Every owner or CEO I know of struggles with this. You’ve invested some capital in a vendor, an employee, some new technology, a new initiative, a new marketing campaign and yet you aren’t getting the kind of results you want—even worse, that investment is holding you back from moving forward—however, you don’t get rid of them and move on. Why? Because you’ve already spent the money. Right?
But what you and I often forget to do is to calculate all of the other costs associated with this sunk capital. For example, all of the time we spend thinking about or working on this problem (for ex. an underperforming employee). Or we forget to think about all of the business or revenue we could have received if the right person or vendor or technology was in place.
At the end of the day sunk costs are just that … sunk. For good or bad, our desire to not “lose money” often gets in the way of us making good business decisions.
In fact, I fell into this trap recently (again—ugh!). Back in February I decided my main website (www.AcceleratedGrowth.org) needed an update. To me, it looks dated. So, trying to be a good businessman, I decided to outsource the project. And being an obsessive-compulsive :-), I wrote very clear instructions about what I want my site to look like and accomplish—including colors and fonts and functionality etc.
It’s now been three months and the project still isn’t complete. The number of hours I’ve invested giving them feedback—often the exact same feedback—and frequently feedback that was in the original document I gave them at the beginning of the project—is unbelievable (okay, embarrassing). Note: This is an outsourcer whom I’ve used in the past who on their last project was lightening fast.
Frequently, over the past three months I’ve thought, “If I had simply done this project myself, it would have been done months ago.” But because I had already placed my money in the pre-paid package system with elance and I wanted to “leverage” their time, I kept tolerating this behavior—that is, until the other day.
As I was explaining this situation to one of my closest friends (and showing him some of the feedback I had given them) he simply said, “So, why don’t you just do it yourself?” As soon as he said that I realized that I had once again fallen prey to the sunk cost problem. Why hadn’t I changed the process months ago (whether it was me or another outsourcer)? Why? Because I had already paid for this solution and I wanted it delivered. Yet who cares? Every moment I spend working on correcting their work is lost time and revenue. In essence, I fell for the the sunk cost problem once again.
So, as you look at your business, where are you allowing sunk costs to get in the way of your organization’s progress? Is there a vendor you’re still holding on to or an employee you need to let go of? Or is there some technology you purchased in the past that you’re still trying to get your “money’s worth,” yet it’s hindering the productivity of your people or organization? If so, then you probably know what to do. Sunk costs are simply that … sunk. Just make sure they don’t take you down as well!
To your accelerated success!