A tenant in a co-op building in New York installed window bars and asked the board to reimburse him. The board refused and the tenant sued. A year later their legal fees were over $1,000. Two years later, the fees reached $10,000.
After spending over $20,000 in legal fees, the co-op board won the case. The tenant, refusing to quit, appealed and the legal fees increased to $30,000. The case continued to escalate and six years later the legal bills hit $100,000.
In 1988, Robert Campeau made a hostile takeover bid to acquire Federated Department Stores. A bidding war between Campeau and Macy’s, a competitor, began. To win the bidding war, Campeau increased his already high offer by $500 million. The Wall Street Journal described the bidding war as “a war of egos.” Campeau won the contest, but in January 1990, he declared bankruptcy.
When the first Concorde commercial flight took off in January 1976, the venture was already laden with prohibitive cost overruns. By the last Concorde flight in 2003, this unfortunate case had etched itself indelibly in financial and strategy textbooks as not what to do.
Well, go ahead and quit! Surrender, retreat, throw in the towel, pull the plug, fall out, admit defeat. It sure doesn’t take a lot of effort to stop pushing forward, does it?
Escalation of Commitment
On the contrary, various disciplines have collectively established that it’s in fact very difficult. This phenomenon has been more formally termed escalation of commitment by behavioral scientists, psychologists, and business strategists alike.
Anyone who has ever considered ending an unprofitable business pursuit, selling a falling stock, recalling a failed policy, or even terminating an ailing romantic relationship will know.
When plenty has been sacrificed and the finish line feels just within reach, no matter how deluded that perception of the end point is, the greater the temptation to press on becomes. Investing more in a project makes it more valuable over time. Sunk cost makes relenting an increasingly unthinkable option.
Quitting also tends to be stigmatized as failure. There is an abundance of advice and encouragement that screams out “Don’t give up!” and “Push through the tough times!”
Many people assume that quitting is the easy way out and that only defeatists and the weak-willed will contemplate “copping-out.” Thomas Edison’s legendary unwillingness to quit became a benchmark for success.
But this is not always the case and such encouragements should come with a handful of caveats. For instance, it’s just as fair to ask, what if I hate what I’m doing? What if the tough times are putting my health at risk? What if quitting creates new opportunities?
You can only know if you find out or regret a lifetime for not taking that risk to become who you were meant to be.
Be Comfortable with Quitting
As he led America to independence, George Washington only won three of the nine battles he fought against the British. While launching a historic turnaround of General Electric, CEO Jack Welch had to painfully divest 20 percent of GE’s corporate assets.
History is written by the winners, and the story of success is often told as a steady stream of victories. However, on closer scrutiny, false starts, dead ends, and a few savvy quits are often revealed; from the war zone to the boardroom, mastering the art of letting go of losing battles allows one to live to fight another day. Resources are freed up or energy is restored, and success comes with a renewed focus to tackle the next attempt to win.
Another significant reason to know when to give up is when the hubris, self-centeredness, or pride that accompanies a stubborn refusal to change course can also harm others.
Gambling addicts are trapped in the “gambler’s fallacy” because they delusionally believe that after all this hard luck, their next hand must be good. Governors who spent a lot of effort pushing for a policy may eventually find the policy to be ineffective but still be reluctant to change the policy. In these cases, stakeholders are also hurt.
In some cultures, particularly those highly concerned with their dignity, quitting is akin to failing, shame, and disgrace. Profitable returns always come with some degree of risk. The courage to take on business opportunities, or any risky venture for that matter, such as entrepreneurship or building a new relationship, should be tempered with a sound sense of learning when to quit.
The flipside of this problem is that some people who equate quitting with failing and shame are unlikely to take that leap of faith. Research has found entrepreneurship and innovation to be less prevalent in cultures where the price of quitting or doing badly, such as loss of dignity, is perceived as high.
Put Quitting in the Plan
In the near future, strategic quitting will become more relevant and important and will be the new face of highly adaptive entities. As businesses adapt to rapidly changing environments and face anticipated slower global growth in some sectors, quitting will be essential for increasing productivity and protecting margins.
Innovators and investors need to be savvy in knowing when to change course. For instance, technological advancements are making many traditional business aspects obsolete, such as brick-and-mortar shops and human labor are going towards automation. Incessantly pumping resources to improve or maintain these types of status quo does not make business sense.
To keep up with the times, retailers are consolidating their stores and consumer goods giants are shrinking their brand portfolios. The new and rising “network orchestrator” market, which includes Airbnb, Uber, and Alibaba, forces companies to leverage virtual spaces and quit using physical space to provide services.
Despite the importance of quitting, it remains poorly understood and is often unduly discouraged to detrimental effect. Starting a venture receives far more fanfare than ending it. The stigma of quitting makes dealing with giving up tricky.
Most people do not like to admit defeat, and companies with excellent public relations and corporate communication departments are capable of spinning stories such that many well-executed quits go unnoticed.
We should not quit too easily or else nothing ever gets pushed to completion, but when the time comes to smartly abandon a sinking ship, quitting is unfortunately often not carefully considered until it is too late.
Escalation of commitment, or the Concorde fallacy, creates a mental bias that can blindside us.
Sometimes, to deal with a sticky relationship situation, we may seek the aid of an emotionally uninvolved friend to provide an objective perspective.
Likewise, corporations will do well to hire expert and neutral consultants, not yes-men who are embedded in the business itself, to help with important decisions.
Entrepreneurs and business owners need to pay more attention to quitting as a part of the strategic formulation process and understand that the real shame is in holding tightly to a cherished sinking ship and being blind to better opportunities elsewhere.