The 80 / 20 Principle : The Secret To Success By Achieving More With Less - Richard Koch

The 80 / 20 Principle : The Secret To Success By Achieving More With Less

Understanding the 80/20 principle and where it originated from

There are few theories that find effectiveness across all sectors of society; the 80/20 principle is one of them. It is commonly called the Pareto principle, after the Italian economist, Vilfredo Pareto, who was first to discover the 80/20 phenomenon.

As an economist, Pareto's career involved studying the economics of nations and how resources were distributed among people. He discovered an outstandingly repeating pattern: the wealth of every nation was controlled by just a few minority. This discovery lead to him to further study the concept, and he realized how consistent the principle was.

Of course, Pareto did his best, but he didn't fully understand it himself. Other people after him discovered the principle in their study, even without necessarily consulting Pareto's materials.

This was how the 80/20 principle was found, and those who understand the 80/20 concept have been using it to maximize personal and corporate productivity ever since.

So, what exactly is the Pareto principle? In simple words, it states that, “a minority of causes, inputs or effort usually lead to a majority of the results.”

Only few things are responsible for the vast results we see around us

Just as only a few people control the majority of the world's population; only few students will truly come out on top in their class; only few vehicles account for the total annual road crashes; only few important decisions account for the quality of our lives; only a few customers account for the majority of a company's profit. The list goes on and on.

One thing you should discover is: there is an imbalance in life; causes and effects are not always — if ever — in the 50/50 ratio. The 80/20 principle doesn't necessarily connote that exactly 80 % of results arise from exactly 20 % of actions. The percentages are not always consistent, but what's consistent is that​ few actions are really important in the whole scheme of things.

What does this mean to you? Understanding the 80/20 principle will help you make the most of your time, personal life, and profession/business. The reason is simple, the principle is all about helping you realize what should have more of your time, so you can achieve specific results.

Take a tobacco company for example. If only 20 % of the company's customers account for 80 % of the sales, the company will want to find creative ways to satisfy the 20 % that really matter so they can maximize sales. They can also look into ways of converting the 80 % of customers who don't buy much tobacco into customers or, if that won't work, they could reduce wasting the resources that go into the less important 80 %.

If you open yourself up and understand the Pareto principle, you will be shocked at the level of productivity and personal effectiveness you will attain. Truly, only a few things really matter. Sure you're ready to learn and apply the Pareto principle in your life?

Let's roll…!

For the rest of this summary, you will be learning how the 80/20 principle can help you in the corporate world as well as in your personal life.



“A minority of causes, inputs or effort usually lead to a majority of the results.” ~ Robert Koch

How the 80/20 principle can boost business profitability

Every business venture is out to maximize profit. It's sad that at one point or another, most businesses will experience setbacks that could have been avoided if the decision makers knew better. Many businesses don't survive a crash; only few possess the stamina to go through the motions and come out strong.

What if the 80/20 principle can help you pinpoint potential loopholes in your business?

It will save you unnecessary failures.

Many businesses across the globe use the 80/20 principle in their business activities to make the most of their available resources.

You, too, can apply the principle to your business. It's simple, but a bit analytical. Here's a simplified way to go about it:

Take out time (or hire an analyst, if you can) to study the following three components of your business: your products, your customers, and your market position.

How many products or product lines do you produce in a month, in six months, or in a year (choose the most reliable stats), and what's the sales and profit for these products?

Analyzing your product stats will almost certainly show you your customers' trend. You will understand what customers patronize you the most, and how often; as well as those that do not contribute significantly to your sales. You will most likely find an imbalance — only a few % of your total customers contribute to the bulk of your business profit.

Go deeper to understand the reason for the trend. Is it that the top 20 customers have more capital than the others? Why do your products not appeal much to the bottom 80 %? Is it a cost problem, or something else?

Note all these down.

Your market share is determined by the number of people who love and consistently patronize your products, so the above analysis should reveal your position in the market.

Now, what are creative ways to maximize your products, boost sales and increase profits? One great way to do this is to focus on serving the top 20 %, and make efforts to reduce losses coming from the bottom 80.

It's also a great idea to study your competitors. Understand if you have the same product line with them, and if their market is moving. What makes it so?

You may be producing the same products, but your competitor's are more valuable in the eyes of the people. Understand why this is so, and what you can do to grab better market share.

How you can use the 80/20 principle to multiply sales

Only a few minority of your entire customers — the top 20 % — account for your major profit. Your job, after discovering this top 20 %, is to figure out a way to keep them glued to your business.

There is a reason those customers or clients are patronizing you and not your competitors. If you find out why, and make things work in their favor by pleasing them, your business will continue to enjoy growth.

You might want to expand your market share in the future; there's absolutely nothing wrong with doing that, but don't lose sight of your existing market.

Knowing your top customers should also influence your marketing strategy and the quality of business decisions you make from time to time. Target your marketing at the top 20 %, and you won't need to bother much about the marketing resources you put in, because you know your efforts will surely pay off.

Sales is like the twin brother of marketing. One can’t really function without the other. As such, make it a point to encourage peak performance among your sales force. Any business with a weak sales force will eventually crash, no matter how good their products or services are.

