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One concept you learn in business school is that of sunk costs. In case you have not been introduced to the term of a sunk cost, it is essentially an unrecoverable cost. An example of a sunk cost is the purchase of a machine that makes type A widgets, only to have the world switch to type B widgets one year later before your machine is fully depreciated. Do you keep producing type A widgets until your equipment is fully depreciated? Or, do you sell it off to the highest bidder and buy type B widget equipment?
All the money you spent on the type A widget maker is irrelevant, and a sunk cost. You should not focus on how much you’ve already spent; you need to focus on how much you stand to lose by not going to type B and how much you stand to gain by making the change.
Often, we are so preoccupied by how much time, effort, and money we put into something that we lose sight of its irrelevance. This has business, political, and even personal ramifications. Our unwillingness to write something off as a sunk cost keeps us mired in a system that does not work.
Think of how American companies were slow to innovate in manufacturing processes while Asian companies invested in state of the art equipment and business practices. Think of how politicians will not accept the failure of government programs and simply tack on more legislation to try to fix a fundamentally flawed system. Think of how many American workers put their livelihood on the hands of the local plant that may or may not be there a few years down the road.
Progress does not care how long you’ve done something, how much you spent, or how much you care about it. The economy moves on whether you want it to or not. You have to be willing to cut your losses, aka sunk costs, and move on to other things. Otherwise, you’ll have to sink with your ship.
We often see that business is slow to react to market forces. Politicians will keep a dead a dead horse standing on principle. And, we occasionally get bent on making something work that has no hope. All of this is not to say that we ought not look to the past for guidance. The point is that we should be willing to let go of those bad decisions that cannot be remedied or undone. We should occasionally look to move on towards solving our new problems rather than patching our failed solutions. Sometimes, we have to be willing to start fresh.
Shaine 