Running a business often requires bold decisions—hiring people, buying equipment, entering new markets, or investing in technology. Some of those choices create growth. others don’t! The real danger is not in making a wrong call, but in clinging to what we already have because we’ve already invested so much.
That is the Sunk Cost Fallacy—and for many medium and large businesses in manufacturing, tech and services space suffer because it quietly eats away at resources, profitability, and agility.
A well-known printing press in Ernakulam had made investment in a number of offset printing and binding machines because they have long specialized in printing brochures, magazines, diaries, calendars and promotional materials. They have invested heavily in presses and skilled technicians. But, the world around them has changed – the world has moved to digital – magazines have gone online, people hardly buy books and giving diaries and calendars as gifts has become a thing of the past. The new entrants in the printing domain are focusing on packaging for ready-to-eat foods, electronic goods and garments. The owners of our press were hesitant to adapt. “We can find more work if we put in additional effort in Sales and Marketing,” they reasoned.
Competitors who shifted quickly into packaging took an early financial hit by investing in new equipment, retraining staff, and even discarding old assets. But within a few years, they would dominate the growing packaging market. Meanwhile, the company that clung to its old printing model faced shrinking demand and mounting losses.
Now take a high profile IT Company. For years, it thrived on products built with older-generation technologies. They were leaders in billing software and banking software. Their workforce was skilled, but the market for their once in-demand product was rapidly declining. The leadership knew AI, machine learning, cloud-based solutions and a whole host of newer applications and features would be the future. Yet, instead of re-skilling or hiring for new capabilities, they held on to what they already had. “We’ve invested so much in these employees and products—we can’t just change overnight.”
Other firms in the same sector did change. They recruited resources who well versed in new technologies and training some of their existing team. The others were given time to learn or to find a new job – and while they searched for new options they supported the existing clients of the company. At the same time the new team found customers who need cutting-edge products. This shift gave them a first-mover advantage. Today, they are winning larger clients and commanding premium pricing, while the company that stuck to the past is scrambling to catch up.
Both stories highlight the same trap: refusing to let go of past investments even when the market has moved on. The result?
- Capital blocked in declining areas instead of growing ones.
- Opportunities missed because decisions were based on history, not on future potential.
- Teams demoralized, watching resources wasted while competitors leap ahead.
Sunk costs are dangerous not because money was wasted in the past—but because they continue draining resources in the present. And more importantly stopping the organisation from the opportunities that have sprung up in the market.
Here’s what smart business owners do differently:
- Set measurable benchmarks upfront. Every big investment must have clear ROI metrics and timelines. If results don’t materialize, review early.
- Detach emotion from money. Pride in past decisions often clouds judgment. Ask yourself: “If I had not invested already, would I still put money here today?”
- Reallocate swiftly. Free idle machinery, retrain or redeploy employees, and exit failing projects before they consume more.
- Be willing to absorb short-term pain. Sometimes the only way to secure long-term growth is to take a hit now.
As you think about your own company, ask yourself:
Are you holding on to old equipment, people, or products only because you’ve invested too much already?
What opportunities are slipping away while you try to “get your money’s worth”?
If your competitor is willing to take a hit today to dominate tomorrow—are you prepared to do the same?
The sunk cost trap isn’t just about wasted money—it’s about lost future potential. Businesses that survive are those that cut their losses early, reallocate resources wisely, and seize new opportunities with courage.
Would like to discuss how to make your organisation future ready?
(This column is written by Jayadev Menon, Business Coach at www.thealternativeboard.in}