You can also apply the 80/20 rule to your sales team. Research shows that less than 50 % of the sales team in a company account for most of the sales. Identify this minority in your sales force, and don't joke with them.

You can even identify what the most performing sales people in your business have in common, use this to set standards for the rest of the sales team. Perhaps its a specific strategy they use that works so well, or maybe they have soft skills like communication and persuasion? Perhaps these skills could be taught the underperforming majority?

If yes, you may need to hire an expert for sales training, but if that doesn't work, you could always ask the best performing sales people on your team to help you hire folks like them. Don't be afraid to lay off underperforming workers. This is business, and your goal is to maximize profit using elite resources.

The 80/20 principle can help you achieve more in less time, here's how

It all begins with 80/20 thinking. Really, for you to effectively maximize the 80/20 rule, you need to first understand that the imbalance in our world is real and natural. Next, you need to imbibe 80/20 thinking.

It's critical thinking that no one can do for you, especially because it applies to your personal life — no one knows your personal life as much as you do. You can't even explain it to a coach perfectly such that he knows exactly what's going on with you. Hence, 80/20 thinking is important. It's not too difficult, either.

Put simply, 80/20 thinking for effective time usage is all about brainstorming creative ways to leverage time. It's true that approximately 80 % of our results come from 20 % of the time put in. Ask the most productive people, and they will tell you, they aren't productive 24hours a day. There are specific times when each of us are highly productive. Your job is to reflect on your most productive days and figure out what you did differently.

The author recommends you have two blank sheets of paper and label them: happiness and achievement islands respectively.

On the first piece labeled, “happiness island”, identify the things you did that made you happy on such occasions. Do the same for the “ achievement island”.

This may prove to be a mentally tasking activity, as you may have to do some deep thinking. But it's all okay, because you will find gems that will become your secret productivity tools.

A word of caution. As you carry out this exercise, try as much as possible to not put blames on others. Remember, you can't really influence what others do or think; you can only tell yourself to act in certain ways, so your focus should be on you.

You can live the lifestyle of your dreams, really!

For most people, certain lifestyles remain a dream that will never come true. The main reason for this is that the majority of such people have limiting beliefs that keep them stuck in the lifestyle they don't like. They hate their work. They don't like their relationships. Their bank accounts are nothing to write home about. The list goes on and on.

And some other people don't even know what they want out of life; they're just going through the motions.

Don't feel bad, if you belong to any of these categories. But understand that you can have the life you desire for yourself. Nothing is really out of reach — if nothing, the multiple grass to grace stories available should convince us so.

To live the life of your dreams, you need to know exactly what it looks like. Pick a pen and paper, or use a digital notepad to write down all the things you want out of your life. Make the list as exhaustive as possible. Next, who do you know that is living such a lifestyle? What did they do to get there, and what are they doing that you're not? Success always has a blueprint.

It's hard to speak on success and "having it all", without talking about a career

The reality is, most — if not all — of us will have to work. At least as adults. And it's not bad to work; what's bad is fitting square pegs in round holes. Many people are doing just that. You will find them in careers that don't suit their lives, and they won't leave.

If you don't want something, you should do it if you have to — for survival sake — but don't forget to have an escape plan. For instance, if you would like to be an author, rather than work for an accounting firm, it's not reasonable to quit immediately.

You could continue working with the accounting firm while building your writing career on the side. If you do this consistently and long enough, it will get to the point where the income from your writing side gig will be enough to take care of you.

When this happens, save some more from you accounting job (if you don't have anything set for rainy days), then quit.

It's important that you balance your work life and your life outside work. You should be happy on all fronts. If you're not, it shows that something is missing, and you may need to apply 80/20 thinking to bring balance to your life.

Conclusion

Is the 80/20 principle worth it?

So far, we've established what the 80/20 principle is, and how you can apply it not just in business but in your personal life. However, the question many ask is whether or not the 80/20 principle is ethical, and if society should embrace it in its fullness.

You judge for yourself. Would you choose more profit, productivity and effectiveness over mediocrity? Of course you will. You're human, and it's in our DNA to desire being the best of ourselves.

The 80/20 principle advocates focusing on the top 20 percent that brings the most results, while neglecting — or paying less attention to — the bottom 80. Doing this will not in any way cause the bottom 80 to be entirely neglected; the 80/20 principle is nature's way of balancing itself. What you neglect as the bottom 80 is the top 20 for other people. So, you neglecting it means giving someone else the opportunity to maximize their life and business. This is balance.

Let's see an example. If you're a business owner and you focus on investing more on the few workers that bring in the majority of the profits, you might eventually lay off some workers who aren't productive in your company. This isn't wrong; in fact, it will profit the both of you, because those laid off workers might later realize that they aren't made for the role they took in your company, which may lead them to self discovery. Of course, this isn't always the case, but many great men and women would never have been great, if someone didn't push them out of where they aren't meant to be.

If you want to apply 80/20 to your life, the first place to begin is 80/20 thinking. Begin to closely examine your life. Think deeply of your business/profession and your personal life. Are you satisfied with your current level, or will you take the opportunity to grow if it comes? If you answer positive to the last question, then, what do you need to do? What are the top 20 percent you need to concentrate upon?