The Sunk Cost Fallacy of Web Development
Aug 29, 2012
Table of contents:
A common theme from the business owners who contact me for advice is, “How can I fix my current website in order to get results”. Having a website is pretty standard for the majority of companies these days, but a lot of small businesses have websites that are not growing the business or realising the full opportunity or the benefits a business website can bring to a company.
Many of these business owners are suffering from The Sunk Cost Fallacy.
The Sunk Cost Fallacy
Sunk Costs is a term that comes from business and economic theories which relates to the previous investments a company has made. Once an investment has been made, it is now an unrecoverable cost in the history of the company.
The Sunk Cost Fallacy is where future business decisions are clouded because of the previous investment decisions of the company.
Here’s an example:
Imagine John is the CEO of a Law firm. Last year he decided to move his entire Customer Relationship Management software to a new web-based platform. The new platform was a new startup that promised huge new benefits over John’s current CRM software.
A year after making the transition and after considerable costs, John’s staff are having major trouble using the new system because it is often broken, unreliable and it does not produce the kind of reports they need to do their day-to-day jobs.
John has made a bad decision and has invested heavily in the new CRM system. The correct decision John must make is to drop the current system and invest in a new system. However, because of the previous investment, John is unwilling to invest more money into a new system.
John’s law firm will now suffer because John has made a bad future decision about his company based upon the previous investments that are now in the history of the company.
The Sunk Cost Fallacy is part of human nature. No one wants to admit they made a mistake or a bad investment. It is also tempting to try and rectify bad decisions by persevering. But making future decisions based upon the sunk costs of a company can be potentially devastating.
Your previous investments should have no bearing on what is the best path forward for the future of your business.
The Sunk Cost of Web Development
How does this relate to Web Development? Well, the majority of companies now have a business website. However, it seems that many are not happy with how their website is performing.
The typical company will usually hire a Web Development Agency to create a website from their specification. This specification will usually be the businesses owner’s idea of how his company’s website should look and work.
However, the fact that the company is hiring a Development Agency goes to show that the business owner does not have a grasp of how the website will actually fuel the growth of the company.
Once the website is live and under performing (or not making the company money because there wasn’t any real goals to measure performance in the first place), the business owner will not consider that he made a bad investment in the first place.
Instead of investing in a new website that is created to specifically fuel the growth of the company, the business owner will either give up, or throw money at link building in order to resurrect the failing website.
In this example, the business owner is making the incorrect future decision for his company because of his previous investment.
Common examples
Here are some examples of The Sunk Cost Fallacy in Web Development that I’m keep hearing again and again. If any of these situations sound familiar, you could be suffering from The Fallacy too.
A website with no conversion
One of the common problems I keep hearing is that the website does not convert traffic into prospects or signups. This is usually because the website has no strategy for conversion at all.
When writing a specification, you need to be considering how you are going to convert traffic into an end goal from the very start. Conversion is fundamental to the structure of your website and so you are bound to fail if you tack it on as an after thought.
In this case I usually advise the company to scrap their current website and start again. Formulating a plan before development is critical to creating a high converting website in the future.
Self made website
The Internet is the new land of opportunity. Anyone who creates websites professionally (including me) got started by tinkering and trying to make websites themselves. However, I see a lot of business owners trying to create their company’s website themselves, with disastrous results.
I understand that some people don’t want to heavily invest in a website, or they feel that it doesn’t warrant investment because it isn’t an integral part of their business. But, as a business owner, you are seriously harming your company’s future prospects by having a very low quality or cobbled together website. If you care that little about the public image of your company, investing money into a website is the least of your troubles.
I’ve had a couple of business owners come to me to ask for help after they have struggled to create a WordPress theme for their website. Usually they take an existing theme and hack changes so it is to their liking. However, often it either breaks the theme, or it is pointless and does not meet any of their goals for their website.
Learning how to manage your website as a business owner is fantastic, but you need to accept that your first attempts won’t be up to the standard that your business deserves. You wouldn’t cut corners and try to save money on other areas of your company’s professional image, so don’t do it on the Internet just because you can.
I’ve written previously about this topic, Should my business use an off-the-shelf WordPress template?.
Inadequate websites
Open Source Content Management, Ecommerce and Community Software Systems are fantastic for getting off the ground really quickly. In a matter of hours you can have a website live, and due to the active nature of Open Source communities, anything you want to do with your website has probably already been done.
However, often these types of websites will only ever get you so far. If you ever want to be the next LinkedIn or Fab.com, it’s unlikely that you are going to get there with generic Open Source software.
Making the transition from a growing site on a rickety infrastructure, to a new bespoke structure can be daunting because of the investment that has already been made to get the website this far. However, as you try and add more advanced functionality to your website, you will find it becomes a minefield of hacks and workarounds and you are forever at the mercy of someone else.
The next steps
If you have read this far and you’ve identified yourself as being under The Sunk Cost Fallacy of Web Development, here are the next steps you must take.
- Objectively look at your website and see what is wrong
- Decide on the 1 or 2 goals you have for you website in the coming year
- Draw a map of how you expect traffic to convert into sales or prospects
- Get rid of everything else
- Write a detailed specification of the website you want
- Contact a Web Design Agency who have experience building amazing websites
Conclusion
The Sunk Cost Fallacy can be devastating for a company. By allowing your history to dictate your future, you are setting yourself up for failure.
Sunk Costs are in the past and should have zero bearing on the future of your company. Don’t stress or try to make up for yesterday’s mistakes. Instead, look towards tomorrow as a new opportunity to achieve your goals.
