The sunk costs fallacy is a behavioural quirk that can lead us to carrying on doing something that isn’t quite right… simply because we’ve already spent a lot of time and money doing it.
So maybe you spent a ton of money developing a website that’s never quite been fit for purpose. The logical response would be to scrap the website altogether and start again.
But because of the sunk costs fallacy, most people and organisations won’t do this. Instead, they’re more likely to pour even more resource into trying to force something that’s fundamentally flawed to be good enough to get by.
At Wordtree, when we come across the sunk cost fallacy, it’s usually in the context of costs sunk into a piece of brand or brand communications work. So there’ll be a strapline that no-one really understands or remembers – but it costs thousands of pounds to develop. Or there’ll be brand attributes that don’t quite work, but that have been “signed off” and “can’t be changed, unfortunately”.
What we’re asked to do with these not-quite-right assets is to “make them work”. So we back-rationalise, finagle and make something that cost a lot work as well as it can in the circumstances.
The logical, easier step, of course, would be to scrap the false start and begin afresh. But the sunk cost fallacy usually rules this possibility out.
What are the sunk costs in the sunk costs fallacy?
If the sunk costs at play in the sunk costs fallacy were purely financial, there would probably be more scrapping and starting again going on.
But often the much graver costs are reputational and emotional. The way that many organisations operate means that “signing off” on a project means staking your reputation and future success on it. So if you later go back and say: “You know that thing I signed off on… well now we’ve been using it for a few months, it turns out that we need to do more work on it…” then there’s the potential for this to be seen as failure. You signed off on something that doesn’t work – so you’re at fault and not to be trusted with anything like this again.
So companies stick with the thing that doesn’t quite work, because the sunken emotional and reputational costs make it too risky to start over.
So how do we get beyond the sunk costs fallacy?
Clearly, a first step is to do everything possible to increase the chances of getting it right first time. This often includes:
- Researching and understanding the context and the marketplace
- Engaging stakeholders early and consistently
- Having an open mind
- Testing key ideas with your audiences
- Stress testing – could this idea we have be misconstrued in any way? And does it work in all circumstances?
- Boiling ideas down to their simplest possible forms – to boost memorability and utility
- Using great technology – like SimplyDoIdeas – to wrap your arms around the whole idea-generation and fulfilment process
But sometimes, the market moves unpredictably around us – and trying to make something work because you invested time, money and reputation into it 18 months ago is simply energy draining. It’s not quite flogging a dead horse – but it’s certainly like forcing an old beast to keep trudging on, when it’s really time for it to move permanently to pasture.
Have a well-documented creative process
Boring but true… if you document your idea-generating process, it makes it easier to go back and see where the thinking either didn’t stretch far enough, or simply took a wrong turn.
This, of course, means having a process in the first place. Who is going to do what, and when are they going to do it? What will be the outputs at each stage? What risks are involved? How are outputs going to be tested at each stage?
This doesn’t need to stymie creativity – and it doesn’t stop you having great ideas in the shower. But it should mean that ideas are thoroughly tested before they launch.
And if it turns out that your strapline isn’t quite right, documenting the process means you don’t have to completely start again. You can just go back to the wrong turning and course correct. But you do have to accept that your strapline or brand assets might change as a result of doing this.
You can couch this as a “natural evolution” and having a proactive stance on keeping your brand future-fit. And it’ll probably be more cost effective than leaving it another two years until you think it’s politically acceptable to revisit your brand structure.
Remove fear of failure by redefining success
We all nod sagely when we hear TED talks about innovation requiring a fail fast, succeed faster approach. Yet in our day-to-day work, marketers generally leap back into a mindset that says if someone’s responsible for a project, they’re responsible for it working out.
It’s a tricky balance to strike. It’s not helpful for project owners to have zero responsibility for outcomes of work – but a shift towards success being seen as doing the right thing with the information available at the time can be useful.
It’s the way IT works. You design and implement a network based on defined need and the technology and budget available at the time. Everyone accepts that advances in technology and changes in need mean that there are continuous, incremental improvements – and sometimes wholesale overhauls.
No-one says to the IT Director: “Hold on, you signed off on XYZ technology six months ago… what do you mean you need an extra £20k to make it fit for purpose now?”
The investment in the IT infrastructure to date isn’t seen as sunk cost. It’s seen as necessary infrastructure that needs to be updated over time. And this is a useful way for us to start thinking about – and planning and documenting – intangible business assets like brand.
It allows projects to be seen a living entities that are nurtured and updated as part of a process of continuous improvement – rather than as something that’s “delivered” and moved on from.
If you’re struggling to make an existing brand framework stick, we can of course help you to back-rationalise and make it work, come what may. But if we think you’d get better value from moving away from sunk cost fallacy thinking, we’ll share these thoughts with you too.