Ignore sunk costs (E)

0:00One day, you may find yourself in a pet store looking for a pet for your teenage son or daughter. and you'll encounter the green iguana, an adorable little lizard that doesn't eat bugs or mice or anything that lives in cedar. It's an herbivore. They're not very expensive and it's possible that you will buy a green iguana, not knowing that in several months this adorable little lizard will be five feet long. Hey, it's Kevin Beach, and this is a special archived episode of Akembo.

0:45Knowing what you now know about green iguanas, if a friend came up to you one day and said, hey, my green iguana just had a bunch of little green iguanas. Do you want a little baby green iguana for free, my guess is that you're smart enough to say, no thank you. No thank you. I don't want a pet lizard, no matter how cute, that's going to grow to be five feet long and more than 20 pounds in weight. No thanks. That's pretty obvious. Here's the interesting thing. The interesting thing is, if you lived in Belize or Paraguay or Brazil, a country where green iguanas are indigenous, and you owned a green iguana, a green iguana that was growing like a rocket, would you keep it?

1:38Would you keep it forever? Or would you take it to the local rainforest and let them go? One of the things that has driven our culture, one of the things that's hardwired into us, into mice, into rats, into most intelligent creatures that have evolved, is the fact that sunk costs are a real problem. Sunk costs, the idea that we stick with something, particularly if we put a lot of time or effort into getting that thing. And money has magnified the way we think about sunk costs. In this short podcast, I want to help you rethink all the sunk costs in your life and understand the two factors that get in the way of us making better decisions.

2:30So what do I mean by a sunk cost? If something happened yesterday or a week ago or a month ago or a year ago, something that cost you time or effort, it's sunk. You can't get that time or effort back. It's over. What you're left with is what you're left with. And now you need to make a new decision. And that new decision is, how will I go forward from here? Will I go left or will I go right. Will I stick with it or will I try something new? So you're a lawyer. You're 34 years old. You hate being a lawyer. You've hated being a lawyer for the last five years. You understand what it is to be a lawyer and you don't like it.

3:16Okay, fine. So should you quit being a lawyer? Well, most people who are in that situation who don't quit being a lawyer don't quit because they say, but I spent three years in law school. The fact that you spent three years in law school is completely irrelevant. You already spent three years in law school. You can't get those three years back. Now you need to make a new decision. And the new decision is based on who you are now and what you know now, should you be a lawyer tomorrow? Will being a lawyer tomorrow be a better path for you than not being a lawyer tomorrow. That economically, we're able to make decisions, better decisions, by ignoring sunk costs.

4:05Imagine for a second the following scenario. There's a movie that you'd like to go see, and you go online to buy tickets in advance. The browser crashes. Then you've got to reboot your computer, get everything restarted, you get online. There's only two tickets left for tonight, just at the last minute, but they're the most expensive ones in the special little section. You put down$15 per ticket, and you buy tickets for you and your friend. Done. As you're walking to the movie, you bump into an old friend. The old friend is walking to Broadway. You fall in step with her. As you and your partner are walking along with this old friend, she says, oh, I'm on my way to go see Hamilton.

4:50I've got fifth row seats and my two friends who are going to come with me can't make it. Do you want to come? Now, the sunk cost analysis says, well, no, we can't come. Sorry, we have tickets to this movie. And if we don't go, well, then they'll go to waste. We can't get a refund. Sorry, enjoy the show. The correct analysis is to realize that those tickets, those movie tickets in your hand, they're a sunk cost. The fact that they were a gift, the fact that you paid for them, no matter how you got them, they're a sunk cost. You can't get that money back either way. So now your choice is go to Hamilton or go to the movie.

5:32They both cost the same amount, nothing, because it's a new decision based on new information. The easiest way to decode this is that that item, your law degree, those movie tickets, is a gift. It's a gift from your past self to your current self. Do you want the gift? It was easy to turn down the green iguana. No, no thank you. I don't want the green iguana. I understand how much it's going to cost me going forward and my alternatives are better. Thanks anyway. But it's harder if we've spent years at law school to say to our past self, thanks for giving me this law degree. I really appreciate the time and effort you put into getting it.

6:20But no, I don't want it anymore. Thanks very much. I'm giving it back to you. I'm releasing it to the rainforest. First, economically, I hope you can see if you do the math that it makes zero sense to think about how much it cost us to get whatever gift we got from our past self. It's completely irrelevant to making any decision about how we should spend our future time or our future resources. In 1915, Harriet Otis Cruft gave Harvard University some money, and they used it to build Cruft Laboratory, sometimes called Cruft Hall. And that is where some of the groundbreaking research in radar was done around the time of World War II.

