Are Sunk Costs getting in the way of your success

Business always has a cost to whatever it is that you want to achieve. When investing in a new idea you need to invest something worthwhile in order to achieve a better outcome. However your investment can come in the way of whatever it is you want to achieve when you hold on to those costs that are no longer worthwhile to you.

Sunk Costs can be an emotional Guilt Trap

A simple example I love to give is at the movie house. You have purchased a ticket to a movie and when in there it turns out after 20 minutes that this movie is probably the worst you have ever watched do you stay in or do you leave? Or perhaps you drive to the movie house which is 10 km away and when you get there you discover that the movie which was advertised is no longer there, do you get in and watch whatever is there or do you leave. These are some of the decisions that one has to make in business on a regular basis. You could stay and watch the movie due to a number of reasons, the main reason you would stay is because you have already committed to watching a movie and you spent some money to get to where you are. Yet in real sense you can still walk away from the movie idea and do something new.

Sunk costs are those costs that we have already spent to pursue an idea that we initially believe in. However it can then turn out that the idea is no longer as valuable as we thought it would be such that it will cost us in the end. It would be more advisable for you to leave that idea and turn to something else as pursuing the idea will cost you. The truth is that we find it very hard to walk away, instead we choose to pursue it out of consideration of costs spent. In the end we lose out on time, and savings because if we were to just write off the loss then we would save on time and do other more profitable things.

Pursuing costs leads to other costs

Most businesses lose out because of sunk costs where they keep pursuing a project which has already proved that it is not worth while. More money is dumped into a sink hole and before you know it, more money will be put into a marketing campaign from which the project will never really take off, only losses will be experienced.

Emotions

In order to walk away from a sunk cost one must leave their emotions out of it and focus at the business at hand. Unless if you are in it for the community experience or some greater good one will have to just write off their sunk costs and focus on something else.

Sunk costs when not understood for what they are can get in the way of your business endeavors. You need to be able to draw the line when it appears that the project is not going to take you anywhere.