Erase Your Bad Investments For Unlimited Business Success
Did you have a business relationship that you established early on in your career, and you’re still pumping money into it? It’s worth re-examining your arrangements because they might not still be serving your business growth. In this episode, business coach Dan Sullivan and Shannon Waller talk all about eliminating what Dan calls “sunk costs.”
Here's some of what you'll learn in this episode:
- The various kinds of investments entrepreneurs make.
- How sinking your money into something that provides little to no returns diminishes your energy and your ability to think about the future.
- Why you have to decide if something belongs to your future.
- The real importance of being discerning about something’s usefulness.
- What you need to do when you’re not getting the results you need for business success.
It’s the nature of technology that it becomes obsolete over time.
Since COVID, many people discovered that they don’t need as much space as they thought they did.
It’s very painful to think about investments that are no longer paying off for you.
There’s an enormous amount of freedom and creativity that comes from escaping from bad investments.
As soon as you’re free from something outside of yourself, you’re also free from it within your own thinking.
It has to be taken as a matter of fact that past investments outlive their usefulness.
Generally speaking, 50% of all government costs are non-useful investments.
Entrepreneurs are always getting feedback from the marketplace.
Entrepreneurs get punished more than others for lying to themselves.
When entrepreneurs are unwilling or unable to make tough decisions, it seems easier to sell their company than to reduce certain costs.
All the goals entrepreneurs have for their companies are productivity goals.
Really great companies create their own opportunities.
To a certain extent, entrepreneurs are more immune to economic and political events than anyone else.
Multiplication By Subtraction by Shannon Waller
Who Not How by Dan Sullivan and Dr. Benjamin Hardy
Article: How To Expand Your Team’s Unique Ability
Video: How To Transform A Negative Experience
Shannon Waller: Hi, Shannon Waller here, and welcome to Inside Strategic Coach with Dan Sullivan. Dan, recently in 10x, you've been talking about escaping sunk costs, and a very particular one, because it applies to teamwork that I'm super interested in learning more about. So before we jump in, just describe, what exactly do you mean by sunk costs, and why is it so important to escape them?
Dan Sullivan: Well, the best way to understand it is, go back five years, ten years in your business, and think about something that was really important at the time, and you invested a lot of time, a lot of creativity, but most important, money, into this. And it was sensible for you to do it at the time, but then, in the time since you'd made that initial investment, the usefulness of the thing that you invested in has diminished or disappeared, but you're still investing the same amount of time, and still investing the same amount of money, even though you have no reason to do that. You can think about that in terms of people who were very valuable that you hired, and actually over the years, they're actually making more money. And they came in with a flurry of enthusiasm, and they came in with a flurry of great productivity, but then their usefulness and their time has gone down, but you're still investing the same amount of money in them.
And I think people are the toughest on cost because there's so much emotion. But we live in a technological age, Shannon, so I can think of lots of technology that you had to invest an enormous amount of money, but it's the nature of technology that it becomes more obsolete over time, and you're still pumping in the money for something—it might be equipment, it might be software, it could be space. A lot of people discovered that, before COVID, they needed a lot of the space that they had, and they're committed to it, or they're tied to continuing to pay the same amount for their space. But about 50% or even more of what they're doing, can now be done virtually, and they don't need the space, but they're still having to pay for the space.
Shannon Waller: That is so powerful and so true, Dan. The thing that really struck me with what you just said is that you have to make the decision that it doesn't belong to your future. And that's really the reference point. It's like, okay, because we get very caught up with what we've been doing, what we have, I'm looking around at my house at the moment, and with the people that we've been with, and the technology that we're really familiar with using, and it is past and present, but we don't necessarily take that viewpoint or ask ourself that question: "Does it in fact belong as part of my future?" And then, all of a sudden, you're like, oh, maybe not. And that's a hard decision, I mean, especially with regard to people. It's partly why I wrote Multiplication By Subtraction, because it was how to come to grips with a decision.
Dan Sullivan: That book is just the perfect example of how you have to take it as a matter of fact that past investments outlive their usefulness.
Shannon Waller: So it really is making sure that you're very discerning about usefulness.
Dan Sullivan: Yeah. And it's our big gripe with government, or bureaucracy of any kind, but government bureaucracy is more in front of our face with the taxation, the tax bills. Okay, I have a rule that all government jobs are worthless until proven valuable.
Shannon Waller: All right, I like that.
