#155 – Letting go of sunk cost bias at a startup | Mike DiDonato, Tom Griffin, & Ben Grynol

It’s never too late to say no, and it’s never too late to change your mind. Especially at a startup. At Levels, we try to nix sunk cost bias if it makes sense to do so. It doesn’t matter how many hours or dollars you’ve put into a particular project; if it’s not good for your company, you need to learn to say no. In this episode, Ben Grynol, Mike DiDonato, and Tom Griffin chat about the sunk cost fallacy, how to gracefully withdraw from bad decisions, and why it’s important to keep your entire team on the same page.

01:11 – Don’t be afraid to ignore sunk costs

Ben said it’s never too late to change your mind on a decision, no matter how much time or money you’ve already put into it.

There’s no better way to kill a project or kill a startup than to take sunk costs into consideration. When doing so, when you fail to ignore sunk costs, that can lead you down a suboptimal path of decision making, very much this irrational path. Whether you’ve invested time or money, regardless of the amount, you have to think through things like, well, does it really matter how much we’ve invested to this point? If you know the outcome is not going to be the outcome you want, you have to ignore sunk costs. You have to say, we have diminishing returns for any minute, any dollar we spend in addition to everything we’ve spent to this point forward. It’s a really hard thing to do. But as a team, it’s important to always have a hand on the steering wheel to say, Hey, is this really going to help us achieve our goals if we keep investing more time or money into it.

05:34 – Write down your decisions

Ben said it’s easier to stick to your decisions when everyone agrees on one narrative. Write down what you collectively decide so everyone stays on the same page.

What it led to was a memo that we said, here’s our outlook on conferences, events, and trade shows because we get these requests all the time. And it was way easier to commit to write whatever it took, let’s say it was two days to write some memo, that we now say internally, every time this comes up, whether it’s with ourselves so we can revisit and say like, “Oh yeah, that’s what we agreed upon.” Or new team members come on board. And they’ll say, “Hey, there’s an MLB opportunity.” We can just say, “Here’s the document. This is the way we think about these things moving forward.” So it was a nice way of taking something that we had invested some time into, preventing it from happening before we got even deeper, and also saying it’s okay, there’s some costs. We’re throwing that out. We’re not going to anchor on going and going because the downside to investing all this time and not having it work out the way that we had hoped is way worse than some potential upside that might not even happen the way we hoped.

07:08 – Let go of your ego

Tom said it’s easy to let your ego get in the way of making the right decision, but sometimes you have to swallow your pride in order to do what’s best for your company.

I agree that the biggest takeaway is that it is never too late to pull the plug. And I think this is textbook sunk cost fallacy, which thank God we ultimately weren’t susceptible to because we did pull the plug. But I think we need to hold this up as an example to other teams, because it is very easy to have your ego tied to a project initiative, certainly an external partnership like this, and then feel like you’re too pot committed, especially when you’re reporting out to the team and getting everyone else excited. And so I remember that was a variable here, which we had reported out to the team, hey, we’re doing this partnership. And we’re throwing around a bunch of household names, frankly, that were involved in this, that so and so is going to be on stage putting on a level sensor. And we were excited about it and sold the team on it. So I do think that there was reticence across the board in terms of the people that were involved in this to then go back, kind of tail between our legs, and be like, “Hey, it didn’t actually work out.” And in part it’s probably on us a little bit, it’s on them. And so I think it was a more courageous move to pull the plug on it.

09:48 – Don’t make concessions

Ben said if you’ve drawn a hard boundary line you need to keep it, even if it makes other people uncomfortable.

I don’t think we made a bad decision to work with the event, but the learning was, personally the learning was when you know from intuition, when you know from experience, there is no wiggle room, don’t have wiggle room. So the one thing that was the, hey, this is needed. This was not oversight on our part. This was being influenced to make a concession that didn’t feel great. And when you’ve got objective reasons why you shouldn’t have that wiggle room, it’s too easy to get down that slippery slope. And so it was one of those to use your words, Mike, is the never again. Where you’re like, never again. So it was kind of a gut check where you’re like, “I’ve done this never again thing so many times. And somehow somebody had convinced us that it’s okay.” And you just know. You’re like, “We are never again going to do anything like that where it’s like no contract, no forward movement, full stop. That’s it.” So that was a good lesson learned.

