A small business owner in a radio soapie sunk all his money into a new business idea – ice cream making – and suddenly found out that the product was being rejected by customers. He found himself in deep trouble, desperate about what to do next.
In this economy, many small business owners are facing the same challenge. They have invested all their money into a new business and it isn’t turning out as expected. Before long they realise that all the money that they sunk into their business idea has come to naught.
How do you handle sunk costs? The definition of sunk costs is a cost that has already been incurred and cannot be recovered. Sunk costs (past costs) are excluded from future business decisions, because the cost will be the same regardless of the outcome of a decision (source: Investopedia).
There is really nothing that one can do. The only upside is that after a period you realise that you have learnt something from your mistakes. You may also be able to reuse or re-purpose your idea and rescue your situation.
After a setback, you will be faced with coming up with new ideas, new products or new services. Failure can often lead to new more profitable beginnings.
A business owner, for instance, started a coffee shop as a sideline to his existing sports equipment and clothing store. However, he soon realised that he coffee shop was a loss leader. What could he do? He decided to hand over the coffee shop business to someone who knew the coffee trade and could turn the small operation around. Now it provides a healthy source of income.
In times when everyone is tightening their belts, when business people face volatile circumstances and changing customer buyer behaviour, innovation is vital. Even though something which you thought would work fails, you can pick yourself up and start afresh, regenerating your business life.