7:11Over the years, the physics department at Harvard wasn't particularly good at cleaning up after itself. And year after year, the detritus of research and innovation kept piling up. And as you walk past Cruft Hall, you saw through the windows more and more stuff just piling up because no one wanted to get rid of it. This led at MIT to the term Cruft. Cruft is the stuff that's left behind. It's the code we don't want to prune out of our code base. It's the patina and extra books sitting on your bookshelf that get in the way every single time you're looking for what you're trying to find. Cruft, while it may add a little bit of history to what we're doing, is not our friend because it's our past getting in the way of our future.

8:05Smart corporations with consultants at the helm make decisions like this all the time. They look at a division. They look at a plant. They look at something they've invested in. They look at something they've built. They look at a product line. And they say, yeah, we know we spent a lot of time on that. We know we spent a lot of energy on that. We know we spent a lot of money on it. But every day we keep doing it is keeping us from doing something else. So we're not going to do that anymore. So General Electric spins off its home appliance division, just sells the whole thing off all at once. because by getting rid of it, by refusing that gift from Thomas Edison, refusing that gift from all the people who built it before, the future version of the company can focus on something else.

8:55And if that's all it was, if that's all it was was an economic choice, well, it wouldn't be so difficult. But it's not simply an economic choice. It's largely an emotional problem with several components. The first one is, what will I tell other people? What will I tell my family when I announce that I've walked away from that law degree? What will I tell the people around me when I say, you know that stuff that I was excited about yesterday? I'm not doing that anymore. What will we tell the people who gave us those movie tickets? What will we tell our partner about the money we just, quote, wasted on the movie tickets?

9:39Because we went to a show instead. And then it gets back to this issue of our culture. Because if you've always voted a certain way in elections, what does it mean to not vote that way anymore? What does it mean to walk away from your streak, from your public or private commitment, from the story that you've been telling yourself, the hard-won story of cognitive dissonance, that, well, if I'm in favor of it, it must be right, because I'm not the kind of person that would be in favor of something that's wrong. What will it mean to my social circles for me to say, yeah, this history I have of being one way in the world is a gift from my old self, but I've looked at that and I've thought about that and going forward I'm going to do something else because that other thing I'm going to do is going to pay off every day.

10:39I'm brave enough and generous enough to ignore the sunk costs regardless of what they cost me to go do something else which brings us past the idea of sunk costs to something that's allied but different which is the dip. And the dip, a book I wrote a long time ago, the first book that I know of about quitting, makes a simple argument. It's got a couple of pieces. One piece is this. In our Google-centric world, something that is seen as the best does way, way better than something that is seen as third or fourth or tenth place. That we know that when you do a Google search, the vast majority of searches, people click on the first or second match.

11:25Almost no one goes to the second page. But going beyond that, think about being in town, a town with five pizza shops, all of which are, I don't know, three or four blocks from where you're standing right now. And you know one of them has the best slice in town. Would you consider going to the second or the third or the fifth one? Why exactly? No, when you're seen as the best in the world, you get an outsized reward. Now let me define best and world for you. By best, I don't mean best according to some JD power measure that's arbitrary. I mean best according to the person who's acquiring it. Best according to you.

12:05And world, I don't mean the whole planet or the whole solar system or the whole universe. By world, I mean your world. The place, the community, the choices that you have right now to decide among. So if six people are applying for a job, well, those six people are the whole world. You're going to pick the best in the world based on the axes that matter to you. So if it's really important to be the best in the world, the question is, how do you become the best in the world? And the answer is, you've got to quit a whole bunch of other stuff. You've got to walk away from all the cruft and the detritus that's holding you back because you're a wandering generality, as Zig Ziglar would say, not a meaningful specific.

12:51That we quit all the time. That there are very few adults who wear tutus because they took ballet when they were kids, but they quit taking ballet. And there are vegetarians who quit eating meat. We quit stuff. But somewhere along the way, thanks to Vince Lombardi and others, it has been announced that quitters are losers. In fact, winners are the ones who quit all the time. Because what they've figured out how to do is ignore sunk costs. To say, I only have a limited number of resources to invest. To invest in my career, to invest in myself, to invest in my community. And right now, it's diffuse.

