The phrase ‘cut your losses’ is commonly used in everyday conversation, but how easy is this in business practice ?
Entrepreneurs commonly state that starting up a business is more time consuming than the average full-time job of 36-40 hours a week. So how much time should you be prepared to invest in starting up a business and what will you be spending that time on ?
A number of things may start to occupy your time – writing a business plan, developing the product, making contacts, or trying to sell the product, to name just a few. It is not surprising therefore, that entrepreneurs often refer to their business venture as their ‘baby’ and hope that it will be a big success. But what if things don’t quite go to plan ?
Difficulties or challenges can occur along the way – product failure, lack of funds, difficulties in finding customers or difficulties in raising funds. If it’s not easily solvable, how hard should you try to overcome any of these when more time, money and effort are required to do so? Would you try once, twice, three times perhaps, or many more ?
The term ‘escalation of commitment’ (1, 2) describes the behaviour of investing more resources into a course of action that is not working. As an entrepreneur, you will be keen to do as much as you can to make your business successful. But could you go too far ?
What if you continue to invest time, money and effort into a course of action that continues to fail ? For example, investing further funds into product development or continuing to knock at investors’ doors. You may just be squandering away precious resources on a course of action that is seemingly less likely to result in a positive outcome. So, should you take no for an answer and cease your escalation of commitment ? And if so, when ?
What you can do
Dr Harveen Chugh is a Lecturer in Entrepreneurship and Strategy at the School of Management, Royal Holloway University of London.
Email: harveen.chugh@rhul.ac.uk
Twitter: @HarveenC
Notes:
Entrepreneurs commonly state that starting up a business is more time consuming than the average full-time job of 36-40 hours a week. So how much time should you be prepared to invest in starting up a business and what will you be spending that time on ?
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| Dr Harveen Chugh |
A number of things may start to occupy your time – writing a business plan, developing the product, making contacts, or trying to sell the product, to name just a few. It is not surprising therefore, that entrepreneurs often refer to their business venture as their ‘baby’ and hope that it will be a big success. But what if things don’t quite go to plan ?
Difficulties or challenges can occur along the way – product failure, lack of funds, difficulties in finding customers or difficulties in raising funds. If it’s not easily solvable, how hard should you try to overcome any of these when more time, money and effort are required to do so? Would you try once, twice, three times perhaps, or many more ?
The term ‘escalation of commitment’ (1, 2) describes the behaviour of investing more resources into a course of action that is not working. As an entrepreneur, you will be keen to do as much as you can to make your business successful. But could you go too far ?
What if you continue to invest time, money and effort into a course of action that continues to fail ? For example, investing further funds into product development or continuing to knock at investors’ doors. You may just be squandering away precious resources on a course of action that is seemingly less likely to result in a positive outcome. So, should you take no for an answer and cease your escalation of commitment ? And if so, when ?
What you can do
- Try to take a step back and see things objectively. Think about the course of action that is failing – how many times have you tried and how much have you invested in it ? If you’ve tried just a couple of times, then perhaps you can try again, but if it’s been several attempts, try to think about why it’s not working – is there a message there ? What advice would you give to a friend if they were in the same situation ?
- Seek feedback and learn from it. There may be members of your team that are thinking but not saying something. Ask them for their honest opinion about why they think the course of action may not be working. Also ask those involved in the task such as investors, product developers or customers for their thoughts on what you could do differently.
- Keep a record. Keeping a written record like a journal or a log could be helpful in identifying your activities over the last few weeks or months. You may not realise what is happening while you go through it, but seeing it written down could help you to see the bigger picture, reflect on it and then think about how best to move forward.
Dr Harveen Chugh is a Lecturer in Entrepreneurship and Strategy at the School of Management, Royal Holloway University of London.
Email: harveen.chugh@rhul.ac.uk
Twitter: @HarveenC
Notes:
- Staw, B. M. 1976. Knee-deep in the Big Muddy: A study of Escalating Commitment to a Chosen Course of Action. Organizational Behavior and Human Performance, 16(1): 27-44.198
- Staw, B. M. 1981. The Escalation of Commitment to a Course of Action. Academy of Management Review, 6(4): 577-587.
