Backwards Thinking? Don’t Drown In Sunk Costs

I was chatting with a business owner last week and the topic of sunk costs came up in the conversation. Sunk costs?  In economic terms, these are costs that cannot be recovered. Like when you’ve already invested $1,000 in repairing a beloved car and find out you need to put another $800 in; and later another $500. You can’t get back the money you’ve sunk into the car, and you don’t really want to have to buy a new car because you’ve put in all that money. But you really love the car and the memories of good times. Memories, looking backwards. Its hard to say goodbye.

Unfortunately, we can wind up with “sunk costs” in relationships with people we’ve invested in, hoping they will wake up and prove our investment was warranted. It doesn’t always happen; in fact, it rarely does. Bosses, I’m talking to you.

Lets all look in the mirror and admit we have been guilty of this. We don’t want to admit we’ve hired the wrong person, so instead, we start looking for ways to fix the person. We might say, “This person just needs a little more time. I’ll give them three more months to make their numbers.” But they don’t make their numbers, and you lose time and money waiting.

Next, you think, “Coaching! This person needs coaching and training and then they will manifest all the brilliance I perceived in them when I hired them.” So you pay for a coach and spend several more months waiting for the magic to kick in. You see a glimmer of change from time to time and hang onto it like you’re adrift in the ocean and you thought you saw a strip of land.

Every few months, you decide to give it a few more. See the problem? Everything you’re putting into this employee is sunk costs. You might be trying to salvage your ego for having made a bad hire, but you’re actually digging yourself in deeper. Because now all the other employees are watching you pour more and more energy into someone who is not contributing; who may, in fact, be a problem. They have to put up with this person who seems to have become your primary focus in the workplace.

“Are we here to save this person? Or are we here to serve our customers?” they will ask each other, behind your back.

Letting Go Of Sunk Costs

We are all guilty of some sunk costs. There’s no judgment there. But when you realize that’s what you’re doing, you have to make a change. If you need help to face that hard pill, here are some suggestions one psychologist proposed:

  1. Give yourself credit for not having all the information when you hired this person. Now that you’re more aware, you can make a different decision.
  • Think of the opportunity cost of keeping this person on. You could hire someone great in their place or keep struggling along with them.
  • Think of what you would tell someone else in your place. Would you advise them to keep throwing good money after bad?
  • Think of the precedent you’re setting for other employees and managers. Communicating that mistakes are fine so long as you don’t stay wedded to them is a good message; communicating that it’s the norm in your culture to fight for a bad choice no matter what it costs others, or the company, is a bad message.

Nobody likes the feeling of having invested in someone or something and finding that they didn’t really get out of it what they hoped. But that’s common in life and especially in business where it’s all about taking risks and investing in people. The important thing is to have a plan for recognizing and letting go of sunk costs before the loss is too great. Backwards thinking won’t help.  It’s all about knowing how to read the signs. And if you’d like help, that’s what we do!

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