Escalating Commitment to a Losing Strategy — Why Founders Refuse to Quit
As a startup founder, shutting down your business will be one of the hardest decisions you’ll ever have to make. However sometimes it’s also the smartest option. Especially if you’re able to close things down gracefully, give folks a good severance package and potentially return some unused funds to investors; not to mention gaining back some valuable time. Unfortunately, many entrepreneurs refuse to admit defeat and keep pouring resources into a failing endeavour. The tendency for people to double down in the face of growing negative evidence is known in behavioural psychology as “escalating commitment to a losing strategy”. In this short article I’ll attempt to highlight a few of the cognitive biases that help make this happen.
Why Startup Founders May Not See the Writing on the Wall
There are several reasons why startup founders struggle to see when things things are heading in the wrong direction. For one, being a successful founder requires a strong belief in one’s vision and the ability to ignore setbacks and naysayers. You wouldn’t be here today if you’d have listened to everybody telling you to give up, so you’ve been trained and socialised to filter out negative signals. Additionally, social proof from sophisticated investors can give founders extra…