Dan Sullivan: Because what happens is that all government initiatives that take the form of tax money, they automatically create new little organizations and jobs. And for something that is seen as a problem in the public, it's in the private sector and government's going to do this, but it's also the nature of almost any government program and government job that the people doing it never want that to end even though they have no idea why it was even created in the first place. And the other thing is, they only think about their job security, and they only think about next year's budgets. They don't grade themselves on whether their work and their program actually creates any value in the marketplace. So I think that, generally speaking, I would say, probably 50% of all government costs are a sunk cost.
Shannon Waller: That would be a really tough thing to argue. And in fact, my one political science course, which happened to be on bureaucracy, and then I met you, which was quite fun, it stated exactly what you said. It might have been created for an initial purpose to solve a problem, but then, even once that problem is solved, it wants to sustain its own life. It is a self-propelling organism, and way past the initial, again, usefulness of it. And there's no structure for it to be reevaluated, and it's not based on the end result, which, for entrepreneurs, we're testing against the marketplace all the flipping time, and if the marketplace doesn't like it, they don't pay us.
Dan Sullivan: The report cards come in every 30 days.
Shannon Waller: Exactly.
Dan Sullivan: I mean, I don't think entrepreneurs are necessarily more truthful or honest than people who are in bureaucratic jobs, but I think that we get punished more every 30 days for telling ourselves lies.
Shannon Waller: Right. Yeah, 100%.
Dan Sullivan: Yeah, so the big thing is that only those things whose value can be checked out and measured directly on a regular, systematic basis are forced not to be a sunk cost. Yeah, I mean, you see it in the marketplace where a company is bought out, and immediately, once the new owners take over, they fire half the staff. If you're one of the people being fired, you think this is a really bad thing, but if you're an investor in that company, you think it's a really good thing.
Shannon Waller: And I suspect, Dan, that that's also partly why sometimes people sell. They find themself in a position where they're unable or unwilling to make those really tough decisions, and so, it actually looks easier to sell, and probably, hopefully start something new, than to actually reduce the sunk costs.
Dan Sullivan: Yeah, well, they're actually rewarded for selling. I mean, they get a big paycheck, and they don't have to deal with any of the problems.
Shannon Waller: No wonder it's such a good solution. I love it. There's one comment that you shared with me from a client, Derek, that is just so priceless, and then you had a match to that. Can you share what that is?
Dan Sullivan: Yeah, this is a longtime entrepreneur here in Toronto, Derek Lobo. We were escaping from sunk cost thinking process, where you identified things, and he, in chat, it was a Zoom workshop, then he put it in chat, and he says, "I never fired anyone too soon." And it just went absolutely viral, his comment. Because everybody knows that you can think of a particular situation, maybe more than one situation, and it's not just in business life, but it's in personal life. But I just happened to see Derek at a particular exercise studio a couple days later, and I said, "I think that was a marvelous statement that you put in chat, but I think there's a second thing to it. But many times, I've hired too late. I've hired too late. I had an opportunity, but I couldn't take advantage of it because I didn't hire the right person." So I said, "I think the two actually together, you, in fact, have never hired a great person too soon."
Shannon Waller: I think that's so powerful, Dan. It speaks to Who Not How. So I've never fired anyone too soon, but many times I've hired too late. It's so powerful, and it actually is a great explanation of sunk costs.
Dan Sullivan: Yeah, I said, you put the two together, and really get the deeper meaning of them, it's worth four years of business college.
Shannon Waller: 100%, because if you master getting rid of people soon enough, at the right time, and then hiring people soon enough, as well, then you actually have this great—flywheel comes to mind—where you're constantly moving ahead without that drag, and you're fueling your future, so it means that you keep getting freed up and accelerating your progress instead of being bogged down. And that's where so many people get trapped, I find.
Dan Sullivan: Yeah. Well, there's been this interesting topic in the aftermath of lockdowns and COVID, of what's called quiet quitters. And quiet quitters are people who are still drawing a paycheck, and they still show up every day, but they just don't contribute anything, and they've decided not to. I said, I think that there's going to be sensing equipment, it's going to be sort of brainwave sensing equipment, that the moment that you decide that you're not going to contribute, it's noticed, and you're fired immediately.
Shannon Waller: Yeah. It's really about putting in the bare minimum and nothing extra. To me, it's measure of engagement, it's just gone dramatically down.
Dan Sullivan: Well, the thing is, I don't have any experiences, personally, where I ever did that.
Shannon Waller: No. And I actually don't experience that with people in our company, either. And I think—and I actually talked with my team leader group the other day about this—it's like, I think with entrepreneurial organizations, because we operate in Unique Ability and Excellent ability, and because we're engaged, I mean, it's kind of a bare minimum to operate at a high level, that I actually don't see it in entrepreneurial organizations. Maybe I'm just Pollyanna, but ...
