If you believe the pop-psych literature, perseverance is the most predictive characteristic of successful people. But isn’t knowing when to quit equally important for…
If you believe the pop-psych literature, perseverance is the most predictive characteristic of successful people. But isn’t knowing when to quit equally important for a satisfied and fulfilled life as an entrepreneur?
The basic narrative is that anything worth doing will have major setbacks, and in the face of adversity what you must do is get up, dust yourself off, and try again.
I am living proof of this axiom. Of my five to six startups (depends on how you count them), half have failed, and each time I licked my wounds and started again. But perseverance is only part of the story, because sometimes you need to pull the plug on relationships, investments, and even your dreams.
In my experience, you rarely look back upon a project’s end and think “I should have continued.” More often than not, hindsight seems to say that you should have ended things sooner rather than later, and the dominant regret pattern of these failures is opportunity cost.
Let’s look at a few cognitive biases that affect the way we think about when to quit and some lessons from entrepreneurs that have done so smartly.
The Sunk Cost Fallacy (SCF) is probably the most pernicious of the cognitive biases that affect our ability to make good decisions about when to end something. SCF means that you consider the past (sunk) costs of a set of choices when deciding what to do going forward, as in “I’ve been working on this for three years, I can’t quit now.”
This is, however, a bad way of thinking about future decisions because you cannot go back in time and recover the investment you’ve already made. The only factors that should affect your decisions in the present are their future potential values. Put another way, what’s in the past is in the past, and you can only act now for your future.
Strategy: Be conscious of the Sunk Cost Fallacy and make a mental note each time you use it. When doing pros/cons or SWOT analysis on your plans, be sure to record, then actively cross out, any SCF items.
