DON'T GET SUNK BY STARTUP COSTS
Posted on May 05, 2017 by Chris Costello, One of Thousands of Business Coaches on Noomii.
Sunk costs are involved in virtually every type of startup. Depending on the industry, they can be quite substantial. Stay lean at the start...
When considering barriers to entry, sunk costs requirements are often what keep many potential entrepreneurs from starting their own businesses. In numerous scenarios, the initial capital that becomes sunk into your venture is a significant part of the overall startup costs. In the brick & mortar world, substantial leasehold improvements might make your space look ripe for a magazine spread, but unless you own the building, that money stays with your landlord.
I’ve seen some very basic space alterations that were surprisingly effective with a modest budget. If you have cash to burn, then go for it, make it sparkle and don’t sweat the price-tag. But if you have limited funds, you’ll want to ensure plenty of working capital remains after completing the build-out. If your business proves to be financially successful after a few years, you can add those additional improvements into your space at that time. You don’t have to do it all at once.
At some point, if you want to exit your operation (sell or close), you’ll have to consider what your leaving behind. For this reason, it’s important to understand “The Sunk Cost Fallacy”. You might have heard this mentioned on the TV show “Better Call Saul”. It applies to a lot of things, but it definitely relates to independent business owners. You need to be able and willing to move on at some point and understand that leaving behind sunk costs are acceptable casualties of doing business.
Be ready to move on when it’s time. Don’t get stuck clinging onto your business because you can’t imagine walking away from something you’ve invested so much time and money. These are the sacrifices you must make. The opportunity cost of making a change will eventually outweigh what you’re leaving behind. I’ve seen too many business owners feeling frozen because they felt they’d come too far to pull out. Rather than saving themselves when they had the chance, they instead went down with the ship. Had they pulled out when the writing was on the wall, things could have been much better personally and financially.
Sometimes, you have to ask yourself “Is this still worth it?” or “Should I make a change?”. Listen to your intuition and don’t get caught up in “The Sunk Cost Fallacy” game.
