160: 5 Steps To Avoid The Sunk Cost Fallacy As A Leader | Damon Lembi

What is the sunk cost fallacy (and how it traps us)

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have you ever stayed in a situation way

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too long a job a project a relationship

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not because it's the right thing to do

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but because you've already invested so

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much time and energy in it that mindset

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can't quit now already invested that's

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the trap it keeps us hanging around

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longer than we ever should have that is

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a sunken cost fallacy and it can hold

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you and your company back more than you

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could ever imagine

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welcome to the Learn It All Podcast the

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show for today's leaders who want to get

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ahead and stay ahead because we believe

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great leaders aren't born or made we are

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always in the making i'm your host Damon

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Ley two-time best-selling author and CEO

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of Learn It a live learning platform

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that has helped upskill over 2 million

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people over the past three decades let

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me take you back to a major investment

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Learnit made about 5 years ago we were

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talking for years about the importance

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of needing to upgrade our LMS our

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learning management system but I never

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wanted to do it because it was a huge

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investment it was at least half a

The $500K LMS mistake: why Damon didn’t walk away—until he had to

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million dollars and I knew the time and

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effort to be able to do it would be

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tremendous but on the other hand we knew

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that if we made the investment and we

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took the gamble and it worked out it

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would be a huge positive gamecher for

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learn we went ahead and started looking

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for new LMS systems we even hired a

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high-priced COO to come in and lead the

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project we spent months evaluating

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different platforms and even brought in

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more consultants and eventually we

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landed on what we thought would be the

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best solution we started a project and I

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would say literally within 3 months it

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was pretty clear to me we made the wrong

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decision not only did we pick the wrong

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technology I could tell this project and

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investment was in big danger the

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definition of sunken cost fallacy is

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when we continue to invest in something

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not because it's the right thing to do

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but we continue to do so because we've

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already put time and money into it and

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still after all this I told myself we

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can't pull the plug on the project now

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somehow we're going to turn it around

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and everything will turn out okay

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eventually after about 3 months it

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became so clear that this project was

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going nowhere and I had to make the call

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and pull the plug we aborted the project

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and we had to let the COO go it was

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incredibly hard but also what it did is

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it freed up our time our money and our

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resources to build something that was

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much more aligned with the vision and

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the goals of Learn It and what we really

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needed for the future what does it take

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to break free from the sunken cost

Making the call: pulling the plug and letting the COO go

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fallacy it's going to require a mindset

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shift you've got to be honest with

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yourself and say "This isn't going to

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work out we have to cut our losses now

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learn from this situation and move

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forward in a different direction you're

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also going to have to challenge

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confirmation bias our tendency is to

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justify past decisions that's where

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feedback matters getting outside

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perspectives may help you see things

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that you may be too emotionally tied to

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here is how to break free from the

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sunken cause trap first and foremost you

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need to call it what it is if you're

Why it freed up time, money, and momentum to rebuild smarter

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running a project or you're in a

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relationship and it's not going to work

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don't be naive and trick yourself

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realize the situation you're in and you

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have to take action and pivot number two

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stop throwing good after bad more time

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more money more resources in a project

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that's failing in a relationship that's

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going nowhere isn't going to make things

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better you need to face the hard truth

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one thing that's very difficult to do

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both personally and professionally is

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put your pride in check don't let ego

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get in the way nobody's perfect we all

Step 1: Name it—call the project or decision what it really is

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make mistakes it's time to stop making

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excuses stop being stubbornminded about

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it and figure out what are we going to

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do to move forward and make things right

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another piece of advice if you're

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working on a project or you're in a

Step 2: Stop throwing good after bad

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relationship and things aren't going

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right put a go or no go line in and say

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to yourself look I'm going to give it

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this much more time or this much more

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resources and if it gets to that point

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and things still haven't turned around

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substantially cut it off here's a

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surprising one that I think is really

Step 3: Put your pride in check and ditch the ego

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important pressure test it with your

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team halfway through a project ask your

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team "If we had to start all over again

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would we still move forward with this?"

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If the answer is no that is a clear

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indicator that it's time to abort the

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project finally shift the focus forward

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stop thinking about what you lost and

Step 4: Create a “go or no-go” line for any project

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start thinking about what you will gain

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if you stop what you're doing now and

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you pivot and you go in a different

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direction and how much better that would

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be before we go I want to share with you

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an example of learning from sunken cost

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fallacy in a situation where I didn't

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repeat it we talked about everything

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that happened with our learning

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management project i made an even bigger

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investment before the beginning of COVID

Step 5: Pressure test with your team—would you start over again?

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and that was investing in an office

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building and having our own space that

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learned owned to move us into my brother

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and I bought an office building and the

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ground two floors were for Learn It to

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move in with COVID and everything going

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virtual we had this building and I

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looked at all the money we've invested

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and the tenant improvements and

Reframe your thinking: what do you gain by pivoting?

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everything and I thought to myself my

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first reaction was well we put all this

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time and money into it we have to move

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learn it into our new space but the

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truth of the matter was our business has

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changed our business went virtual most

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of our staff were gone and we did the

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math we looked at all the numbers and it

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really made no sense to open up Learn It

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even though it sat vacant for several

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months it was the right thing to do both

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financially and long-term for our

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business as tough as that was that was

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an example of learning from past

Real estate edition: the office building they never moved into

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mistakes and doing what was best for

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your organization overall i hope this

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episode shed some light on what you can

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do differently and learn and until next

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time everybody do me a favor stay

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curious keep learning

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