The Sunk Cost Fallacy in Commerce is Killing Your Business!

Before you read this, look up the “sunk cost fallacy” in your favourite search engine.

Got it? Good!

The Sunk Cost Fallacy is one of the hardest concepts for business owners to accept.

Let’s talk about the sunk cost fallacy in commerce, like the average retail, wholesale or manufacturing business that’s got more than 10 years of business history to them.

Bypassing Your Legacy Systems

sunk cost in ecommerce
Instead of trying to figure out how to make your old, legacy systems integrate with your new technology investments, can I recommend you look at how to build brand new “swim lanes” that bypass these legacy systems?  That’s right, buy and build new technology so that it can totally bypass the old stuff.

I am suggesting this because I know first hand the headache (and wallet ache) that comes with trying to make those old systems work in a modern day ecosystem.  At best you get a house of cards that requires regular, expensive maintenance.  At worse you are going to waste months and years trying to make something work that should be thrown away.

Embrace the change!
The same goes for the people you have and the processes you follow. If these haven’t been adapted to modern day commerce you are likely missing out on significant market opportunities.  I see it all the time with my own clients, past and present.  Humans are naturally inept when it comes to embracing change so we tend to cling to sacred cows even when they are no longer sacred.

What’s holding you back?

sunk cost in ecommerce
I know this sucks to read, but this is why I started you off with the sunk cost fallacy in commerce theory.  Just because you’ve invested lots of money in the past into something, doesn’t mean that same thing is going to carry you forward.  Whether that thing is technology, people, or process, you have to be willing to let it go if you are going to move forward.

In fact, those things likely won’t carry you forward if you factor in the pace of change in technology and specifically how that pace of change is affecting retail.

This doesn’t mean you have to throw the baby out with the bathwater either.  Much of what you have will likely continue to work and much more will simply need to be adapted to modern times.

Creating a culture that welcomes change is absolutely critical in today’s great game of commerce.  

You have to try desperately to move beyond things like the sunk cost fallacy if you are going to succeed in this industry for the next decade.  It’s simply moving too quickly for you to dig in your heels on pretty much anything.

Commerce is changing, quickly
This is a departure from how commerce has worked for generations.  In particular, bricks & mortar retail moved at a snail’s pace for decades.  Once a store was built, it rarely if ever changed.  This actually worked too.  It was bloody beautiful.  An upfront capital cost that paid dividends for decades…how could you not love retail!?

But those glory days are gone.  They have been for 5+ years now, but many, many merchants still haven’t adapted to this new age of commerce.

This change is bringing you opportunity

Sunk Cost Fallacy in eCommerce
From my seat, the crazy thing is just how much new opportunity is being created as a result of all this change.

All you have to do is look at the rise of the niche brands for proof.  I can’t remember a time when startup brands were being created and grown as fast as they are today.  The barriers have come down for creating and developing physical product and entrepreneurs are taking advantage of this around the world.

They are able to build successful companies very quickly because they aren’t shackled down by the legacy technology, people, and processes that many incumbent organizations have.  They are starting fresh, staying lean, and have a better grip on when to make proper investments because they are born digital…it’s in their blood.

Are you ready to do the hard thing?

About Matt Bertulli

About Matthew Matthew is the Co-Founder & CEO of Demac Media, a Commerce Agency serving mid-market to enterprise merchants with online and in-store technology products. Demac Media's team of 80 consists of Commerce Strategists, UX Designers, Front End Developers, and Engineers, all with experience in guiding and delivering commerce solutions for 80 retailers in North America.

» View all posts by Matt Bertulli

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