Week 8 Reflection: Optimizing Sunk Costs

Hello, Stakeholders of Almost Home Financial!

As a reminder, Almost Home addresses the needs of working families who can afford the costs of home ownership but are denied access to a mortgage. The company offers a financial path for home-buyers to become mortgage-ready within three to six months, including an injection of capital in the form of shared equity to resolve credit, debt and savings hurdles, as well as a personalized playbook to provide step-by-step instructions, encourage progress and track milestones.

Reflection

Three weeks ago I ran a 10-mile race with a raging chest cold and it taught me an important lesson on the upside of sunk costs.

I enjoy running and have been doing so since I was a kid. I enjoy the time to process the day, clear my head and give myself space to think creatively about the big picture. In the last few years, I’ve joined a local Distance Challenge, which is a series of five races over the winter that culminate in the Austin Marathon.

The second race — a 10-mile cruiser through the residential hills of West Austin — was meant to be an enjoyable, low-stress event for me. The night before a race includes an important ritual that is both logistically practical and helps visualize the next day.

• Hydration, including salt tablets and electrolyte mix
• Nutrition (light and protein-heavy)
• Clothes laid out with race bib pinned
• Prep breakfast for the following morning

I went to bed feeling a little tired and the following morning I woke up to a raw throat, throbbing headache and labored breathing. I was sick, very sick.

I thought about skipping the race. It made sense, except… I already had my clothes laid out and breakfast ready. All I had to do was get dressed and get to the starting line. So, that’s what I did.

At the start line, I was really doubting whether I should run this race. I did NOT feel well. I decided I would try to run 1 mile, just 1 mile, and see if I could complete the distance running, walking or something in between. To my great surprise, I ran that mile and then muscle memory kicked in and I ran the next few miles until I got to the halfway point, and by then there was too much invested to turn back.

The sunk cost effect is the tendency for humans to continue investing in something that clearly isn’t working. Because it is human nature to want to avoid failure, people will often continue spending time, effort or money to try and fix what isn’t working instead of cutting their losses and moving on.

Sunk costs are often brought up as flawed logic and it is but it can also be used to hack yourself into showing up, figuratively and literally. I was tempted to turn back at every point in my race but had engineered a path that made it difficult to quit. I learned that if you book the meetings (investors, advisors or strategic partners) before you’re ready and then painstakingly prepare for them, you can’t help but propel yourself to show up.

PS I had to go to the doctor three days after my race because my chest cold developed into an infection. I would not do that again, nor do I recommend it. Some lessons need to be lived in order to be learned.