This morning, I had the opportunity to facilitate a dialogue among roughly 40 executives about how to avoid or prevent the sunk cost trap. In other words, how do you avoid throwing good money after bad on failing projects? One executive offer this technique that he has currently initiated with his team. He and many of his team members have been with the company for quite a long time. He's asked them all to imagine that they are brand new to the organization. The question is simple: If you joined from the outside today, which practices, projects, or investments would you question? Would you understand why we do what we do? Would you make different choices about where to continue investing? The "imagine we are all new" technique has great value, though just a simple hypothetical exercise.
The exercise reminds me of a story about Andy Grove and Gordon Moore, the two longtime leaders at Intel. Grove called it the "Revolving Door Test" - and he used this test to help make the decision to exit the DRAM business at Intel in the early 1980s. Grove explains how he and Moore were debating whether to continue investing in the DRAM business, despite the fact that the unit had been losing share for years to Japanese rivals.
I looked out the window at the Ferris Wheel of the Great America amusement park revolving in the distance, then I turned back to Gordon and I asked, “If we got kicked out and the board brought in a new CEO, what do you think he would do?” Gordon answered without hesitation, “He would get us out of memories.” I stared at him, numb, then said, “Why shouldn’t you and I walk out the door, come back in, and do it ourselves?”