When to Cut Losses: The Guide

cut lossesOne of the toughest things to do – in business and in life – is cut losses and get out of a bad situation. To walk away from something that just isn’t working – throw the towel in, give up the ghost, and go spend your time, effort, money, and everything else on something different.

How hard is it?

It’s so hard that it’s the #1 reason people stay in:

  • Jobs they don’t like
  • Businesses that are failing
  • Relationships that are circling the drain
  • Friendships that have stopped being positive
  • … and all manner of scenarios that will suck the lifeblood right out of you

If these things are so bad though, why do people stay in them – and how do you get yourself out of them?

That’s what we’re talking about in this post: the reason people end up in bad situations, the reason they have such a difficult time getting themselves out of them, and how you can change this pattern so you never end up stuck in a bad situation in your business or your relationships ever again.

When Good Situations Go Bad

Have you ever seen a friend or loved one in a really bad situation?

Maybe they were trapped in a job they clearly despised, or a relationship where they were being taken advantage of and treated poorly. Maybe they were throwing money into a business that was just a pure money pit and as far as you could tell was never going to produce anything ever.

You probably looked at them and couldn’t figure it out: “Can’t you see what a dreadful situation you’re in?” you might have said to them. “Why don’t you just cut losses and get out of it??”

It just doesn’t seem to make sense. Here’s this otherwise talented and capable and intelligent person, trapped in a terrible situation. What on Earth are they thinking?

The problem is the nature of investment and how human psychology works. Basically, the more invested in something you become, the harder and harder it becomes to leave it.

This is true for everything:

  • A job you’ve worked at for 2 years is a lot more difficult to leave than one you’ve worked 2 days at
  • A friendship you’ve had for 10 years is a lot more difficult to cut off than one you’ve had for 10 weeks
  • A relationship you’ve been in for 20 years is infinitely more difficult to leave than one you’ve been in for 20 days

You know that both consciously and instinctively. The way the brain works is, it says five (5) things to itself that make something you’re heavily invested in harder to leave:

  1. “I’ve spent so much time on this, it’s going to take so long to build something equal to or better than this!”
  1. “I’ve stuck it out this long, it doesn’t make sense to abandon it now – we might be right around the path from resolving our differences / getting a promotion / becoming profitable!”
  1. “I’m not super happy with what I’ve got right now – but at least I’ve got something. Maybe if I give it all up, I won’t have anything ever again!”
  1. “If I can make this work, it could be an incredible opportunity – I can’t give it up! What if I miss what might be the best thing in my life?”
  1. “It was pretty much dumb luck that I ended up with this opportunity / friendship / relationship in the first place – who knows how I’ll find something like this again? Wait for more dumb luck?”

So, you end up in this bad situation that used to be a good situation that just deteriorated over time, and you want to get yourself out of it… but it just feels too hard, too uncertain, and like you’d be giving up too much.

But you know the most insidious aspect of this kind of mental investment?

The most insidious part of it is, there’s no faster way toward getting invested in a hurry than having something that you really have to struggle against and fight in and you stay in anyway. It takes a Herculean effort from you, and by the time you’ve stuck it out you’ve also convinced yourself mentally that I can’t leave now.

What that means is, many times the things you get the most heavily invested in are the worst things in your life.

How terribly ironic is that?

Signs You Need to Cut Your Losses

cut lossesHow do you tell you need to start cutting losses and get out?

It’s hard to do, not least because your brain won’t even want to think about it for the longest time. It’ll keep playing optimistic fantasies about what could happen, if only things were to just start working.

What could your relationship be like if suddenly all the problems disappeared?

What could you build your business into if tomorrow sales went up and you became profitable?

What could your friendship become if your friend cut out that bad stuff and started being a good friend again?

What could your career be like if they just gave you a chance to prove what you can do and showed you the path to promotion?

Your brain will keep playing these scenarios in your head and reminding you of what could happen… if only things would go your way.

Here are some signs though that they probably aren’t going to and you need to cut losses and get out:

  1. You’ve been at it for a long time and little has changed. Don’t try to fool yourself by listing a few small changes here and there. “No, I think the business is getting better, we had a few more inquiries last month. Sure, no sales came of that, and it’s been slow since, but things are looking up.” “Our relationship seems like it’s improving; it’s not that great lately, but we haven’t been fighting as much.” Small changes that may not even really be changes at all – but rather just random variation in the way things have been going – don’t count. If that’s all you’re seeing, things aren’t really changing.
  1. You don’t know how to fix the problem. You’ve been waiting around for that promotion for a few years. But you think you’ve got a shot now. Great! How are you going to get it? You’ve been running your business for 6 months now; there aren’t any sales, but you keep feeling like you’re close. Okay – how do you get sales? If you don’t know how to fix the problem, you’re just hoping it gets fixed somehow on its own. And that isn’t how problems get fixed. If you don’t know how to fix it, it won’t get fixed.
  1. You’re just throwing stuff at the wall and hoping something sticks. This one’s related to the point just above. Throwing stuff at the wall and hoping something sticks is not a strategy – it’s a crapshoot. If your idea of fixing your relationship is to try a bunch of different things and hope that something works, nothing likely will. Why? Because you don’t understand what the real problem is, and you don’t understand how to fix it. When you catch yourself doing this, it’s a strong sign you need to either figure out what the problem is and how to fix it and stop playing craps with your life… or time to start cutting losses and do something you do know how to do.
  1. You’ve given up trying and are hoping for a miracle. This is where you end up when you’ve been throwing stuff at the wall too long and had nothing stick long enough so now you’re just hoping that something is going to happen that will somehow fix the situation. Maybe someone at work will leave his position and you’ll get promoted that way. Maybe your partner will realize how much he or she loves you and needs you and all will be resolved. If you’re hoping for a miracle, this is a definite sign it’s time to cut losses and move on. You’ve basically accepted that you can’t fix things, and are hoping instead for something that’s very, very unlikely to happen.