11:37 – Don’t burn your bridges

Ben said if you need to rethink a decision, it’s important that you maintain good relationships with people even when you have to let them down.

Casey’s biggest consideration with it was, I want to make sure that we harvest and maintain this relationship moving forward. It’s not something that creates friction or tension because you never know when we’ll need to revisit that. And so we had discussed how we were going to position with the event and what she would do moving forward to keep this person warm. It wasn’t something that snap your fingers came out of nowhere. This is a relationship that she’d been nurturing for a while. And so we thought long and hard about how we should do that on the events part. If you can’t speak and you’re not going to sponsor, and the company’s not part of this, we’d still love for you to attend. And if she didn’t attend, it would’ve felt a lot like the rubbing salt into the wound. Now we’re really upset at you. And so to smooth things over it was, “Thanks, we’ll graciously take you up on your offer. We will all come there.” And so it was an important thing to do. And granted, there’s still benefit of getting exposure to people at the event. It was one of those things where that was a big consideration for us, where we didn’t want to sever a relationship altogether. And then it’s like, what if you need to revisit that in six months, in six years, you don’t want to have bad blood or have burned a bridge.

14:16 – Maintain clear communication

Mike said it’s easier for employees to be supportive of a rescinded decision if you’re clear about why and how you decided to make that move.

People were supportive because there was clear ownership, and everything was documented and not just documented with calls and notes, but we also, like you said earlier, have this great artifact that we took from it. A memo came from it. And I don’t know all of them, but I’m sure we’ve had many, many people reach out about conferences since then. And I imagine, I think you commented earlier, it saved a lot of time saying, “Hey, this is the document. This is how we look at this and keep it moving.” So I think that was an important part is there was clearer ownership and documented or a learning from it that we could take forward.

15:08 – Stay away from shiny object opportunities

Tom said it’s easy to get distracted by “shiny object opportunities” that present themselves, but you have to stay focused on what your company needs instead of following the latest trends.

When we’re making a future decision about another opportunity, even if it’s very different, you could say that this is similar to that time that we decided to not pursue that tier one conference. And I think that it’s a good example of just this shiny object phenomenon that is going to cross Levels plate about 100 more times in the next 12 months, because we’ve got a great brand and a lot of attention on us right now. And I think often with these shiny object opportunities, the vision for them and the expectations can be very different from the on the ground reality. And I think that’s in part what happened here. The vision that was spelled out by both sides was a very lofty one.

17:18 – Question decisions

Ben said it’s okay to questions the decision you and others make. This actually helps make sure you stay on target with what your company needs.

I think the key is always question your own decisions, and it’s okay to question others. There’s still disagree and commit. We shouldn’t keep questioning and questioning over and over, but if something feels a little off, it’s okay to flag it. And it’s okay to go back on those decisions. So when you make the decision yourself, you own that decision. That is yours. It is entirely up to you to go back on it. And the team, if you go back on it, the team is going to trust. So it doesn’t matter if it seems like it’s small and incremental. It could be something as small as we decided that we were going to email 10 people and to go back and say, even though it’s only 10, again, this seems like small, I don’t think we should do it and here are the reasons why. That is entirely okay even if you’ve invested 20 hours into it.

22:08 – Don’t be too rigid

Ben said that while it’s important to stick to your boundaries, you should still remain open to new opportunities.

It’s the dichotomy between being relatively anchored and standing ground on decisions saying, “Nope, we’re aligned on this and this is our outlook.” But then when new things come along, being open-minded enough so that you can say, “Should we break this decision that we made in order to pursue this opportunity?” And this happens all the time. It’s like, you don’t want to be so anchored that you’re not flexible and not open-minded, but you want to be anchored enough that no matter how interesting an opportunity seems, no matter how many times this comes up, you fail to waiver on this decision. You have zero willingness to waiver on your own decision and what you’ve made, but you have to sort of bounce between both. And so these things will continue to come up.

