We’ve all heard the expression, “Know when to cut your losses,” but that’s much easier said than recognized.
Sunk costs are the monies invested on projects, ideas, people, or plans that never pan out. A half written blog post is an example of a sunk cost. We start and can’t finish the idea through so it’s left as a ‘draft’ never to be touched again, we cannot recoup that time spent on it. A baseball player that has been training with the team as the starter with the team all off-season that gets hurt in the opening game; an entire off-season wasted that could have been spent working with someone else. A sales call that requires travel and time studying the company being sold to that never gets closed. All of these are examples of sunk costs. The money and time spent on these projects cannot be recouped, however these acts do not need to be in vain.
We can always learn from half-written blog posts. Maybe that wasn’t a good idea to begin with. Or maybe it’s just a smaller part of a bigger idea, like a book or a longer post. Or maybe still it’s just a product of the creative process of taking an idea from a thought rattling around in our minds to well-thought out words on paper. The starting player can always teach the backup what he’s learned so he can pick up where the original left off. And for the original, he’s got great experience for the next season and is further along than he after the team invested that entire off-season in him. And that sales call that required so much effort more than likely produced some answers as to what that company did want. Now it’s time for the sales person to go back to the drawing board.
The key to each of these situations is knowing when to walk away. We have all seen the new sales person that never quite ‘gets it’ even after weeks of training and practice. Even though the company has spent time and money on him, he needs to be let go or the company is going to lose even more money. The company needs to determine what is more of a loss: the time and money spent training that him or the time and money that will be spent cleaning up trying to compensate for his lack of performance or even worse, cleaning up the relationships he ruins.
We find ourselves viewing the past investment as more important than the future investments for the decisions we’re making today. And when those past costs become more important than the future costs, we continue to invest today instead of severing ties and walking away. If we account for the future costs we will be making smarter decisions for the long-term instead of being hard-headed and continuing to invest in the lost cause.
Find the right time to cut our losses this week.
