“Winners quit all the time. They just quit the right stuff at the right time.”
—Seth Godin
Do you find it difficult to quit things sometimes? For example, you’re reading a book, and before the hundred-page mark, you hate the story, characters, and prose, but you can’t bring yourself to put it down because you’ve already invested the money in buying the book and the time you’ve spent reading it.
This inability to quit is called the “sunk cost fallacy.” It keeps humans performing the same course of action even when quitting would obviously be the more beneficial choice. A perfect example is the rise of Netflix and the fall of Blockbuster.
Netflix began in 1997 as a DVD-by-mail rental service. They saw early success with this model, but Reed Hastings, the CEO, recognized the potential of online streaming. By 2007, they introduced a streaming service, allowing subscribers to instantly watch movies and TV shows on their computers.
For many companies, the initial investment in a successful model (DVD-by-mail) might deter them from venturing into unknown waters. This is where the sunk cost fallacy often kicks in, with companies fearing to lose what they had previously invested in heavily. But Netflix’s leadership did not fall prey to this mindset. They understood that the future of entertainment consumption lay in digital streaming.
But Blockbuster’s choices were a lesson in the sunk cost fallacy. Once the titan of the movie rental industry, with thousands of stores worldwide, they made boatloads of money at their brick-and-mortar stores, making them an incredibly profitable company.
As the times changed, Blockbuster was hesitant to respond. They were scared to move away from the physical store model, which had worked so well in the past. Even with the changing landscape, they didn’t want to pivot because of the sunk cost of physical locations.
By the time Blockbuster offered online services and eliminated late fees, it was too late. They couldn’t compete with Netflix’s cultural and financial appeal, along with its growing library of original content and convenient streaming capabilities.
In 2010, Blockbuster filed for bankruptcy, and in 2013, they announced the closure of all company-owned stores. Today, only one Blockbuster store is still open—it’s in Bend, Oregon, and it sits as a novelty store and reminder to know when to quit, pivot, and try something new.
Beating the sunk cost fallacy requires awareness. Are you holding onto something right now that no longer serves you, but you’re unwilling to give it up because of a time or money investment? The first step to beating it is recognizing what you’re holding onto. Next, you’ll need to analyze if you’re holding on because of obligation or if it genuinely makes you happy. Last, if you decide it’s based on obligation, figure out how to cut it out of your life. This can be easy if it’s a book but more difficult if it’s a relationship or a job.
Moving forward, remember that you can’t change the past, but you can make choices today that will provide value for your future.