Tom Griffin (00:06):

The biggest takeaway is that it is never too late to pull the plug. And I think this is textbook sunk cost fallacy, which thank God we ultimately weren’t susceptible to because we did pull the plug. But I think we need to hold this up as an example to other teams, because it is very easy to have your ego tied to a project initiative, certainly an external partnership like this, and then feel like you’re too pot committed, especially when you’re reporting out to the team and getting everyone else excited.

Ben Grynol (00:45):

I’m Ben Grynol part of the early startup team here at Levels. We’re building tech that helps people to understand their metabolic health. And this is your front row seat to everything we do. This is a whole new level.

There’s no better way to kill a project or kill a startup than to take sunk costs into consideration. When doing so, when you fail to ignore sunk costs, that can lead you down a suboptimal path of decision making, very much this irrational path. Whether you’ve invested time or money, regardless of the amount, you have to think through things like, well, does it really matter how much we’ve invested to this point? If you know the outcome is not going to be the outcome you want, you have to ignore sunk costs. You have to say, we have diminishing returns for any minute, any dollar we spend in addition to everything we’ve spent to this point forward. It’s a really hard thing to do. But as a team, it’s important to always have a hand on the steering wheel to say, Hey, is this really going to help us achieve our goals if we keep investing more time or money into it.

And so this is something we’ve worked through as a team where when we’re working on certain projects, maybe it’s related to product, certain features we’re building, or even things like partnerships, growth initiatives. The list goes on. Whenever we get down a path where we question each other and question ourselves and say, is this still a valid thing to do? We often look back and we say, it’s never too late to say, no. It’s never too late to change your mind. And that’s very much what this episode is about. It’s Mike DiDonato, head of member success and Tom Griffin, head of partnerships. The three of us sat down, and we discussed this idea of the sunk cost fallacy. We discussed some of the past projects that we’ve worked on, where we’ve changed our mind. And some of the reasoning why, what some of the lessons learned were in the takeaways. Anyway, it’s always fun digging into these cultural episodes. Here’s where we kick things off.

So I think it was June of 2021, somewhere around there May or June of ’21. And we had an opportunity come up with a tier one conference where things like all opportunities, they seemed great initially. And so we got really excited about it. And the event was also excited across the team. Some of the upside came in relation to being aligned with thought leaders that we respected, thought leaders that we didn’t have relationships with. We were forecasting potential conversions that would come and exposure for the product and the brand and all of these things. And so, as we got further along in the conversations, we said, what would need to be true for this to actually pan out? And we had listed a number of bullets. We went through these bullets with the event and the one flag that came up initially was we had requested, let’s have a contract for this.

If we want commitments on our end, and you’ve got commitments on your end, it’s better for both of us. And it was one of those things where this was again, what you mentioned, Tommy, based on past experience saying, “Hey, we’ve seen this movie. We know the ending, let’s get this thing done.” And because we felt that there was maybe a little bit more leverage from a thought leader or a brand perspective of this tier one event, we conceded to their request to not have a contract. And it didn’t feel great, but there was a lot of, well, we trust there’s going to be follow through. And where things started to go south was slowly over time, we’ll call it over a four to eight week period, some of the things that we initially discussed and agreed upon, and again, these are recorded meetings.

We didn’t want to say, “Hey, we both agreed on this.” But they started to slowly get pulled back or changed in, “Well, we might be able to do that.” But it wasn’t committed to as concretely as we had hoped. And so that combined with some of the logistical considerations and the time investment that it would’ve taken for our team, we said, “This is the point where we’re pulling the plug.” And the irony is that when we went back to the event and we said, “We’re no longer doing this,” they basically went, and they said, “Hey, no, no, we have to move forward. Here are the things.” They wanted to make concessions to revisit the thing. And it just wasn’t something that we felt comfortable with. So the takeaway was, it’s never too late to say no, and it’s never too late to change your mind.

Being very explicit, what it led to was a memo that we said, here’s our outlook on conferences, events, and trade shows because we get these requests all the time. And it was way easier to commit to write whatever it took, let’s say it was two days to write some memo, that we now say internally, every time this comes up, whether it’s with ourselves so we can revisit and say like, “Oh yeah, that’s what we agreed upon.” Or new team members come on board. And they’ll say, “Hey, there’s an MLB opportunity.” We can just say, “Here’s the document. This is the way we think about these things moving forward.” So it was a nice way of taking something that we had invested some time into, preventing it from happening before we got even deeper, and also saying it’s okay, there’s some costs. We’re throwing that out. We’re not going to anchor on going and going because the downside to investing all this time and not having it work out the way that we had hoped is way worse than some potential upside that might not even happen the way we hoped.