13:29I'm investing in a lot of different things. Instead, I'm going to have the guts to go out on a limb and invest in a few things. To dig deep and do this. Not everything, but to do this, this, this specific thing, to burn my boats and go way out on a limb. Because by doing that, I will be able to get closer to being the best in the world. And so what's the dip? The dip is that moment of pain when we feel like quitting. When we're on the path to become the best in the world at something, and we're in mile 22 of the marathon. or we're at the third month at the gym or we're pushing ourselves to write a book that's better than the 11 mediocre books we've written in the past.

14:20And in those moments, when we feel most like quitting, that's when most people quit. And that's why it's so scarce to find things on the other side of that dip. That the dip always accompanies things that are scarce. because if it didn't, those things wouldn't be scarce anymore. What makes them scarce is that the dip causes people to quit between here and there. So if you see the dip in advance, if you know the dip is coming, then you can sign up for it. You can be delighted when it arrives. Oh, good. It's here. That means I can get through it now. So we shouldn't start a project naively believing there is no dip.

15:04What we ought to do is sniff around enough to say, oh, I bet there's a dip with a project like this one. I bet there's a dip in the journey from easy to become a fiver freelancer, hard to become the kind of freelancer that gets paid$500 an hour. There must be a dip in between those two things. And yes, there is. Just as there's a dip in sticking out a blog, past blog post number 100, blog post number 200, to maybe blog post 1 ,000. Most people don't stick it out to blog posts 1 ,000. There aren't that many blogs that have 1 ,000 good blog posts on them. That's what makes them scarce, that there was a dip along the way.

15:45And so to get to the dip, what we've got to do is begin with this idea of sunk costs, that all that stuff that you have at your fingertips now, all of those resources, all of those social media accounts, all of that reputation, all of those skills, all of those degrees, all of those things you do every day, those are gifts. They're gifts from yourself of yesterday. They brought them to you just like that green iguana was offered to you. And the question you're going to ask yourself is, do I want that gift? Or can I say no thank you to my former self and instead double down because I can see a dip ahead and I want to get through it.

16:31That work is how we're going to change the culture because what we're going to be able to do is walk away from our tribal or political or cultural or connected beliefs, the ones that we accepted without thinking about it, and make a new decision based on new information, a decision that matters to us and matters to the people who are counting on us. Thanks for listening. Hey Seth, it's Maria. Hey Seth, my name's Kyle. Greetings Seth. This is Stephen out in Madison, Wisconsin. Hi Seth, Alicia from Charleston here. Hi Seth, this is Anupam. Hi, this is Caitlin. Hi Seth. Warm greetings from Curacao.

17:09Hey Seth, my name is Nick Ryan from Pittsburgh, Pennsylvania. Hey Seth, this is Rex. Hey Seth. Hi, this is Vasilis from Greece. Hi, this is Roberta Perry. My question is... And that completes my question. We got absolutely fantastic questions from last week's episode. If you've got a question, I'd love to hear it. Visit akimbo.link, that's A-K-I-M-B-O dot L-I-N-K, and press the appropriate button. Greetings, Seth. This is Anupam from Berlin. and my question concerns discerning between useful criticism and criticism that we ought to leave out. How do you differentiate between a person who is a true fan you care about from someone who doesn't get the joke?

17:59And having done that, how do you know what part of their criticism is valuable and what part to leave out? Thank you. There's a key distinction between feedback, advice, criticism, and trolling. And the biggest difference in terms of making your work better is to understand who the believers are. When a non-believer shows up with criticism or trolling, it's not helpful to you. If someone who doesn't like musical theater comes along and tells you that your Broadway musical is no good, well, fine, it's not for you. But that's different than asking people on the same journey as you are, asking people who are going where you are hoping to go for advice.

18:49That advice, that non-anonymous, generous advice, that's precious. We need to seek that out. We can't just rely on the inner muse, whatever that is. We've got to have the guts and the generosity to see people who are like the people we are seeking to serve. and to somehow distinguish their best advice from feedback that's simply designed to save us from possible embarrassment. You can ignore that feedback, that person who's hoping you'll just keep your head down. But to seek out that advice, the advice from people who are cheering you on because you are going where they're going, that is something that the professional seeks out.

19:35hello Seth it's Guy Arnold here from Devon in the UK and I have a question for you on your podcast about shunning the non-believers I completely agree with the points you're making here but my question is what advice would you have for someone who owns a restaurant or a pub or a hotel who has these reviews on their review site stating about all the things they didn't like How can they best engage with these people to protect their reputation and come across as genuine, caring people? And of course, to preserve their sanity in what is a very difficult world at best of times. What's your advice on how they can do this best?

