Defending sunk cost vs making new bets

Defending sunk cost vs making new bets

Value PropositionIn my day to day work with business software vendors one of the dilemma’s I see complicating decisions is the path we’ve already chosen – often a long time ago.

And whether we realize it or not – we’re defending sunk cost, and with that we influence our future. Being more explicit: we influence the difference we can make for our customers in the future. What if we’d also ask: What would we decide if we didn’t have the sunk cost?

It’s hard. I know. I’ve headed up meetings in my previous career where we deliberately challenged the status quo and thought about scenarios starting ‘fresh’. I can tell you, the bigger that investment you’ve already made, the hard it is to say ‘goodbye’ to it. At the end, we know what we have, and the future is full of uncertainty. By starting from scratch we’re back to square one. We lack that ‘advantage’ of having made those first big hurdles. We’re proud of what we’ve accomplished. It’s our lifeline. It’s an oiled machine. So why throw it away?

So when that new idea shows up the first thing we ask, is almost never ‘What small bet can we make here, what can we learn from this opportunity? But instead our inner voices whisper into our ears: ‘But what about everything we’ve already put so much effort and investment in? Isn’t that good enough?’ It’s a dilemma of every software vendor – small and big. Remember Steve Balmer defending Microsoft’s turf when the Internet came around? It almost killed them. Remember Peoplesoft defending client server? And even today there are vendors defending their on-premise heritage over switching to the cloud.

We look at this from the sideline and think ‘We’d never make that mistake. And still we do.

It’s the reason why new vendors get a chance to disrupt the status quo.

It’s the reason why companies like Plum are transforming Recruitment.

It’s the reason why companies like Xeneta are transforming how decades old rules in the container shipping industry in terms of how they buy and sell.

It’s the reason why companies like LeadCrunch transform B2B sales performance.

So be alert to this when you hear someone say: ‘This isn’t going to work.’ Often they are defending sunk cost. And while that’s not always a bad thing – I’d recommend to also answer the question: What would other people do who are not defending this sunk cost?

So, here’s a challenge: What decision do you have to make the coming week where you could apply this? Go for that clarity – it could be your next tipping point.

And if you are looking for a safe place to challenge your thinking, test your assumptions, or get generous feedback from tech-entrepreneurs like you, consider joining the Remarkable Effect Tribe