One of my favorite entrepreneurship stories is about Andy Grove and Gordon Moore, the founders of Intel, during a difficult phase of the company's business.
Intel had found significant success in the memory chip space. It was a growing market, responsible for most of Intel's profits. However, stiff competition from Japan, among other factors, was beginning to affect profitability. It was getting commoditized. Andy and Gordon were torn. Memory chips were core to the business and had made Intel so successful.
One weekend, while Andy and Gordon were struggling with what to do, Grove turned to Moore and asked, "If the board fired us and hired a new CEO, what would the new CEO do?"
The two men walked out of the building, figuratively walked back in as the new CEO with an obvious answer: A new CEO with no emotional connection to the current state or prior decisions would get out of the memory business and double down on microprocessors.
In practice, this form of zero-based thinking is difficult due to the powerful cognitive bias of the sunk cost fallacy.
The sunk cost fallacy is the tendency to continue with an endeavor we've invested money, effort, time, love, or our reputation into, whether or not the current costs outweigh the benefits. The more we invest, the greater the sunk cost and the greater the urge to continue. It's why you go to an appointment for which you've put down a deposit, even if circumstances are no longer favorable to going.
To overcome this bias, we make what Bryan Tracy calls Knowing What I Now Know (KWINK) decisions: Knowing what I now know, what would a rational person in my position do? Or, If I knew this outcome ahead of time, what would I have done?
How can you put this into practice? Follow the example of Andy and Gordon. Do your best to really put yourself in the shoes of someone making rational choices based only on the information gathered from your experience. Take time to reflect and ask yourself KWINK questions. Actually write down your answers to force honesty.
This is a great exercise to do with your team with strategic planning. Put a set of KWINK questions in front of them to help guide next steps for the coming year. You may be surprised at what you learn from their insights.
The Bottom Line
All decisions in organizations (and life) ultimately incur sunk costs. Sometimes these decisions can be obvious. For example, you won't drink spoiled milk just because you've already bought it. Unfortunately, not every decision is as simple as throwing out spoiled milk.
To make a great decision under challenging circumstances, leaders and their teams should employ the KWINK framework and either change direction drastically, stop further commitment to a path, or have a high level of certainty that staying the course will produce superior outcomes.
P.S. If you want tools and frameworks for great decision-making and growth acceleration, join our new Exit Ready Flywheel cohort. I’ll coach you and give you tools and frameworks to build exit-ready businesses whether you plan to exit or not. It’s our program for helping founders and CEOs build high-value, highly efficient businesses. Space is limited per cohort.
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