Today’s episode of the podcast is all about the Sunk Cost Fallacy and the impact it has on our decision-making as business owners.
In this episode I share what the Sunk Cost Fallacy is and why we need to break free from it, to prioritise our time and future success.
If you know someone who needs to hear this episode, I would love for you to share it with them!
KEY TAKEAWAYS COVERED IN THE PODCAST
- Why you should never ignore your gut
- What to do when we fall foul of the Sunk Cost Fallacy
- Different ways the Sunk Cost Fallacy can show up in product and service based businesses
LINKS TO RESOURCES MENTIONED IN TODAY’S EPISODE
Hello and welcome to episode 304 of Your Dream Business Podcast. And as always, I am your host, Teresa Heath-Wareing. How are you doing? So this week I've got a really interesting podcast episode. I think it's going to really resonate with lots of you and hopefully will give you something to think about.
I'm going to be talking about the sunk cost fallacy. So have you heard of that before? Do you know what it is? I'd be interested to know whether many of you had heard of this before I did this podcast episode. But let me tell you before I explain what the sunk cost fallacy is by their definition that you find on the internet.
Let me explain why this has come up and why I wanted to talk about it. So I was speaking to a lovely lady a few weeks back and she was telling me that she had recently signed up for a coaching program. She'd already done the coaching program once and she didn't want to do it again. And her gut was saying, you don't need to do this.
I don't want to do it. And she got on a sales call with the person and they basically convinced her otherwise. Which, firstly, before she said anything else, I already in my head was going, no, no, no, no, no. If your gut is saying something isn't right, then never ignore it. Never ever think, I'm wrong, my gut's wrong, someone else is right.
So, that was the first thing, but that wasn't the reason I started this pod this episode. So she then continued to tell me that she had paid a considerable sum of money to be part of this coaching program and she had done two calls and hated both of them and they were awful and it just wasn't resonating with her and I'm not saying that whoever's coaching program it was was awful I'm just saying it didn't fit her at that point and in fact on one call she had ended the call early and had become really upset by what was said.
And she was like, I just don't want to be in it, but I've paid this money and now I'm in it and it's just awful and I don't know what to do. And the sunk cost fallacy, easy for me to say, came to mind. Because what was happening was she was, she'd already paid the money, the money had gone.
Okay, now the best you could try and do was get your money back. Like. Whether that was an option or not, let's ignore the fact and pretend that it wasn't an option. So she had handed over a considerable amount of money for this coaching and two calls in, and I think there was possibly like eight in total, she'd already decided.
I don't want to do this and, and should have listened to her gut in the first place, but she was where she was. So she said to me, I don't know what to do. And I talked to her about the fact of, well, why would you continue with the sessions? And she said, understandably, well, I've paid the money. And I said, okay, so tell me what's worse.
One, that you lose that amount of money or that you lose that amount of money and then every other week or every week, whatever it was, the calls were you go through a very upsetting, painful experience and made to feel like you're just useless. Cause that was how she told me she felt. So basically every week or two weeks you get a bit of a whipping and you come away feeling awful and that you're not good enough and you're not doing a good enough job.
Like. What's worse. And she kind of sort of said, I know, I know, I know, but obviously this is where the sunk cost fallacy comes in. And when I Googled it, they say it way more eloquently than I do. Let me find the description that they give you on the internet. So it says it's a phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it.
Even when it's clear the abandonment would be more beneficial. So it often does include. a financial aspect. But it can include a time aspect. So some of the examples it gives on the internet are things like relationships that you know you shouldn't be in anymore, but you've been with someone for so long, you've given them so much of your time, you've invested so much of yourself, that it seems pointless to leave or finish because you've done that much investment.
Another example of a more simpler and easier one is if you're sat down to watch a film. So I know that like, I've watched series of things and really probably should have given up on episode two when I thought this isn't great and have carried on and then thought, well, that was the biggest waste of my time ever.
So, you know, if you're into watching a film and you're 20 minutes in and you think this one's rubbish, do you just end the film or do you carry on watching it because you've already invested 20 minutes of your time? And I think alongside the sunk cost fallacy is the hope that it will get better or improve or become more of what you want.
And it's already given you some indication that it's not going to do that. So for me, it's really, really important. And when I had this conversation with this lady a while back, it made me so sad that she was going to continue to put herself through a situation where. She, it was not an enjoyable situation and make the fact that she had lost that money so much worse.
And for me, she wasn't valuing her or her time because that's the truth of the, of the fallacy. The truth is, yes, you've put financial investment in. So let's say, you know, this example of you've started working with a coach and you've realized that the coach isn't quite working and it isn't quite doing what you need, but yet you think I'm just going to continue going on.
I'm just going to keep working with them because hopefully I might get what I want or hopefully I won't feel like I've wasted my money. But the truth is, if you're feeling that, it is unlikely to change. It's unlikely to be any different from what You're feeling right now. And what's happening as well is because often one of the questions I get and you, you know, depending on the type of business you're in, but if you're a coach or someone that works one to one with people is, oh, I've just invested in such and such.
And although I don't like it and you'll be better, I don't want to, you know, obviously I've just invested with them, so I can't at this point. Now, fair enough, if that's an excuse, but they really don't need to say that they could just say, I don't want to work with you. That's fine. But if that is the real reason, then the sunk cost fallacy doesn't just include the, you know, the risk of spending more time with something that isn't working, the risk that you're adding on top of that.
So if you're sat there thinking, yeah, I really want to work with someone or maybe even work with me, but I've just invested in X, Y, Z. The other risk is that you're delaying your time. You're pushing back your success. You're pushing back the chance to really make a difference in your business or really make that change in your life because you're waiting for this other thing to be done.
