In 2011, Target Corporation, the successful national retailer out of Minnesota, announced they were expanding into neighboring Canada.
The launch was aggressive; by assuming almost 200 spaces vacated by a recently bankrupted chain, Target Canada opened 133 stores in less than two years, including one just 500 miles from their headquarters in Minneapolis.
Having successfully gone head-to-head with U.S. competitors who’d already expanded successfully north of the border, why wouldn’t Canada be a good opportunity for Target? But less than two years and $2 billion in losses later, Target Canada announced it was closing all stores and seeking creditor protection.
This story isn’t to call attention to the many things Target did wrong, but rather to highlight the one thing they did right: They did not become victims of the Concorde Fallacy.
In 1956, the British and French governments, along with aircraft and engine manufacturers, began the process of building a supersonic airliner. From the start the Concorde was plagued by prohibitive budget overruns. In fact, long before the wheels came up on the first commercial flight in 1976, the partnership knew the venture would never sustain itself financially. And yet they couldn’t bring themselves to shut it down.
By the last Concorde flight in 2003, the Anglo/French misadventure had become so legendary that evolutionary biologists coined the term, “Concorde Fallacy,” as a metaphor for when sticking with a troubled project costs more than starting over with a new alternative.
Ego and sovereign pride by the Concorde partnership caused the willing suspension of economic reason. Plus they failed to apply the lesson of sunk costs, which is that, “Any decision to continue a financially unviable project shouldn’t be based on what has already been spent.” In a small business, it might sound like this, “We’ve got too much invested to stop,” or “We just need to work harder.”
Pride can be productive or it can be a problem. Consider this handy admonition a mentor once gave me that I have named the Concorde Question: “Do you have a fighting chance or just a chance to fight?”
Arguably the hardest decision any small business owner faces is when to end a business pursuit, whether a product, an acquisition, or the mother of all anguishing decisions – to close the business. Should you, like Target, heed the sunk costs lesson to avoid your Concorde, or is a breakthrough just around the corner?
Being a small business owner isn’t for sissies.
Write this on a rock … Avoid the Concorde Fallacy by answering the Concorde Question truthfully.
Jim Blasingame is the author of the award-winning book, “The Age of the Customer: Prepare for the Moment of Relevance.”