Why sunk cost matters to a first-time founder
Sunk costs can trap founders into continuing a weak project because abandoning it feels like wasting past effort or money. Future decisions should compare the additional costs and benefits from today onwards. Recognising what cannot be recovered makes it easier to stop, pivot or redirect scarce resources.
Examples of sunk cost
A startup has spent ¥8 million building a feature that customers rarely use. Finishing it would cost another ¥3 million, while the expected additional revenue is ¥1 million. The ¥8 million cannot be recovered either way, so the decision should compare the future ¥3 million cost with the future benefit and available alternatives.
Common misunderstanding
A sunk cost is not every cost already recorded. A refundable deposit, saleable machine or reusable piece of software may still have recoverable value and therefore affect the decision. Ignoring sunk costs also does not mean ignoring lessons from past spending; evidence about why an investment failed should inform the next choice.
When to use it
Use the concept when deciding whether to continue a product, campaign, hire, contract or investment. Separate unavoidable past spending from future costs, recoverable assets and opportunity costs. If reputational, legal or employee consequences remain, include them as future effects rather than using “sunk cost” to dismiss real obligations.