The truth about sunken costs

It’s one of the most profound and difficult lessons every MBA student is taught in a business school in Financial Management : Ignore sunk costs.

Money and effort you spent yesterday should have nothing to do with decisions you make tomorrow, because each decision is a new one.

Simple example: You’ve paid a 10,000 deposit on a machine that makes shampoo sachets at a cost of a just one dollar or one rupees each. And you’ve waited a year to get off the waiting list. Just before it’s delivered, a new machine comes in the market, from the supplier’s competitor, this one that’s able to make the same sachet for just a nickel or ten paise each. The new machine will pay for itself in just a few weeks… but if you switch to the new machine, you lose every penny of the deposit you have put down. What should you do?

It’s pretty clear that defending the money you already spent is going to cost you a fortune. What if your competitor was smart enough to wait and will now buy the new machine? Ignore the deposit, make a new decision.

Which makes perfect sense until it gets personal. And the work we do, the art we make, it’s all personal.

Supoose you are Anurag Kashyap and you produce a movie. The final scene is your favorite, the hardest to write, the one that you sweated to create and film. But in all the screenings you’ve done, the audience hates this scene, and when you show the movie without the scene in place, the response is fabulous.

Now, you’re not just walking away from a deposit or some training–you’re walking away from your best work, from your dreams, from you.

Part of what it means to be a creative artist is to dive willingly into work that might not work. And the other part, the part that’s just as important, is to openly admit when you’ve gone the wrong direction, and eagerly walk away, even (especially) when it’s personal.

Yes, we have to have faith in our ability. Faith lets us do our best work. But successful artists survive and remain on top by knowing that abandoning our darlings is part of the deal. It’s the Price perhaps,  for success.


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