902:: The conundrum of Sunken Cost

Over the years I spoke to many business owners and decision makers in Europe and Australia.

And ever so often the topic of sunken cost came up.

I vividly remember one story where a small start-up company asked for my help because their CRM system didn’t go the way they wanted. It turned out that the business owner had already spent $60,000 on a solution that did not deliver the results he was after.

So he asked me to intervene and find a way out of the situation.

And instead of getting into a long and heated discussion with the company responsible for the insufficient CRM system, I’ve encouraged my client to look at it from a different perspective.

You’ve started at A wanting to get to B by spending $60,000.
Now you are at C, which is away from A but still a long way from B.

And I’ve asked him, “How about we go back to A and try a different route to come to B?

But I just spent 60K and I don’t want to have spent it in vain.” Was his angry remark.

Where I pointed out “You are at C not where you wanted to be. Now it could be cheaper to start afresh from A instead of trying to bend a bad solution into a good one continuing from C.

The $60K he had spent on a bad solution were gone.
That’s sunken cost.

Maybe by spending 20K in legal fees he might see part of it back.

This money could be much better invested in finding a better solution that gets him to B, so that he can go after his business and start earning money.

And that’s exactly what we did.

After I’ve convinced him of letting the sunken cost rest on the bottom of the ocean we discussed how we can find a quick and easy solution for his CRM requirements to get started. And we did.

Now I’m very proud to say that his company today is a multi-million dollar enterprise and recognised for one of the best places to work for every year.

In a situation where the current solution is insufficient and not going anywhere, it could often be better to let go of the money you’ve spent – as frustrating as it might sound.

Analyse the situation with fresh eyes and invest in a better path to reach your goal.

Instead of any knee-jerk reaction that might cost more money, more energy and more time without bringing you closer to your goal.