looks like and when you will check it. That way, the decision is made before emotion gets involved.
Get Other Eyes on Your Biggest Decisions
The people closest to a decision are the worst placed to judge it, because they have the most invested.
This is exactly why mastermind groups work so well for business growth.
A room of fellow business owners who will happily tell you when you are heading the wrong way. Who will help you work out which train to catch next.
Check Where Your Business Really Stands
If you are not sure which parts of your business are still pulling their weight, take our free business health check quiz. It takes a couple of minutes and shows you where the real blockers sit.
Let Go of Sunk Costs and Grow Your Business
Admitting that something you poured years into is not working is one of the hardest calls you will ever make.
However, the time you have already invested is never a reason to keep heading in the wrong direction.
The sooner you get off the wrong train, the sooner you can start building something better.
Onwards and upwards our friends,
Pete, Sarah, and the Mastermind9 team.