So that was one example of many of these sports partnerships and events, where we had changed our mind completely from what had happened. And we turned what was maybe a negative outcome or a negative sentiment, maybe a little deflating. We were all very excited about it. And we turned this deflating touchpoint into something that was positive. And now we’ve got pretty good strategy or pretty good reasoning of why we think about things the way we do.

Tom Griffin (07:05):

I mean, I think we learned a lot of different things, but I agree that the biggest takeaway is that it is never too late to pull the plug. And I think this is textbook sunk cost fallacy, which thank God we ultimately weren’t susceptible to because we did pull the plug. But I think we need to hold this up as an example to other teams, because it is very easy to have your ego tied to a project initiative, certainly an external partnership like this, and then feel like you’re too pot committed, especially when you’re reporting out to the team and getting everyone else excited. And so I remember that was a variable here, which we had reported out to the team, hey, we’re doing this partnership. And we’re throwing around a bunch of household names, frankly, that were involved in this, that so and so is going to be on stage putting on a level sensor.

And we were excited about it and sold the team on it. So I do think that there was reticence across the board in terms of the people that were involved in this to then go back, kind of tail between our legs, and be like, “Hey, it didn’t actually work out.” And in part it’s probably on us a little bit, it’s on them. And so I think it was a more courageous move to pull the plug on it. And I think that we need as a team to get comfortable doing that because so often you need to. At least in part, you need to take some steps towards pursuing some of these opportunities to then find out that it’s not worth continuing to pursue. I’m sure this is going to happen more and more, and we need to be comfortable at any point bailing basically.

Mike DiDonato (08:41):

I think sometimes, especially at the size we’re at, or even now, it’s easy to get lost in some of these things, Tom mentioned, whether it’s pro sports or something with celebrities or these big conferences. We get lost in this mystique of like, whoa, it’s up on this pedestal. And I’m kind of curious, I know the other stakeholders that were involved in this project heavily, and Casey in particular was, and I’m just kind of curious how did the messaging, or what were those conversations like then? How did we position this? Because I know Casey has been building her brand working super hard, and this could have been potentially a big opportunity to do that. So I’m just curious, what did that look like?

Ben Grynol (09:23):

That was one of the interesting things, because there’s a couple things to touch on. One is the internal conversation and one’s the external. The internal conversation, and it’s funny, this is well timed with our leadership book club, we’re doing extreme ownership and very much no one wants to make bad decisions, but owning them ,saying hey, made a bad decision. I don’t think we made a bad decision to work with the event, but the learning was, personally the learning was when you know from intuition, when you know from experience, there is no wiggle room, don’t have wiggle room. So the one thing that was the, hey, this is needed. This was not oversight on our part. This was being influenced to make a concession that didn’t feel great. And when you’ve got objective reasons why you shouldn’t have that wiggle room, it’s too easy to get down that slippery slope. And so it was one of those to use your words, Mike, is the never again. Where you’re like, never again.

So it was kind of a gut check where you’re like, “I’ve done this never again thing so many times. And somehow somebody had convinced us that it’s okay.” And you just know. You’re like, “We are never again going to do anything like that where it’s like no contract, no forward movement, full stop. That’s it.” So that was a good lesson learned, but no one wants to go back to the team, as Tom was saying where it’s like, “Hey, we kind of made a bad decision, the bad decision being that we didn’t get this contract to begin with.” So owning that, we’ve invested all this time. And that sucks to report that back to the team. But in doing so and owning it and walking with lessons learned that helps to build the trust. Now, the challenge is it’s really easy to pull the plug and just say, “See you later, we’re done with this.”