Dan Sullivan: Well, I think the one thing about that is that nobody in Coach who works inside of Coach operates in isolation. They operate in teamwork. You'd have to have a teamwork conspiracy for quiet quitting to happen, and I think the chances of that in Strategic Coach are very slim or nonexistent because your team members immediately notice that you're not carrying your weight.
Shannon Waller: Brilliant. Yes, that's actually the sensor. Because if someone's not pulling their weight, you're like, what the heck just happened? Right? And you're called to account. And people are really willing to be held accountable by their teammates. And it's really enjoyable to be in Unique Ability Teamwork. So why would you fall down on the job? Great diagnosis, Dan. Awesome, well, just to wrap this up, what specific actions ... if someone wants to kind of engage this process in their own life, in their own business, what are some questions they can ask themselves, or what can they do to kind of evaluate the sunk cost, both people and technology and space? What are some questions you think people could ask themselves?
Dan Sullivan: I think you have to start ... our hope for listeners of our podcast are mostly business owners, and that's who we want to come into Strategic Coach. So as the owner, my feeling is that your number one capability is your team. And my feeling is that all the goals that you have for the company are productivity goals. And what I mean by that, that things are happening faster, they're happening easier, they're happening cheaper, and you're getting bigger results, and that this happens on a daily basis, on a weekly basis, on a monthly basis, and on a quarterly basis. And anytime the results are dropping, you immediately say, why are things dropping? You don't look outside in the marketplace and say, business conditions are ... because first of all, there's no coming to grips with outside factors, because you don't have enough knowledge, but you do have sufficient knowledge inside, because all the players are on the payroll.
My favorite tool is The Experience Transformer. We didn't get a result, okay, so what are the good things that happened in our not getting the result? Because progress is always being made, so you register the progress, and then you say, "Well, what were the bad things that happened?" And everything has to come out on the table, everything behind the scenes. "So next time, if we encounter a situation like this again, how will we be better prepared, more alert, more curious, more responsive, more resourceful, to not let it go as long as it went?"
Maybe we could have had this meeting three weeks ago or 10 weeks ago in a quarter, and it was going off, but we didn't catch it in time, so how we would do that. And that's what consciousness is in the marketplace. I mean, capitalism, and especially in the independent business sector, is just constantly higher and higher conscious-raising trial and error, and detecting things, and then instantly correcting. But that's my whole thing about it is, you don't form relationships and wait for a longer time, as you get smarter. I mean, people approach me with opportunities. They say, "This'll be a really mutually beneficial opportunity between us and you." And then, I said, no, and they said, "Well, I haven't told you what it is." I just said, "My past experience tells me that just the way you approach me tells me that it's not going to work."
Shannon Waller: Yep. That's a great filter, Dan. First of all, Experience Transformer, my favorite learning tool of life. It's just so powerful: state the situation, what worked, what didn't, knowing what we know now, what will we do differently next time, then what's your course of strategy and action? So that's super powerful, but then also having that filter going forward. So I mean, how do you avoid future sunk costs is kind of what you're talking about. And there's certain relationships and ways that people show up. And just also trusting your gut, I think that's really important so that you don't get cluttered. You don't take on a bunch of crap that you then have to throw off later on, because that takes energy and effort. I like that discernment at the very, very get-go, to say, nope. And what's the Kathy Ireland quote? Well, I'm sure other people have said it, too, but "No is a complete sentence"?
Dan Sullivan: Yeah. Yeah.
Shannon Waller: I love that.
Dan Sullivan: And the big thing is that really great companies create their own opportunities. They don't need them from the outside. I know how to create opportunities without the outside marketplace even knowing about it. So my sense is that the more that you identify and continually eliminate any sunk costs in your company, I think you'll be a increasingly productive and profitable and prosperous company. So entrepreneurs, to a certain extent, if they've got their act together, and they've got their head in the game, actually are more immune to outside economic political events than any creatures on the planet.
Shannon Waller: I love that idea that our immune system is so strong that we're protected from any potential threat to ourselves.
Dan Sullivan: Yeah. Well, you're certainly way ahead of the game in terms of when other people become aware of something. I mean, I think entrepreneurs have already created a new value proposition before the general public is even aware that there was a problem.
Shannon Waller: Part of the brilliance of entrepreneurship. Dan, as always, a really fun and enlightening conversation. Thank you.
Dan Sullivan: Thank you, Shannon.