Cut your losses and move on

THREE months before enforcement of the movement control order (MCO) began on March 18, my friend opened a fine dining restaurant in Taman Tun Dr Ismail, Kuala Lumpur. The restaurant did not fare well, as it failed to draw in the crowd. He is mindful that it will take a while before his business venture can generate any profit.

Now, with the Covid-19 pandemic and with bleak news announced daily – including the statement by Minister in the Prime Minister’s Department Datuk Seri Mustapa Mohamed that the country’s economy will need at least six months to recover after the Covid-19 crisis ends – my friend is in a dilemma what to do next.

I am sure he is not alone. There could be hundreds if not thousands of such entrepreneurs who are re-evaluating the viability of their businesses during these trying times. The main question these not-so-established enterprises have to face is “Do I cut my losses and move on or do I hope things will get better?”

The optimists will say that there is always sunshine after the rain (as our Prime Minister said in his recent speech) while the more practical realists will know when to cut their losses.

Yes, the stimulus package incentives will prove to be a lifeline but for how long? When the stimulus assistance money runs out in a few months, what then?

Unfortunately, most are not willing to take an immediate hit and move on; they are likely to continue hoping the situation will change for the better. They worry far too much about what they will lose if they just move on, and not nearly enough about the costs of not moving on.

Why would a gambler keep playing, even after losing a lot of money? Economists call it the sunk cost fallacy, a phenomenon that drives us to make bad decisions.

Another reason for the reluctance to cut losses and move on in our Asian culture is the desire not to lose face or appear stupid to have ventured into such a business.

My friend invested RM3mil in his restaurant which hasn’t delivered. Should he continue to throw in more good money to keep his venture going?

In reality, entrepreneurs like my friend are hoping against hope that there will be sunshine after the rain when there’s absolutely no good reason to believe the situation will improve shortly. There will be more wasted time and effort, more frustration and unhappiness and more missed opportunities.

The business community now has to learn how to adjust to the new normal in terms of the way they conduct their business. In other words, their business model prior to the MCO will no longer be applicable. Not only must they learn to be more innovative, enterprising and resourceful but they must also learn to face many daunting challenges and risks. They either learn to ride the wave or go bust.

Selling or liquidating a losing concern is never easy – a tough decision indeed in normal times. But with this crisis spreading globally unabated, businessmen now need to prepare themselves mentally to cut their losses once the MCO is lifted.

Take one or two steps back and start thinking through the alternatives. Learn your lessons and move on.


Kuala Lumpur

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