Belmont University

Knowing When to Quit

There are certain lectures that stick out in my mind from my college days in the 1970s. Some of them seem kind of random, which is always a reminder to me as a professor that you never know what will stick with your students.

Any way, one lecture that has stayed with me was a lecture that an accounting professor gave us on sunk costs. He told us that money already spent on something is like water over the dam -- it is gone and should not be considered when making a decision on whether to stay with a project or not. We should only look forward in our analysis. Sunk costs are -- well, sunk.

While this was not a revolutionary concept, for some reason it was very eye-opening to me as a 19 year old in an accounting class and in my memory I can still hear his lecture on this concept even today. I always tried to remember this lesson in my business decisions.

For the entrepreneur there is the added element of emotion. We get attached to our ideas and hang on too long. We get our ego tied to a project and refuse to give up even though it is not logical to continue.

Sam Davidson wrote an essay at his blog on knowing when to quit that got me thinking about all of this. It is a great essay that all entrepreneurs and aspiring entrepreneurs should read.

And to Professor Dunnigan, my old accounting professor at UWSP, thanks for the lesson on sunk costs. It saved me a lot of wasted money and time over the years.


Posted by Jeff Cornwall on June 12, 2008 06:56 AM |

Comments

Thanks for pointing out such a great essay. Knowing when enough is enough is easier said than done, but it's important.
P.S. Did you go to the University of Wisconsin- Stevens Point? Go Pointers!

Birdied by: Megan Dorn | June 12, 2008 10:49 AM

First rule of hole digging:

When you're in a hole and want to get out, stop digging!

Sunk costs remind me of that.

I remember the same lecture in my accounting class getting my mba! As a liberal arts undergrad who didn't have any business training, it was eye opening.

Birdied by: LH | June 12, 2008 04:18 PM

As an entrepreneur who started out at my university's CAD/CAM Centre doing my own business, I would like to add something to the article. Sunk costs are water over the bridge, perfect, I do not have anything against that.

But human brains are not money, money once spend is gone as in sunk costs. But for human beings, Don't Quit, Never Quit. My interpretation is slightly different from his, when you are an entrepreneur in a venture, never treat your project as your own baby, if it proves to be beyond redemption, ditch it. But entrepreneurs do not quit, they will continue to look for other ventures hopefully Blue Oceans and finally establish their empires.

Sunk costs in a failed venture is actually knowledge and experienced gain. Each failed venture provides new knowledge on why you fail, what can be done better next time. Therefore monetary sunk costs are actually capital sunk knowledge to the brain. Make full use of that and continue to venture forth.

Life is a Big project and each business success or failure is only a tiny part of the Big project.

Birdied by: Lim Boon Chuan | June 12, 2008 09:46 PM

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