And so not only are you wasting your time because you're still showing up on the calls and things, and you're still going and taking part in that thing that isn't working for you. But you're also pushing back and delaying your time to actually get started working with someone who really is going to make the difference, who really is going to, get the stuff done that you want done.
And you might sort of be sat there saying, yeah, but how do I know that? You know, not the next person is not going to be like that. And the next person is not going to be like that. And we learn every time we do these things, we learn the one thing for that woman I was talking to, to learn is never ignore your gut ever, ever, ever.
Like if your gut is going, I don't want to do this. Something doesn't feel right. You can't even vocalize it. Just don't do it. You know, don't hand over the money. Unfortunately, the person that sold to the thing was a very persuasive salesperson and people are like some salespeople out there are very persuasive but if in your gut it says no or if you if they won't give you time to think about it because this is the other thing and I know like it feels like the whole okay We're not selling to remember like on some kind of watchdog program in the UK.
There was like People would go in and sell kitchens. Was it like Magnet or something? I don't know. But they would go in and they'd go, let me speak to my manager. If you buy it right now, you can have this discount. If they're not willing to let you think about something and step away to have a think, then they're not the people to work with.
Like I get that carts close. I get that things change. I get that programs start and that's fair enough. However, if you're working one to one with someone then really there's no reason why you can't start at any point. And it's not that if you're on the other side of it and think, well, I use that strategy that I want them to make a decision there and then.
You're not saying, yeah, just come back to me whenever you're ready. You could be saying, okay. I'm going to give you 24 hours, have a think about it, and I'll come back to you tomorrow and you can arrange a call exactly for the 24 hours of the next day. Do you know what I mean? So it's not like you're just leaving them be, you are making sure you get a decision from them.
But if you're trying, if someone's trying to get a decision from you there and then, and basically saying you've got to make that decision, then I think I would run for the hills. That would definitely be warning signs. So like I said, The fact of you're working with someone and it's not working and you're like, I've got to keep going because I've spent this money.
You absolutely do not. Yes, that's a very painful and expensive mistake to make, but you won't make it again. So, Just ignore the fact that that money is already gone. The other one is, I had this section. I wasn't thinking about giving you this example, but it's a good one. Stock like sunk cost fallacy in stock.
So I have a number of people in the club who have physical products or make physical products and those people can have a huge amount of stock and they get to a point where it's like, okay, you need to sell some of this stock and they don't want to sell it for anything less than what they wanted to sell it for.
And it's like, well, yeah, but it's doing nothing for you. In fact, what it is doing is taking up space in your store or your home or wherever, and it's taking up space in your head. So actually you'd be better getting anything back from that. And just letting it go type thing. So how do we get over the sunk cost fallacy?
How do we make sure that we don't just continue with something because we're concerned about the time and effort and money we've already put in. So one of the first things to do is to look at it from a very factual and data driven point of view. Often when we're falling foul of the sunk cost fallacy, it's because we've got an emotional investment in it.
And we are taking into account emotions. And I'm not saying ignore your emotions. I'm just saying that's often one of the reasons why we struggle then to make that decision to go, actually, no, this isn't serving us. So try and think of facts and data. So, okay, I've spent the money, but how much time am I going to waste doing this?
How am I going to, move forward if I'm still doing the thing that I'm doing? How much time am I going to waste by not starting this new thing sooner? Like I said, the money's already gone. So at this point, as frustrating and as annoying as it is, it's already gone. So actually I would much rather just lose that money than lose it and then invest time that isn't doing anything.
The second thing I want you to do is focus on your time as a value. So in the example I gave earlier of the lady that had invested in the coaching program, if she had put a time value on her own time, so let's say she said she was worth a hundred pounds an hour, then she would be able to easily see that she was wasting more money by continuing.
So she could have then said, okay, well, how many more hours would I have to invest in this? And therefore I am going to lose X amount more money by investing those hours. But because we don't often value our time like that, then we don't often think to do that. So for me, that's definitely a way to look at this.
If it is your time that you're taking up, then what value would you put on that time? And actually that's just as important as the money. And then focus on your future costs and focus on the future cost of continuing. So like I said, if you're working with a coach and you want to work with another coach and you think, well, I really can't until I've, you know, finished working with them, then you can think about, well, what's that costing you going forward?
Or what's it, what it's costing you is that you're pushing back the potential to earn more money, that you're pushing back the potential for your success. And therefore you're losing money by not doing that sooner. So. I really wanted this to be a sort of quick and simple podcast episode because we don't often think about the sunk cost fallacy and when we buy things, and if you're anything like me, I've done lots of coaching programs, I've done lots of courses, and Sometimes we just continue with the thing because we think, well, we have to, because we've already paid the money.
Well, the truth is we don't have to, we can stop and do something else. And yes, we don't want to be doing that every other week, but we don't want to be spending any more time on something that isn't serving us. And the same can be said for, you know, Investing in something that isn't working in your business, full stop.
Now, I'm very hesitant to talk about that as part of this, just because there's a difference between being consistent at something and finding out whether it works or doing something just because you're going through the motions and therefore it's probably worth stopping. So, yeah. From, from a content consistency point of view, I would go consistency over the sunk cost fallacy, but anyway, I really hope that this has helped.
I hope that, it's given you something to think about. And maybe if you are sat there thinking, I'd really like to work with you, Teresa, but I just need to wait for X, Y, Z that maybe you don't need to wait. Maybe you should just get in touch and we can get started. Okay. Have a lovely rest of your week and I will see you next week.