And externally, because there’s a relationship that’s been built, and because this is a tier one event, and because these people are connected in this world that we all live in, it really needs to be a dance to make sure that it’s done in a respectful way. So Casey’s biggest consideration with it was, I want to make sure that we harvest and maintain this relationship moving forward. It’s not something that creates friction or tension because you never know when we’ll need to revisit that. And so we had discussed how we were going to position with the event and what she would do moving forward to keep this person warm. It wasn’t something that snap your fingers came out of nowhere. This is a relationship that she’d been nurturing for a while. And so we thought long and hard about how we should do that on the events part. If you can’t speak and you’re not going to sponsor, and the company’s not part of this, we’d still love for you to attend.

And if she didn’t attend, it would’ve felt a lot like the rubbing salt into the wound. Now we’re really upset at you. And so to smooth things over it was, “Thanks, we’ll graciously take you up on your offer. We will all come there.” And so it was an important thing to do. And granted, there’s still benefit of getting exposure to people at the event. It was one of those things where that was a big consideration for us, where we didn’t want to sever a relationship altogether. And then it’s like, what if you need to revisit that in six months, in six years, you don’t want to have bad blood or have burned a bridge.

So yeah, the internal comms were, everyone was very supportive. No one was pointing fingers and saying, “What did you do?” Actually, it was the opposite. Everyone was very much appreciative that we made this decision and felt confident in it and were committed to it. And then the external part was the other part of it. So yeah, it was a very good lesson learned and a great process to go through because you realize, hey, the team has your back. Nobody was upset at anyone involved in the logistics for the event. And I think it was closed out in a thoughtful way if you want to put it that. There was thought that went into the internal and external comms and steps forward with it. So it was a good opportunity to learn as always.

Mike DiDonato (13:59):

I think that the last part you were saying about people being supportive and appreciative, I think relates to our experiments. You mentioned this briefly. People were supportive because there was clear ownership, and everything was documented and not just documented with calls and notes, but we also, like you said earlier, have this great artifact that we took from it. A memo came from it. And I don’t know all of them, but I’m sure we’ve had many, many people reach out about conferences since then. And I imagine, I think you commented earlier, it saved a lot of time saying, “Hey, this is the document. This is how we look at this and keep it moving.” So I think that was an important part is there was clearer ownership and documented or a learning from it that we could take forward.

Tom Griffin (15:01):

Yeah. And I think that it absolutely can serve as a decision making heuristic in that when we’re making a future decision about another opportunity, even if it’s very different, you could say that this is similar to that time that we decided to not pursue that tier one conference. And I think that it’s a good example of just this shiny object phenomenon that is going to cross Levels plate about 100 more times in the next 12 months, because we’ve got a great brand and a lot of attention on us right now. And I think often with these shiny object opportunities, the vision for them and the expectations can be very different from the on the ground reality. And I think that’s in part what happened here. The vision that was spelled out by both sides was a very lofty one.

It was like, we’re going to get 500 really influential individuals using Levels all at the same time at this conference. We’re going to track their data in real time. We’re going to put up a big board showing people’s data in some anonymized way and be doing real time analytics on the back end to then show everyone the effects of food on their health at the conference. And admittedly, it was a really cool idea, but the more we zoomed into it sort of inevitably became impossible to execute. And I think this type of thing is going to come up a lot.

It could be South By Southwest next year, we might have a speaking opportunity. And then someone presents us with an opportunity to host some health hacking house. And someone tells us that Elon Musk is going to show up to the dinner we’re going to host, and we need to get a house for three days and put together some programming. And we’re all getting excited going, this is crazy, this is awesome, we should do it. But before you know it, it’s 200 team hours invested in it, and we need to send 12 people down to Austin, and it becomes our biggest project of the quarter. And obviously, we shouldn’t pursue that even if Elon Musk is going to show up to our house. So I think this is a great example of some of those dynamics.

Ben Grynol (17:17):

Yeah. I think the key is always question your own decisions, and it’s okay to question others. There’s still disagree and commit. We shouldn’t keep questioning and questioning over and over, but if something feels a little off, it’s okay to flag it. And it’s okay to go back on those decisions. So when you make the decision yourself, you own that decision. That is yours. It is entirely up to you to go back on it. And the team, if you go back on it, the team is going to trust. So it doesn’t matter if it seems like it’s small and incremental. It could be something as small as we decided that we were going to email 10 people and to go back and say, even though it’s only 10, again, this seems like small, I don’t think we should do it and here are the reasons why.

