As a group, entrepreneurs tend to be very passionate people. You don’t just run a business; you give it your heart and soul. This intense drive is definitely an asset for your company, but it can also become a liability if you’re not careful. Learning when it’s time to let go of certain issues is one of the best pieces of business advice you can get.
The Sunk Cost Fallacy
As human beings, it’s hard to let things go. This is especially true if you’ve already invested your time and money into something. For example, there may be a promising project that just speaks to you. You believe in it and it would make you satisfied to see it succeed. What would you do if the project ran into significant hurdles? As time goes on, it becomes apparent that it’s going to take a lot more time and capital than you initially imagined. Would you keep pouring more money into it, reasoning that it’s the only way to get back your investment?
That’s what many business owners do. Sadly, this can lead to major losses because by the time the project is finalized even amazing profits can’t recoup the costs incurred. In this case, the project becomes more of a personal hobby than a smart business investment. Remember, you’re in business to make money and help your overall company thrive, not cater to a single pet project.
This tendency to keep going even though your brain knows it’s a bad idea is called the sunk-cost fallacy. It’s related to human nature. People naturally don’t like to lose or let things go. However, money you’ve already spent is gone. Sometimes you just have to cut your losses while you can and invest your profits in a different idea. This doesn’t mean you’ve failed; it just means you’re a savvy entrepreneur.
The Advantage of an Outside Viewpoint
How can you make the tough decisions? It’s often helpful to take a step back and analyze things with a cool mind. Think in terms of spreadsheets and numbers, not emotions. It can be a good idea to put yourself in the role of a bank lender. Ask yourself, “If someone came to me and shared details about where the project is right now, would I really invest in it?” If the answer is no, it may be time to pull the plug.
This is one reason why financial advisers are helpful. They can offer cool and calm business advice. You have the final say, but it pays to get this kind of second opinion.