From the time we are children we are told that persistence is a virtue and quitting is for losers. And in some cases this is definitely true. You will never become a virtuoso pianist if you quit practicing, or get to calculus if you don’t persist at mastering quadratic equations. Of course, the underlying question that gets begged in those examples is “Do you want to be a virtuoso pianist” and ” Why is it important to get to calculus?”. Here’s a tip: If you are still waiting tables in LA hoping to be cast in a movie after 8 years, it may be time to question both the dream and the approach. The truth is, we often persist in the things we’re doing simply because we are culturally programmed never to quit anything! But quitting is often the best, most rational choice.
Several very well known economists and social scientists* have published and spoken on the economic virtues of quitting. So I am shamelessly stealing their research conclusions to apply to a couple of slightly different domain
I) Love affairs: (If you have no interest in life insights, relationships and so forth, skip to (II) below)
The first place where we often hang in there way longer than we should is relationships. This is a toughie, because we are not apt to be rational about our love affairs or friendships. But the economics apply nonetheless. For anyone who has ever stayed in a mediocre romance long after its sell-by date, we have all been guilty of the “sunk cost fallacy”. That’s an economic term for the belief that because you have spent so much time, energy, psychological currency, money and so forth, leaving is a “waste”. The fallacy is two-fold. On the one hand, by focusing on what you have already spent to stay there, you fail to calculate what you could gain by leaving. Leave this bad romance and you are now free for other people, activities and experiences. And those could be amazing! So you fail to calculate the “opportunity cost” of staying. That is, the opportunities that you don’t have because you’re still with that creep. The second part of the fallacy is a kind of magical thinking that tricks you into thinking that if you stay, somehow the spent time, etc is not lost. But in reality, that spent time, energy and soforth is lost to you regardless of whether you stay or go. Time only moves in one direction. It NEVER reverses, so you can’t get back what has been spent. Ergo, hurry up and dump the bitch (or bastard)!
II) Business strategy:
The other area where we get profoundly stuck and fail to quit soon enough is in business. In my work as a consultant I see this over and over. Early on in a business or during the early stage of a new phase of a business you make decisions about your strategy. Those decisions may be about your product, market, channel partners — about your business model, your pricing or any of a number of other basic strategic choices. And once those choices are made, entrepreneurs and managers are likely to stick to their guns indefinitely. In fact, the longer it goes on, the more we are likely to hang in there, again, because we are (like the miserable spouse above) convinced that the sunk cost (the money, time, training and so forth we have invested in this strategic direction) is somehow lost if we change course. Here’s the thing. It is lost. But it is lost whether you change course or not.
The thing that most business leaders fail completely to understand and abide by is that strategy is hypothetical and should be treated as such! What does that mean? Well, when you first conceive of your strategy, you come up with an idea. But unfortunately, we tend to view that idea as a static truism, a rule for conducting our business that is somehow hard, fast and worst of all, true. But let’s look at it differently. A strategy is really a hypothesis. It is a speculative statement about a potential business experiment. So instead of our saying “we provide concierge level IT consulting to small businesses and they buy it because they want to be treated better”, we frame that as a question. “We believe that small businesses want concierge level IT consulting, so we are providing that… unless/until proven wrong.” The difference may not be obvious, but it makes a world of difference in how you perceive your strategy and the execution of it. If strategy is hypothetical then it can be proven or disproven. And when a strategy is disproven, there ought to be no hesitation in quitting it and re-hypothesizing. Failing is good news. It means you have eliminated one possibility from an infinite list of options. Next!
Of course, the thing that you need to assess before quitting willy nilly is whether the strategy is at fault or the execution. So if you have a data point of one — for example, one, lone salesman trying to sell your services — it’s a good idea to run a test with another sales person (or ten) and make sure the problem really lies in the offering and not in the sales pitch. But at some point, you know which the problem is. For example, I had a client in the software business. Their product had initially been designed by the company owner in 1989 (yes, really), in Pascal (if you know software that may mean something, otherwise, it’s unimportant). Since that time, the software had been patched and altered and so forth to meet the needs of the current market. By 2015, trying to pass the software off to prospective clients as a current offering was becoming very challenging. But despite the obvious upside of investing in an entirely new offering, the owner of the company refused. All he could see was the sunk cost; the years he has put into development, patching, fixing, trouble-shooting and so forth. So he stuck with the old nag, and put band-aids on it, new skins (the way it looked) and tried to pass it off to prospective clients as equal to the competitors. Smaller clients and less sophisticated users still bought the product because they loved the people at the company. And their long-time clients hung in there, with a small (but measurable) rate of attrition.
But the reality is still a slowly declining market share, and the perpetual encroachment of competitors who are developing new and better software. Margins are shrinking. To date, the company is still hanging on. But the writing is on the wall and the business is on the block, with very few buyers bidding. The end of the story is predictable.
They had a chance to quit at the right time. They could have sold 15 years ago before the software was so dated. Or they could have bitten the bullet and invested in a new product. They still could. But the march of time is forward. Always forward. And the distance between them and their competitors’ offerings is growing at a pace equal to that of innovation — which is in Warp Drive. So they are not only losing the race, they are losing it by ever greater margins with each passing day. When we are faced with the choice of whether to quit, it’s useful to distinguish how we react. We can make excuses. “Our sales people suck, and if they were good, our old software would sell.” We can be honest. ” The product is outdated and we need to regroup to decide what would sell better, or if we should even stay in the market.” But the absolute wrong thing to do is to stick with it because “quitting is for losers”, or because you have already spent so much to get where you are. If where you are is nowhere, who cares? Cut bait and run.
Do you suspect you are stuck making a sunk cost fallacy? Professional coaching or consulting can make a huge difference. Contact me for a free consultation.