By Nick Fortuna
Car wash operators and other small business owners pour their heart and soul into their companies, pushing forward in the face of adversity. That steadfast commitment is one of their best attributes as entrepreneurs, but it also can be one of their worst.
That’s a message from Annie Duke, who won $4 million in poker tournaments before becoming a doctorate student in cognitive psychology. Duke is a business consultant and speaker specializing in understanding risk and decision-making, and her latest book is “Quit: The Power of Knowing When to Walk Away.”
Duke said most people see quitting as a failure, so we are improperly biased against quitting and throw good money after bad in business. On journalist Josh Barro’s “Very Serious” podcast, she said the typical person believes in the old adage, “If at first you don’t succeed, try, try again,” but in reality, it often makes more sense to cut your losses and redirect your time, money and energy.
“When it comes to decision-making, we’re all just addled with bias,” she said. “Being able to cut your losses is an incredibly important skill in poker that separates elite players from amateurs. We think that if you quit, you’re a loser. But if you quit because you discover new information, it’s not failing. But we think about it as failing, and we think other people will think that we’ve failed.”
Duke said bias against quitting affects many aspects of life, including business. When things get tough, it can be hard to acknowledge the writing on the wall. Executives may delay closing a business, ending a promotion, severing a partnership, laying off employees or firing an underperforming worker because they’re so heavily invested in the company’s success, and they’ll feel some shame or embarrassment at quitting.
To overcome this bias, Duke recommends establishing kill criteria, or a list of circumstances that would make you realize it’s time to move on. In poker, that might mean deciding that you’ll never play longer than four hours because you tend to get tired, or that you’re done for the day anytime you lose $200.
“When you’re getting bad news, you escalate your commitment to the cause,” Duke said. “Your feet get more stuck. You can’t rely on yourself to be able to act rationally in the moment.”
Likewise, before car wash operators open a new location, launch a promotion, hire workers or repair expensive equipment, they should ask themselves what new facts would lead them to change course.
Perhaps a drop-dead date for profitability or declining revenue for four consecutive quarters would be the kill criterion for a car wash location, for example. Paying a certain amount in repairs could be the kill criterion triggering an equipment upgrade, or failing to upsell a minimum percentage of customers could be the data point that forces a change to the service menu.
Establishing rules for making difficult decisions in advance will help to remove the bias toward going with the status quo and investing more resources in failing systems, Duke said. Perseverance is an admiral trait, but by sticking with failing initiatives too long, we sometimes miss out on other opportunities.
“The upside of grit is that it gets you to stick with really hard things that are worthwhile,” Duke said. “The downside is it gets you to stick with things that aren’t worthwhile.”