That is entirely okay even if you’ve invested 20 hours into it. Because if you’ve got some reason that doesn’t have to do with something that’s subjective, let’s just make up a loose example. It’s subjective, and somebody feels maybe a little bit uncertain about the copy that they wrote for the email. And they say, “I don’t know if members will receive this.” That’s something that wouldn’t necessarily be a decision to go back on. But if you’ve got something that’s objective like, I think this is going to lead to 10 members churning. People will support that. They’re not going to say, well, we’ve already invested 20 hours, and there’ve been five of us involved. We have to send this. That’s an entirely okay reason.

So it doesn’t matter whether the decision is about emailing 10 people or if it’s something as significant as we have $100,000 invested in this, and we should stop. That money is not coming back. And we have 1000 hours of team time invested. We’re not getting that back, sunk costs. It’s okay to go back on those decisions. It’s never too late if you’ve got good reason why. So it’s a good takeaway and a good lesson learned.

Mike DiDonato (19:17):

I think the best way to put this, we talked about it. Hypothetically, Tom leaving that podcast tour, let’s keep it to podcast. So I don’t know if I need to call out anybody in particular, but let’s just say the number one podcasts that are in the world. How do we approach this? I know it’s come up previously in conversations. Obviously, the company’s evolved, and it’s very different. But yeah, go ahead. I’ll keep it open ended, how do we do that? How do we vet that?

Tom Griffin (19:49):

Yeah, I mean, when I think about some of the partnerships, podcast opportunities, we’ve had to be really explicit about when we want to pursue certain partnerships and when we don’t, even if they cross our plate right now. So a good example of this and we can, why not? We’ll name some names, but…

Mike DiDonato (20:12):

Get in there.

Tom Griffin (20:13):

Joe Rogan and Tim Ferriss were two of the top names in our orbit for a while now. And at one period of time, we were very explicit with ourselves and internally that we weren’t ready for either of them. So we probably had lines in to both of them, maybe one more than another, but we were explicit about, “Hey, despite the fact that we are pursuing a lot of podcast health and wellness partnerships, we’re going to hold off right now on Joe and Tim.” And then at a certain point in time, that changed to, “Okay, we’re comfortable pursuing one of them based on the inroads we had and the relationships we have, but not another. And that other person we needed to wait until we were out of beta and the product experience was better.” So I think it’s just a good example of orienting the team around clear decision making criteria, making sure that everyone is aligned around when we’re going to say yes. And when we’re going to say no.

Mike DiDonato (21:12):

I guess, similar to what the conferences is having the documentation in place to refer to. Right? Is that what you’re saying? I know you said decision process, but I imagine you’ve had some kind of pushback. How did you push back on that pushback?

Tom Griffin (21:31):

I don’t think I got too much pushback, to be honest. I think that we were fairly aligned internally in terms of there are certain opportunities that were so large and finite in the sense that we had one shot at them, that if they didn’t go well, we might lose our opportunity. And so most of the team I think was aligned around that.

Ben Grynol (22:01):

Maybe the summary is the hardest thing to do is to have, there’s this dichotomy. So it’s the dichotomy between being relatively anchored and standing ground on decisions saying, “Nope, we’re aligned on this and this is our outlook.” But then when new things come along, being open-minded enough so that you can say, “Should we break this decision that we made in order to pursue this opportunity?” And this happens all the time. It’s like, you don’t want to be so anchored that you’re not flexible and not open-minded, but you want to be anchored enough that no matter how interesting an opportunity seems, no matter how many times this comes up, you fail to waiver on this decision. You have zero willingness to waiver on your own decision and what you’ve made, but you have to sort of bounce between both. And so these things will continue to come up.

That’s one of the things that we highlighted in that documentation that says, it’s not that we’re not going to consider events altogether. They need to meet the criteria of one, two, and three for us to even consider them. And if they don’t meet that, then it’s out the door. And that’s something that I think we can extrapolate as an example, across the company where when these things come up, like we’re going to be anchored on certain things and not on others. You can extrapolate this to enterprise, to B2B, to partnerships, to you name it. But there will be these things that come up at different scales of the company. And all that happens is a scale continues to increase as far as the impact and the importance of the decision that’s made.