Plainly stated, you are solely responsible for fixing the problems in your job, business, friendships, and relationships, and if you can’t do it or you don’t know how to do it, you should be working under the assumption that it simply isn’t going to happen.

In the movies, things just work themselves out. But in real life, things stay broken forever if you don’t fix them – or, you recognize an unfixable situation and get out.

How to Cut Losses

There you are, now fully aware you’re in an unsalvageable situation, and you realize it’s time to get out. If knowing is half the battle, that means you’re half way there… but you’ve still got the other half, of actually literally cutting losses, to fight through.

How are you going to do that?

Well, you can start by following these steps:

  1. Make an exit plan. Whether you’re leaving a company or a relationship, plan out how you can exit as gracefully as possible with as little damage to both yourself and others as possible. That means abandoning revenge; leave revenge to those without better things to do with their time. It also means abandoning fighting over table scraps. In the mid-1990s, Dr. Dre, the world famous rap music producer, left Death Row Records, the music label he cofounded with the mafia-like ex-football player Suge Knight. Dre left a lot of money and intellectual property behind just to get out – many at the time said Suge got quite a lot. But Dre went on to found a new record label by himself and launched a number of hit albums and successful artists – including Eminem and 50 Cent – while Knight squandered what he had and eventually fell into ruin. Don’t worry about getting what you can out of a failing situation – just get out.
  1. Think through your rationale. When you decide it’s time to cut losses, other involved people will often try to convince you otherwise. Your boss won’t want you to quit. Your employees and business partner won’t want you to shut the business down. Your girlfriend, boyfriend, or spouse won’t want you to leave. You need to know why you’re leaving, why you’re certain it’s time, and you need to be able to communicate why you’ve made the decision you have. You should expect to have others trying to talk you out of your decision
  1. Know what’s next. Why’s it so hard for people to leave bad situations, even when they know they’re bad? It’s because they don’t know what comes next, which makes them afraid to let go of what they’ve got, even if it’s time to let that go. Spend a little time to know what you’ll be doing next – and get excited about it. Wouldn’t it be nice to take some time off from work before you find another job again? Can you imagine the freedom of not being in a relationship – no responsibilities, no pressure from anyone else, just you, free to do whatever you want? How about folding up that failing business – and moving on to start one that works? Know the next step, and it’ll be a lot easier to take it – and get off the step you’re on right now.
  1. Do it fast. Not so fast that you do it slipshod, of course, but no good ever comes of long goodbyes in sticky situations. Cut your losses by cutting ties fast – in a single discussion or a single announcement, if possible. I shut down a failing business I was running by sending an email out to all of the employees in the morning before they came in, and addressing them individually as they filtered in that morning – some had read the email, some hadn’t. Regardless, a former business partner of mine remarked, “I didn’t realize you were going to shut it down so fast.” My reply? “No sense prolonging the inevitable – it was time.” Close it down quickly so you can move on with your life, and everyone else can too.
  1. Take a break – then get back to work. You’ll probably want a few days off to absorb the fact that you’ve just parted ways with something that was an important part of your life for however long. But then it’s important that you get back to work quickly – finding the next job, starting the next company you want to start, hitting the dating scene, or making new friends. This will allow you to fill your life quickly with the search for the next thing in store… and prevent you from spending too much time second-guessing yourself about whether you really should’ve walked away from that thing you walked away from.
  1. Whatever you do, keep moving forward, and don’t go back. Imagine a man standing there. He’s just walked away from his job. “I don’t need that job,” he says to himself, “it’s holding me back.” As he walks a few steps into the parking lot toward his car, he pauses though. “Wait,” he says, “maybe that was a pretty good job. Maybe I won’t be able to find another one like that.” He turns around. “Ah, geez,” he says, “I’ve got to go back, I can’t lose that job.” Do you respect this man? Just like we don’t have much respect for people who waffle, we lose respect for ourselves too when we do this. Don’t do it – keep moving forward and you’ll get what you want – or something even better in time. No good comes from going back to that thing we had but walked away from because we weren’t happy with it. Leave the past in the past.

cut losses

If you keep these 6 points in mind –

  1. Make an exit plan (just get out)
  2. Think through your rationale (be able to explain)
  3. Know what’s next (and where you’ll go)
  4. Do it fast (no long goodbyes)
  5. Take a break, then back to work (next step comes immediately)
  6. Keep moving forward, don’t go back (move toward the future, not past)

you’ll be able to cut losses and get focused on getting on with your life sooner than you might have expected.

There’s nothing better for the health of your life – your mental health, physical health, spiritual health, and every single kind of health there is out there – than getting out of bad situations and getting into good ones. Never underestimate the power of simply cutting your losses and getting out of circumstances that have been holding you back and doing you damage – the freeing of your time, money, and mental resources may just enable you to find something truly extraordinary instead.

And if you’ve committed yourself to at last cutting losses on the unproductive situations in your business and life and you’re ready to get started on what comes next, you won’t want to miss all the great tips, tools, techniques, and insights on offer in my newsletter – it’s everything you’ll need to get yourself on the road to a productive, successful business and a productive, successful life. Sign up now to start getting my newsletter delivered straight to your inbox:

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See you next time.



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