Why hospitality operators need to overcome the sunk cost cycle

Have you ever justified sticking with what you have because you’ve already invested a great deal of time, money or effort?

If so, you may have made a common human logical mistake: the sunk cost fallacy.

And if this applies to the hospitality tech you use, it might be costing you more than you realise.

Join us as we break down what sunk cost means for hospitality, the effect it has on growth potential, and how operators can break the cycle.

What is sunk cost?

The sunk cost fallacy can be best described as the mistake of ‘throwing good money after bad’ – in other words, staying with what you have because it was expensive instead of cutting your losses and investing in a stronger, more appropriate alternative.

When it comes to growing your hospitality brand, the results of continuing to invest in a system that doesn’t work are nothing short of disastrous.

What does sunken cost look like in hospitality tech?

Hospitality tech has been done the same way for a long time.

When building a tech stack, operators would find the best-in-class POS, and then build point solutions around this to manage all the other parts of the operation.

So with the POS in the middle, day-to-day operations would depend on a fragmented web of suppliers, platforms and solutions requiring complicated integrations between each one.

This used to be the only approach to tech there was, but things have changed.

There are now a number of different ways to build a tech stack, some of which use a single platform to manage the entire order process, eliminating the need for complicated integrations and fragmented operations.

But despite 67% of operators at larger brands feeling frustrated with the tech they use, many of them stick with it, hamstringing their operation’s ability to grow outside the limit of this old way.

Why?

The sunk cost fallacy.

2. Money

Running a restaurant is expensive, and the tech that goes into it is no different.

If you’ve spent years building a tech stack made up of individual point solutions, you’ve probably spent a fair bit to get it to where it is today – if not you, then the predecessors who you’ve inherited the tech stack from.

With budgeting always under scrutiny from senior stakeholders (not to mention a board), shutting down a system that your business has already invested heavily can seem like a waste.

But continuing to pour money into a system that doesn’t work? That’s the waste.

Not only that – you’ll be cutting yourself off from increased revenue that new tech approaches unlock.

3. Effort

Money isn’t the only resource that running a tech stack demands.

Getting all these separate point solutions to work together successfully takes a lot of time and manual work.

Operators have spent hours and hours (and hours more) trying to do just this, working tirelessly to find continuous workarounds – even changing the operation and compromising so the business fits the tech, rather than the other way around.

Having dedicated so much time and effort to build a tech stack, it can be difficult to then leave that project behind, even when it’s not getting the results you want.

Operators don’t give up easily when faced with a problem, and there’s often a feeling that one more compromise, one more solution, will make it all work properly.

But some problems, no matter how much effort you’ve put into solving them, just don’t have a solution.

And continuing to invest your precious time into manually managing a fragmented tech stack is costing you and your business more than you think.

What are the effects of sunken cost on business growth?

Forging ahead with the tech you’ve invested in for years might seem like the most sensible solution, but it’s actually holding your brand back from reaching its full potential.

Consider:

• How is customer experience affected with multiple channels that all feel different, don’t highlight your brand, and don’t all work with loyalty?
• If your kitchen is having to chaotically juggle multiple tablets and iPads just to fulfill orders, how could they possibly cope with increased orders if your customer base grows?
• When menu management is taking up hours per week, how are you able to take advantage of revenue boosting menu engineering?
• If it takes hours to collate the separate spreadsheets needed to get data reflecting your whole operation, how can you make agile, data-backed decisions to grow your business?

These are just some of the ways that staying with fragmented tech can affect your brand’s ability to grow: there are plenty more.

And it’s not just about how outdated tech is harming you, it’s about what new tech is gaining for your competitors, who might be racing ahead.

How to break the cycle

Escaping from the grips of sunk cost isn’t easy, but it’s possible.

Analysing your tech stack as it stands right now, and figuring out where inefficiencies lie, is a great step to get started.

Learning more about the different approaches out there – and success stories of brands who’ve taken them on – can make it easier to embrace the new way of doing hospitality tech.

Most importantly you need to find a tech provider who takes on the role of a partner – one who understands the challenges behind change, and who will fully support your brand on it’s digital transformation journey from day one.

And when you confidently break free from the sunken cost fallacy, you’ll quickly see how it was holding you – and your business – back from growth.