These days it’s much easier to start a company – at least the foundation: incorporating, building a website and offering a service. The hard part is turning that foundation into a real company that helps you reach your goals. That’s just as hard or harder than ever.
So the risk of starting a company isn’t that you could lose your house and your life savings (never put all your money into your startup). The risk is that you won’t know whether or not you’re making progress and a year will go by and you’ll be in the same spot.
The Sunk Cost Fallacy
I see it all the time. People fall in love with their creation and get more and more dedicated to it, spending more time and money each year, without making progress. In economics this is called “The Sunk Cost Fallacy”. In psychology it’s called the “Escalation of Commitment.” They both describe the human tendency to justify increasing an investment of time or money to something they’re involved with, even though they wouldn’t do it again if given the choice.
The best way to avoid this is to set up goals and milestones ahead of time, so you can objectively evaluate how you’re doing during the year. I suggest establishing goals for every quarter, i.e. every 3 months. At the end of 3 months, evaluate how you’re doing.
Establishing milestones ahead of time is the only way to be truly objective. Otherwise, it’s easy to lie to ourselves and feel like we’re making progress. Instead, maybe it’s time to quit. Operating against a plan will tell you if you need to make changes and will keep you moving forward.
In this episode of Startup Q&A, I address this and two other questions from entrepreneurs.
0:00 – The importance of setting up milestones with an end date so you know if you’re succeeding.
1:55 – Content marketing for a tour company in Mongolia.
3:45 – Using a content marketing calendar to keep on track and stay consistent.
4:15 – FOCUS: Follow One Course Until Success.
5:30 – How an entrepreneur in Italy can find partners.