The Three Elements Of Sunk Costs You Need To Review For Better Business Decisions.

We’ve all done it, invested so deeply into something that we didn’t walk away even when all the signs were there. Instead, we dwelled on everything we sank into that business, job, relationship, home, health, finances, etc. and kept on truckin’ as if everything was fine. The problem with sunk costs is that once we’ve accepted them in one aspect of our life, they can easily slip into others. And the really annoying part is that when we’re finally able to view those situations in hindsight, we almost always wish we’d taken action sooner.
Sunk costs can often be divided into 3 general categories:

Time:  We’ve sunk an enormous amount of our time into something—time we’re never going to get back.

Energy:  It’s very hard to walk away from people, things, and situations we’ve sunk our honest and sincere energy and effort into.

Money:  Too many people cross over financial boundaries by sinking money that should have never been used as capital into their ventures.

The reality is that anytime we invest our time, energy, and/or money into one or more aspects of our life, failure is a risk. If you find yourself in a situation where you’ve been investing your time, energy, and/or money, but there aren’t any signs of your investment paying off in the near future, maybe it’s time to take a serious look at why you’re still plugging away at it.
You have proof it’s going to get better. If this is the case, it’s time to sit down and make sure you’re not trying to avoid reality. Believing in what you’re doing is important, but you still need to do a reality check every now and again to make sure you’re focusing your efforts and resources appropriately. Dale Carnegie has a few good thoughts about this:

·       What is the worst that can possibly happen?

·       Prepare to accept the worst.

·       Try to improve on the worst.

Planning for the worst may sound negative, but it’s a reminder that having a cut-off point, or an exit strategy, is always a good idea. Knowing how and when to get out can definitely reduce the stress of getting in.
Hoping things are going to get better.  Hope can be a funny emotion. We use it to stay positive, but it’s also evidence of doubts or fears, or that we’re struggling with clarity. If hope is keeping you from acknowledging the extent of your sunk costs, find someone you respect and have a conversation. Having an objective set of eyes on the situation can definitely be eye opening.
We’d rather fail than be found out. Sometimes we don’t walk away when we should because we don’t want our failures to be exposed. Here’s the thing: Everybody fails, and that means you’re going to fail sometimes too. Suck it up. Give yourself an appropriate amount of time to feel like crap, and then get over it. When you do, there will come a morning when you’ll wake up feeling refreshed and ready to move on.

Here’s the best tip of all for avoiding sunk costs. Before you enter into a sale, investment, job, or some other business arrangement, think hard about what you’re about to invest in. Put some time and effort into examining the true ramifications of your decision. Do your due diligence. It’s your best friend because every business situation comes with some degree of risk. The better job you do up front of proactively identifying and addressing those risks, the less likely you are to find yourself sinking under their weight.

Alan Luoma: I am a Sales Coach with extensive experience in industrial sales, sales management, new

product development, sales and product training. I work with a great national sustainable packaging company and their exceptional distributors to increase sales. My success has been and is in utilizing the Pareto 80/20 principal in business and life. I have become an expert in seeking out and eliminating behaviors that prevent business people from being successful. I am a member of The National Speakers Association and New England Speakers Association. You can view my profile on LinkedIn, or contact me at Luoma@snet.net