Ignoring Sunk Costs

The Art of Looking Forward….Not Behind

Sunk-costs are costs that cannot berecovered once they have been incurred.

“I can’t stop now, otherwise what I’ve invested so far will be lost.”

This is true, of course, butirrelevant to whether oneshould continue to invest inthe project.

Prospect Theory

• States that people are inherently loss averse

• People weigh losses twice as much as heavily as gains

…a loss of $1 is twice as painful as a gain of $1

the combination of a non-neutral reference point and loss aversion is what leads to irrational behavior

Poker

you bet on your hand as it exists at themoment (and its potential for the future).

Many people will stay in becausethey’re “pot committed” --- they figurethey’ve already risked so much to be inthe game that it can’t hurt to bet a littlemore.

Stock Market

holding on tight to bought shares as the market slumps in the desperate hope that the shares will rise in price again.

President Bush staying the course in Iraq

“A current withdrawal would dishonor the memory of those who have made the ultimate sacrifice for the sake of liberty.”

• How We Are Dealing With Sunk Costs

Our Story• Last year, I started a company called Figure2 Management . I’ve had 10

years experience working in the music industry…. managing artists, video production, event production, and promotion.

• Figure2 was created as a full-service music marketing agency specializing in using big data to connect artist with opportunities.

• We believe that data has the potential to not only make up for the revenue lost from physical sales, but it can actually surpass it.Our theory is that by using data created through streaming services such as Spotify, TIDAL, Pandora, etc...you can determine how an artist should tour and leverage a much larger, data-driven digital advertising market and create opportunities for collaborative marketing and mobile engagement for brands.

• My first project has been to develop the hip hop artist, Derek Davis, aka Drizzy D.R.O.

The Change Agent• This past week, we were able to connect with the mobile

hardware developer OnePlus through a video contest they held through their online forum which boasts 600,000 users.

• Drizzy made it to the finals but was not chosen Earlier this year, we were able to raise $25,000 in investment capital.

• We signed the artist to a 25% management contract.

• A portion of the investment money has gone towards photography, video production, relocation costs, publicity & marketing, lawyers fees, app development, and studio time, which has exceeded $14,000.

The Dilemma

• We have other artists on our roster that could generate revenue through touring and record sales, but none of them have the innovative story like The Press/Play Hotline. Our challenge is making the decision to continue forward with Derek as our primary artists or move our focus to less innovative acts with more revenue generating potential.

The Decision

• We have an app in development that will help the artists establish lasting and meaningful relationships with his fans, communicate with them around the web, and hopefully sell far higher-value products in return.