Imagine you’re at a Vegas slot machine, eyes locked on the screen, convinced that one more pull—just one more—will finally pay off. You’ve already dumped $500 into it, so you can’t walk away now, right? Wrong. You’re in the grasp of the sunk cost fallacy, and guess what? Businesses do the exact same thing, except instead of a few hundred bucks, it’s millions of dollars, years of effort, and often their entire future on the line.
What Are Sunken Costs and Why Do They Suck?
Sunken costs are past investments (money, time, energy) that can never be recovered. The danger? The more we invest, the harder it is to walk away, even when the situation screams cut your losses and run. This is why businesses continue throwing good money after bad, doubling down on failing products, outdated tech, and marketing campaigns that generate fewer leads than a lemonade stand in a snowstorm.
The Classic Business Blunders: Sunken Costs Edition
Big companies and small businesses alike have fallen victim to the sunken cost fallacy. Here are some cautionary tales:
1. Kodak’s Digital Blind Spot
Kodak literally invented the digital camera in 1975 but chose to bury it because they were making too much money from film. Instead of embracing the future, they clung to the past, convinced that film would always dominate. Meanwhile, digital cameras took over, smartphones made film obsolete, and Kodak filed for bankruptcy in 2012. A textbook example of how refusing to pivot can lead to a company’s downfall.
2. The Concorde: A Billion-Dollar Vanity Project
The Concorde, the world’s first supersonic passenger jet, was sleek, sexy, and ridiculously expensive. Even after it became clear that operating costs were unsustainable, France and the UK kept pouring billions into the project because they had already invested so much. In the end, they pulled the plug—but not before 27 years of financial bleeding.
3. Quibi: A Quick $1.75 Billion Burn
Quibi (the short-lived mobile streaming service) launched in 2020 with massive hype and an even bigger budget. The problem? Nobody wanted 10-minute TV shows on their phones when they already had TikTok and YouTube for free. But instead of pivoting early, they spent more money on advertising and content nobody was watching. Six months later, they pulled the plug, proving that even billionaires can fall victim to sunk costs.
When Businesses Swallow Their Pride and Win Big
Not every company rides the sunken cost train into the abyss. Some recognize their mistakes, seek help, and come out stronger. Here’s how:
1. Apple in the ‘90s: Almost Dead, Then Steve Jobs Said “Nah”
Apple was this close to bankruptcy in 1997. They had too many products, no clear vision, and a dwindling customer base. Instead of stubbornly pushing forward with what wasn’t working, they brought back Steve Jobs, who slashed unnecessary products, streamlined operations, and launched the iMac. The result? Apple is now worth more than some countries.
2. Lego: From Financial Ruin to a Comeback Story
By the early 2000s, Lego was nearly bankrupt. They had over-diversified into theme parks, video games, and random products that nobody asked for (Lego-branded clothes? Really?). Rather than throwing more money at failing projects, they refocused on their core product: plastic bricks. They sought expert advice, restructured, and today, they’re one of the most successful toy brands in the world.
3. Starbucks: The Coffee Giant That Almost Fell Asleep
In 2008, Starbucks was expanding faster than it could handle, leading to declining quality and customer experience. Instead of stubbornly continuing down the wrong path, CEO Howard Schultz shut down 600 stores and retrained baristas to focus on quality. It worked, and Starbucks came back stronger than ever.
It’s Never Too Late to Ask for Help
If you’re in a business and feel like you’re stuck in the sunken cost trap, here’s your wake-up call: You don’t have to go down with the ship. Getting outside help—whether it’s a mentor, consultant, or just a fresh perspective—can make the difference between failure and a blockbuster comeback (the good kind, not the Kodak kind).
So, whether you’re a small business owner, a startup founder, or running a Fortune 500 company, remember: just because you’ve invested time and money into something doesn’t mean you have to keep investing. Sometimes, the smartest thing you can do is walk away, regroup, and find a better path forward.
And if you’re still unsure? Maybe take a break, grab a coffee, and think it over. Just don’t buy the next round of slot machine pulls on the way out.
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