Somewhere around 1995, I spent a million dollars to create a website. Psychologists call this an escalation of commitment. My mother would have called it meshuggeneh. (Yiddish for crazy)
In hindsight, I must have snapped – and not into a Slim Jim.
In the 1990s, the Slim Jim brand team thought this Internet thing was amazing and that our target audience, male teens age 13, would love what we created. The site was going to be the most interactive, avant-garde, and irreverent site possible.
Our site had so many bells and whistles, that it required custom coding that was ridiculously expensive. As I recall, we envisioned a site that could mess with other websites and create a little innocent havoc like turning screens upside down.
We had budgeted $300K for the effort, but by the end, it was much more expensive than planed. What was I thinking? Why did I allow us to continue when we blew past our budget and timelines?
I should have pulled the plug, but didn’t.
Escalation of Commitment
What is an escalation of commitment? As describe by Wikipedia…
There is a psychological concept called escalation of commitment, where an individual or a group facing increasingly adverse outcomes from a decision, action, or investment nevertheless continues the behavior instead of altering course.
The actor maintains behaviors that are irrational but align with previous decisions and actions. Economists and behavioral scientists use a related term, sunk-cost fallacy, to describe the justification of increased investment of money or effort in a decision, based on the cumulative prior investment (“sunk cost“) despite new evidence suggesting that the future cost of continuing the behavior outweighs the expected benefit.
In sociology, irrational escalation of commitment or commitment bias describes similar behaviors.
The phenomenon and the sentiment underlying them are reflected in such proverbial images as “Throwing good money after bad,” or “In for a penny, in for a pound,” or “It’s never the wrong time to make the right decision,” or “If you find yourself in a hole, stop digging.”
The Kill Switch
One approach to avoiding this mess is to have a kill switch that says, if we can’t achieve X by Y, we end the project. You stop investing time and money because it means that we aren’t going to be successful in a reasonable period.
At X, Google’s Moonshot Factory, I heard the story of trying to create fuel out of seawater.
They decided to impose a kill switch whereby if they couldn’t produce the fuel for $5 per gallon, it would never be worth the effort. They knew that in 30 years, they might be able to make it work, but for Google, they needed to make this call in two years. So their kill switch was a $5 per gallon cost within two years.
After six months, the team realized that the energy alone for pumping the water would mean they could never achieve their desired cost goal – so they pulled the plug.
Just A Little More Money
Most of us have experienced this problem by working on a project for six months without hitting our milestones. When we go to our management and say we need another chunk of change or six more months, we get to that point where someone needs to make a tough call.
But setting up that go/no go or kill switch before you start means that you can set some clear expectations for continued investment.
Considerations:
- What’s the cost of stopping a project? If it’s a marketing program, it may not be significant. But if you plug in the middle of a construction project, you may be too far along to pull back. In my Slim Jim days, I should have probably should have set much clearer goals for that Slim Jim website that turned out to be an expensive effort that I should have stopped.
- Are you facing temporary challenges like a strike, bad weather, or some other problem that will soon go away? Often a “hiccup” can be overcome like a delay in getting materials because of a blocked cargo ship in the Suez Canal. But if the issue is more structural than temporary, you might need to make a different decision.
- Some business cultures look at failure and risk-taking as a problem, not a calculated learning opportunity. If stopping a project means you’ll get fired or lose responsibility, it is hard to advocate for that change. If your culture accepts the wisdom of not throwing good money after bad – there can be a reward for recognizing the project is doomed. Culture plays a role in being able to stop digging when you find yourself in a hole.
- If the person with the original project idea runs the effort, they have a vested interest in continuing until success. An objective outsider might be more dispassionate and use data, not their instincts, to make decisions. Getting objective outsiders helps make pulling the plug easier.
- When you have black and white milestones established before you start, it can make continue/stop decisions easier to follow. When you don’t have that agreement early, you’ll quickly succumb to throwing good money after bad. It is best to have at least one of these kill switches.
- Who hasn’t put together a spreadsheet that shows the hockey stick approach to growth? Often, we kid ourselves thinking that change will be exponential when it is often slow and can quickly recede. As marketers or business managers, it is easy to make the numbers favorable when forecasting and making projections. But when results come in – it is hard to hide the facts.
- The ego is a terrible manager. When a project gets associated with our sense of self-worth and value, we are in for trouble. If my value as a professional is based on a project succeeding, I’m going to fight tooth and nail to make it happen. And, I may avoid the signs that this uphill battle isn’t worth the fight.
In Conclusion
There are ways to avoid the problems associated with an escalation of commitment. Perhaps the simplest one is to have an objective, dispassionate set of advisors (internal or external) who review quarterly progress.
Since they don’t have a “dog in the race,” their ability to evaluate progress and the value of a future investment can help guide a team. Establishing a challenger group or dispassionate person who must be convinced to greenlight further investment, and is not part of the team can help you pull the plug.
I wish I had set up some constraints and a kill switch twenty-six years ago when a website turned into an out-of-control marketing investment.
But there are few better teachers than a failed project and an understanding culture willing to take a risk.
Need help avoiding project creep?
I can help. You can set up a time to chat with me about your marketing challenges using my calendar. Email me jeffslater@themarketingsage.com Call me. 919 720 0995. The conversation is free, and we can explore if working together makes sense. Watch a short video about working with me.
Photo by Kelly Sikkema on Unsplash
This post was inpsired by Adam Grant’s Podcast on this topic and an article in HBR.
