How Sunk Costs Can Sink Your Product Business

by Sean Boyce
sunk costs sink businesses broken ship on shore

You are in charge of developing a new type of car. The project will cost $5 million dollars to develop. After you’ve spent $4 million dollars and made 80% of the progress, news comes out that a better car has just been brought to market, rendering your car all but obsolete.

What do you do at this point?

If you voted to finish the project then you aren’t alone. Throughout the course of history almost every has finished the car.

Hopefully you can see why this is a problem. You will basically be wasting $1 million dollars on a product that will never be able to compete. However, the motivation to finish that project is strong. This force becomes even stronger when we add data around how much money has already been spent to the equation.

If we’ve spent not just a considerable amount of time, but also lots of money towards building a product, most people are motivated to finish it.

The feeling of leaving something incomplete is gut wrenching. Most people are greatly bothered by it. When it comes to building product businesses, this pattern is so common that there is a name for it. This pattern is referred to as the motivation trap.

The motivation trap affects countless product businesses and dooms almost all of them. It is one of the reasons why 9 out of 10 product businesses fail.

So now that we know what it is, what can we do to avoid it?

Never ignore the fundamentals

Pets.com is one of the most popular failures from the dot com era. They were shipping pet food over the internet. However, this ecommerce play for pets wasn’t meant to be. They failed spectacularly and with only a quick glance behind the scenes it is obvious to understand why.

Pets.com was selling dog food for less than what it costs to ship it.  

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You obviously can’t turn a profit with these kinds of numbers. Don’t ignore the fundamentals. You can’t lose a bit on every sale and make it up in volume

Focus on today first

Netflix saw a future where streaming content over the web would eventually take off. However, at the time, the technology available simply wouldn’t enable them to do it. So what did they do instead? They focused on the problems experienced by the market at the time and went head to head with companies like BlockBuster.

Netflix took existing solutions and made them better. Much better.  

Only a few short years later, BlockBuster was out of business and Netflix was well on their way to realizing their original dream. Now they have a massive media library available to be streamed over the web.

Focus on the Why

Your why matters more than anything when it comes to your product business. If you don’t know why you’re on the current path then you need to stop and refocus your and your team’s efforts. Communicate this throughout your organization and let people know they should push back if the mission isn’t clear.

Want to know what you can do to get out of a motivation trap that is affecting your business? Let’s talk it through, email me at sean@nxtstep.io or visit us on the web at NxtStep.

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