September 10, 2025
“The sunk-cost fallacy keeps people for too long in poor jobs, unhappy marriages, and unpromising research projects.” – Daniel Kahneman
As the head of a Sales and Marketing Consultancy, I’ve worked with companies at many stages of growth. There’s the fresh excitement of the pre-seed stage, when the organization’s fortunes exist entirely in the future. There’s the seed round startup, when it’s pure chaos and creativity, and it’s a mad scramble just to keep the ball in the air. And then there’s the more mature Series A and beyond, busy building the infrastructure for sustainable growth.
But there’s also another kind of company. One that’s getting a bit long in the tooth with not much to show for it. The product works—sort of—but there are severe limitations and a growing list of real-world failures. The use case makes sense in theory, but time passes and there’s still no significant traction or clear path to product-market fit. There are a handful of active customers, but the relationships are marginal and the revenues are negligible.
But, but, but.
As the list of “buts” grows, the show must go on. Payroll keeps running. The bills pile up. The burn rate climbs in pursuit of that late-breaking win. Eventually, the cash runs out. Now the company is at a critical inflection point. Do you reinvest and keep trying? Or hang up your hat and call it a day?
Sometimes the answer really is to reinvest. Maybe there’s a verifiable game-changer on the horizon, and the company just needs to buy a little time. But too often, I’ve seen companies double down, triple down… octuple down on ideas that have a surfeit of red flags and no apparent path to true growth, let alone profitability.
This is what’s known as the sunk-cost fallacy. It’s an idea developed from Daniel Kahneman’s research into the escalation of commitment—the tendency to continue investing in a failing course of action simply because you’ve already invested so much. It’s a tendency that’s well-recognized on an intuitive level—think of idioms like “don’t throw good money after bad” or “cut your losses”—but nonetheless it’s a trap I’ve seen many intelligent and talented folks fall into, time and time again.
The sunk-cost fallacy is especially relevant at an organizational level, but it can impede decision-making in ways big and small. The problem is particularly acute with startups: the stakes of every decision feel high, the emotional attachment is strong, and the pressure to make early decisions “worth it” can cloud judgment. From personnel retention to tech stack choices to travel or trade show decisions, the objections are always quite similar. “I’ve spent so much time and money on this. Can I really afford to walk away now?”
Almost always, the answer is: you can’t afford not to.
How can you avoid this pitfall? One answer is to accept a difficult truth into your heart, a concept that most people repress for reasons of mortality: time moves in a linear fashion. The past is written and cannot be altered. You cannot reclaim wasted time nor salvage misspent money. All that matters is the present and the future. If you’re making decisions based on past costs versus future gains, you’ve already succumbed to the fallacy.
Another way to leap across this psychological trapdoor is to set time-bound key performance indicators before you embark on any major venture. Don’t get caught up in grand speeches about changing the world or revolutionizing this or that industry. Be ruthlessly data-driven and make sure your data pipelines are clean. Decide what success looks like and set the timer. If the venture fails on the metrics, then emotion is removed from the equation.
But all this is just rational thinking. The whole point of the sunk-cost fallacy is that it’s irrational. If you’re an entrepreneur or an investor and you’ve sunk either time or money—or, God forbid, both—into a struggling venture, your perspective is hopelessly compromised. Ultimately, the best course of action to avoid the sunk-cost fallacy is to commission an unbiased third party to audit the venture top-to-bottom, from brass tacks to bad tech, and conduct a thorough viability analysis (I might even know who you should call! 😉)
This approach short-circuits the fallacy. With no skin in the game, an outsider can provide a clear-eyed look at your hand and can tell you whether you should hold ‘em, or whether you should fold ‘em.
“You’ve got to know when to hold ’em, know when to fold ’em, know when to walk away, and know when to run.” – Kenny Rogers
Whether or not you listen is up to you… but Kenny Rogers’ tune is a classic for a reason!
Expert Series Guest blogs written by leaders in our sector, sharing their expertise and insights through the DNS platform. This edition has been written by Mary Jane (MJ) Leslie.
MJ Leslie is the Founder and Principal Consultant at Chapter 3 Ltd., a Sales & Marketing Consultancy that helps start-ups and small businesses overcome the obstacles to growth. Prior to Chapter 3, MJ held marketing, sales, and growth roles at an array of start-ups in the technology, security, and healthcare sectors.