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67: Sunk Cost Fallacy and Other Friday Thoughts

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Today I went to see an office I'm hoping to rent for my podcasting business as well as to teach trumpet lessons, which I enjoy doing.

It's at an old print shop that's going out of business. The person buying the property is subletting the various rooms in the building to separate tenants. It looks like it's going to work out for me to be one of them.

When I arrived today, the owner of the soon to be out of business was there by himself.

He showed me the little office, and I decided I would ask the obvious question.

"How have businesses like Vista Print affected your business?"

"It's the reason I'm selling," he said.

He went on to explain that his father had started the business 41 years ago, he had purchased it from his father 10 years ago, it was the only job he had ever known, he had drained every penny of savings to keep it afloat as long as possible and just couldn't continue any further.

I felt sorry for the guy, but as he told his story, an economics term kept creeping into my head:

Sunk cost fallacy.

This is when your emotional attachment to something, a business in this case, distorts your judgment. You continue something that's doomed to fail because of your sentiment.

I told this story to my wife this afternoon and she said, "Well, at least he won't have any "what ifs". He did everything he could to save the business."

I countered by saying he'll probably be asking a lot of "what ifs" for the rest of his life.

What if he had sold the business 5 years ago and used the capital to start another one that didn't have such intense competition, not to mention ever changing technology?

What if he had told his dad he didn't want to buy it in the first place? That he was proud of him, but he was going to do something else.

Now he's broke and has zero marketable skills for even a halfway decent job. He's going full-time at the part-time job he's had for the last year or so to stay in business - and the money is going to be tight.

It reminds me of so many musicians I've spoken with who reminisce about the "glory days" of the past. Now that the genre they loved (and played) when they were young isn't popular anymore, they act as though Music itself is dead.

The need for people to experience music has never gone away. But the way they experience it is different than 20 years ago.

Community is the magic word. The musician who can grasp the concept of building a community around their music business is the one who has a chance of succeeding.

If you're going to wait for a label to discover you and write your ticket to riches, you may as well be the guy I met today who's selling his printing business. His love for his dad and this desire to keep the business in the family distorted his vision so that he couldn't see the handwriting on the wall - and now he's suffering for it. And there's really no reason to do so.

I felt for the guy, but it just reminded me of why I do what I do, like sending an email at 9:04 on a Friday night.

I don't want to be that guy.

About the author, James Newcomb

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