Stuck in Legacy Systems? Avoid the Sunk Cost Trap

Planning for Growth

There comes a time in the growth of any business where all the executives sit around a table and look at their long-term plan. “Where are we aiming to be next year, 2 years from now – in five years?” This conversation is broken down into parts:

• Looking at what’s worked in the past and what isn’t working anymore
• Defining budgets and strategies for the future

The goal of this exercise is to come to an understanding of how to move forward, having pinpointed exactly which areas of your company infrastructure require an upgrade.

For example, have you invested in any systems that you’re now outgrowing due to steady, financial success? While investing in additional repairs or maintenance can help alleviate overhead in the short-term, especially for a growing business, you will find it quickly becomes outdated.

As businesses scale, many executives try to stretch outdated systems by hiring more staff or relying on manual workarounds. This creates hidden costs in the form of overburdened teams, inefficiencies, and increased risk of human error. Instead of optimizing workflows with modern ERP solutions, they invest in short-term fixes that fail to scale.

The Challenge of Rapid Growth

Another common struggle is that your team is expanding too quickly – along with your portfolio of projects. If you’re a project-driven company, then this is a crucial turning point for your business, to ensure that you have the right technology in place to help manage new clients and their needs. Recently, the Gurus team helped a rapidly growing Montreal business with a similar obstacle take the next step in what [Gurus] CEO Martin McNicoll refers to as “future-proofing” their infrastructure.

The Risk of an Aging Workforce

And then, there’s the dawning reality that your company might be relying on an aging workforce.

Aging systems often rely on aging teams. Veteran employees are familiar with outdated processes, but when they retire, your business loses critical knowledge. Relying on legacy systems that only a few employees know how to operate creates operational risk. Future-proofing means adopting modern, scalable platforms that new team members can easily learn and support.

Harvard Business Review recently published an article on “retirement-proofing” your business, which notes that “In the United States, there were 65 million people over the age of 60 in 2017. This number is expected to grow to more than 77 million by 2020.”

There is a tsunami of retirements predicted to be headed the way of today’s business world within the upcoming years – and future-proofing means preparing for scenarios like this. You want your systems for business growth to outlast your veterans and not the other way around, so that your business processes are never vulnerable when a star employee leaves for retirement. Sure, as the article goes on to point out, many large companies in the U.S. and Germany work around this by bringing back retired veterans on expensive contracts to help them transition systems – but why add the unnecessary expense later when you can start the transition now? Why risk a business disruption that could potentially cost you several times more than upgrading your systems in the first place?

Understanding the Sunk Cost Fallacy

Here’s where the Sunk Cost Fallacy comes into play. Often times, a growing business will be reluctant to change systems even if they see clear signs that their team is rapidly outgrowing them - or even that their old processes are beginning to cost them. Having worked with countless companies that have come to us at the eleventh hour looking for a fast solution to get them out of the hole during a busy period, I can tell you that this is a crucial deciding moment. It might be one of the most significant decisions that you make during the growth period of your company – and more often than not, you will risk hurting your long-term profitability.

It’s easy to think new system = added expense. However, you have to look at overall picture of what that expense is for and how it will benefit you and save you costs over time. Upgrading your systems is an investment into your own ensured success. Maintaining a system, on the other hand, can end up being quite costly - especially with older on-premise technologies.

A colleague recently shared how her team was losing hours each week due to an outdated system that required constant manual entry and spreadsheet juggling. Despite the inefficiencies, her leadership team resisted upgrading because they had invested years in customizing the current solution. This is a textbook example of the sunk cost fallacy, continuing to invest in something that no longer serves its purpose, simply because of past investment.

It's why gamblers lose everything at the casino, it's why people stay in unhappy relationships, and it's the best possible way to sink your spirit, income and your time in whatever investment you make - whether professional or personal.

The sunk cost fallacy refers to when you invest so much time, energy and emotion into something that it becomes impossible for you to move on or abandon it when it stops working, or even impedes you from progressing. The reasoning is, "Well I already got this far, why change route now?" And you keep going at it until you exhaust yourself, your finances, and time that could've been better spent. If this sounds like your case, then the best possible solution is the easiest one - it’s time for a change.

Signs It’s Time to Upgrade

Still debating whether to repair or replace your system? If you're experiencing any of the following signs, it's time to consider an upgrade:

• Increased manual work and overtime
• High maintenance costs for legacy software
• Employee burnout or rising turnover
• Inability to scale operations or add new services
• Frequent data errors or downtime
• Reliance on a few "system experts" nearing retirement

Don’t wait until you’re forced into a rushed transition. Proactively upgrading your systems is an investment in long-term efficiency and profitability.