Monday, September 12, 2011

Beware The Concorde Fallacy

In 1956, the Supersonic Transport Aircraft Committee met in England to discuss building a supersonic airliner by British aircraft and engine manufacturers and the government. The project - named Concorde - moved forward, and in 1962 France joined the group.

 

When the wheels came up on the first Concorde commercial flight in January 1976, the enterprise was already plagued by prohibitive cost overruns. By the last Concorde flight in 2003, the Anglo/French financial misadventure had become legendary. The good news is it produced a handy metaphor that covers valuable business lessons.

 

Evolutionary biologists coined the term, "Concorde Fallacy," as a metaphor for when animals or humans defend an investment - a policy, business, or nest - when that defense costs more than abandonment and an alternative. Four centuries before Concorde, in Part One of Henry IV, Shakespeare's Falstaff expressed it this way: "The better part of valor is discretion."

 

Here are two lessons associated with the Concorde Fallacy.

 

1. The "sunk costs" lesson. When the financial viability of an enterprise is questionable going forward, any decision to continue should not be based on what has already been spent. The Concorde partners learned this lesson 27 years, and lots of taxpayer money, too late. For a small business, this sounds like, "We've got too much invested ..." or "If we just work harder ..." or "We just need more time ..." When it's not working now, you have to decide when to pull the plug.

 

2. The "Pride goeth before destruction" lesson (Proverbs 16:18). Emotional attachment to Concorde, and sovereign pride of the English and French governments, caused the willing suspension of economic reason. 

 

In small business, pride can be a productive motivator - but it can also be the problem. A mentor once posed a handy question to me that I'm going to call the "Concorde Question, "Do you have a fighting chance or just a chance to fight?"

 

Perhaps the hardest decision a small business owner ever faces is when to end a business pursuit, whether a new product, acquisition or - and this is the mother of all anguishing decisions - to close the business.

 

The reason for the anguish is because for every entrepreneur who succumbs to the Concorde Fallacy and stays too long at the dance, there is one who pushed on, one more day, and found success. Being a small business owner isn't for sissies.

 

Thanks to Jim Blasingame / Small Business Network, Inc.
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