20:23Thanks very much. And thanks for the great work. The truth is that if you're in the services industry, the reviews probably aren't going to help you that much because lots of people have reviews. It's not a competitive weapon. It turns out that if you serve enough people, you will have negative reviews. The question then is what to do with it. Well, what I've seen work in the services industry is a couple of things. First, begin with an understanding that no one is reading your reviews as closely as you are. Don't sweat the tiny details. A friend of ours, she had a one-star review on TripAdvisor.

21:06The one-star review was, restaurant too busy wouldn't take our reservation. Excuse me, how does that make this a one-star place? If you can get a reservation, go and have a good time. If you can't, no harm, no foul. But this isn't helpful. So step one, acknowledge the individual. I hear you. You're upset. Thanks for raising your hand. That's sufficient. I hear you. You're upset. Thanks for raising your hand. You don't have to shut the place down. You don't have to burn it down to the ground. You don't have to fire the entire staff. None of those things are going to change anything anyway. The next step is if an actual glitch happened, if there was an actual error or mistake, own it.

21:55Own it in the response to the review if you've got a place to do that. Presuming the person isn't a troll because what the troll wants to see is you reading their review. Ignore the trolls. Shun the non-believers. But for the believers who are raising their hand and giving you feedback, yes, acknowledge it. B, own it, and then C, figure out a plan forward because a saved customer, a customer rescued from disappointment, can become your absolutely biggest fan. Wow, Seth, this is Sandy Lincoln, Minneapolis, and holy smokes, this one, Shen the Believer, or the non-believer, it hit home so hard. I literally had tears flowing down my face because you you just nailed it like I started to hide I even felt the pivot you can just you push so long and you push so hard to just say you know I believe I believe I believe and then all of a sudden that just that drip drip drip wears you out and I I pivoted in 2012 I literally thought about this and that's when I started to hide and start watering down, dumbing down everything that I was producing because I couldn't take the criticism anymore.

23:14And you just like lit me on fire. My question is, the fear I feel right now is like, how do you personally keep that fire going inside of you and that belief in front of you that the drip, drip, drip, I could take a head on criticism and manage that. But it's the drip, drip, drip that actually ends up eroding that confidence even more. And then you're blindsided. What do you do? Do you have tricks? Do you have things that you do to shore up yourself for the long haul? I think I got it. I think I totally get what you're saying. It is just doing it forever to keep reminding me of who I am. But thank you again so much.

24:01and if you do have a super easy tip that you do for yourself, I would love to know it. So thank you so much. The question that I keep coming back to with regard to your last podcast is in relation to your work, what if you are one of the non-believers? What if the past few days or weeks or months have been nothing but one-star reviews and personal attacks coming from you? What are the most important questions that you can ask and answers you can give to pull yourself from the well of non-believers into the daylight of creating something worthy, something good, something that you think will help people?

24:38What can get you back into balance? For me, it's been so long that I can't remember and I feel pretty empty, but I'm still looking for that gas can to get me down the road. Thanks for all the work that you do, Seth. Thank you both for these generous questions. It means a lot and I appreciate you sharing them. Because of course, yes, we are each our own worst critic. If you work for yourself, you have the world's worst boss. It's so easy for the resistance, as Steve Pressfield calls it, to kick in, for us to pre-hate our work, to defend ourselves from what we expect the outside world to do. It's so easy in the face of all the rejection to reject ourselves just a little bit more.

25:24And so I would ask, is it helping? Is it helping you accomplish your goals? Is there a voice inside of you telling you, you know what, this really isn't for you? Because if it's not for you, stop. No harm, no foul, no shame. Simply stop. That's okay. But if you do want to go to the next step, if you do want to go further, how to get there? I think the practice of giving yourself Good reviews. Good job, good job. In writing, often, in private, creates a positive cycle. It may feel silly at first, but it's worth it. Find the wins. Celebrate the wins. Put them out there for yourself. Have your team get in the habit of celebrating every little thing that goes well.

26:17Because you are constantly making withdrawals. withdrawals from your self-esteem, withdrawals from your momentum. The way to overcome that is by making deposits. It's not the big external win that will overwhelm the little nits. It's the daily practice of giving yourself the positive wins, of reminding yourself why you're doing this, of focusing on the generosity. Put pictures of your best customers on the wall. Create a bulletin board with letters from the people who have been changed by your work. Day by day, make it a habit. That's what professionals are able to do, to balance the inevitable negative feedback by showing up with positive feedback.

27:05Keep making this ruckus. It matters. And remind yourself of that. Thanks again for listening. We'll see you next week.