LETTERS: THREE months ago, my friend opened a new fine-dining restaurant at Taman Tun Dr Ismail, but the restaurant did not fare well as it failed to draw the crowd. He is mindful that it will take a while before his business venture can turn in profits.
Now with the Covid-19 pandemic and the announcement by Datuk Seri Mustapa Mohamed (Minister in the Prime Minister's Department) that the country’s economy will need at least six months to recover after the Covid-19 crisis ends, he is in a dilemma on what to do next.
I think he is not alone. There could be hundreds if not thousands such entrepreneurs during these trying times who are re-evaluating the viability of their businesses. 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 optimist will say that there is always sunshine after the rain, while the more practical realist will know when to cut losses. Unfortunately, most are not willing to take an immediate hit and move on; they are likely to continue on 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 which drives us to make bad decisions. Another reason for the associated reluctance to cut losses and move on in our Asian culture is not to lose face or appear stupid to have ventured into such a business.
My friend has invested RM3 million in his restaurant which hasn’t delivered. Should he continue to throw in more 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.
Selling or liquidating a losing concern is never easy. Businessmen need to prepare themselves mentally to cut losses once the MCO is lifted. Take one or two steps back and start thinking through the alternatives. Learn your lessons and move on.
POLA SINGH
KUALA LUMPUR
The views expressed in this article are the author’s own and do not necessarily reflect those of the New Straits Times