Cut Your Losses To Invest In Your Winners

“No one should be ashamed to admit they were wrong, which is but saying, in other words, that they are wiser today than they were yesterday.” – Alexander Pope

Rationally you all know to do this. But emotionally, it’s hard to admit defeat and cut your losses. Virtually every analysis comes up with the same conclusion. You, your team, your organization, your customers, and the world itself will be better off the faster and more decisively you can cut your losses to free up resources to invest more in your winners to make them best in class.

This is true when it comes to failing projects. Don’t try to fix them. Shut them down and turn your attention to the ones that are working.

This is true when it comes to failing people. Don’t try to fix them. Make them go away so they can be successful somewhere else and you can turn your attention to people that are succeeding on your team in your organization,

This is true when it comes to failing businesses and organizations. Don’t try to fix them. Close them and turn your attention to ones that are working.

This is true for customers you are failing. Don’t try to fix the situation. Let them play with others that can serve them better and turn your attention to customers you can delight.

It’s one of the first lessons Procter & Gamble used to teach its marketing managers. Given the choice of investing incremental marketing funds into a market in which the brand has a 5% share versus a 50% share, it’s almost always more productive to invest in the 50% share market. A 10% bump in a 5% market gives you and extra half a share point. The same 10% bump in a 50% market gives you +5 share points.

Experienced leaders #1 regret is not moving fast enough on people. Too many managers invest too much time either trying to save poor performing employees or making sure they are treated fairly on the way out. You’ve seen this.

Employee’s performance is poor.
They are warned.
Performance stays poor for the next three months.
They are put on a “performance improvement” program and given extra attention and coaching over a three-month period.
Performance stays poor.
They are put on final notice and given three months to fix their problems or exit.

Did you do the math? It’s almost a year of poor performance and several months of extra investment in time by the manager.

Assume 70% of a manager’s employees are doing fine, 10% are doing an outstanding job and 20% are doing poorly. If the manager has to invest extra time in those doing poorly, that manager is going to spend less time with those doing outstanding. But that’s where there’s the most leverage to the manager’s investment of time. The difference between something being world class (parity) and truly best in class (superior) is exponential.

Implications

This is the essence of strategy. Strategy is about the creation and allocation of resources to the right place in the right way at the right time over time. While it’s relatively hard to create resources – especially time – it’s relatively easy to reallocate resources, moving them from places where they have less leverage to places where they have more leverage.

Porter told us that strategy is choosing what not to do. You can’t decide to focus on something without choosing not to focus on something else.

The place to focus is on your winners. The “something else” to downplay is your losers.

Actions

Make a brutally honest assessment of your winners and losers. Expect three categories: clear winners, clear losers, and yet to be determined.
Cut your losses on the losers. Shut down failing projects. Move failing people. Close failing businesses and organizations. Fire customers you’re failing.
Redeploy your resources to the winners. Accelerate winning projects. Invest more in winning people, businesses and organizations. Give your best customers even more love and attention.

Scale this by looking at everything through the eyes of your purpose/why, utilizing and reinforcing a clear framework on how to think about this/how, and incentivizing people for doing the right thing/what – explicitly including admitting defeat.