“People who achieve the most are selective as well as determined.”
- Richard Koch
Although the 80/20 rule, or the Pareto principle, sounds like a statistical formula, believe me its far from it. The 80/20 rule is something that I came across a little while ago, and it has c0mpletely changed my thinking. I believe that it is vitally important principle wheter you apply it in personal life or in your business.
Photo by kevindooley
In this post we look at exactly what the 80/20 rule is, and how it can be used in a professional and personal capacity. Read on to find out more.
Where it all began
In the early 1900s an Italian economist, Vilfredo Pareto, was studying the distribution of wealth in Italy. Pareto noticed the unequal distribution of wealth, he noticed that around 20 percent of people owned around 80 percent of the wealth.
What is the 80/20 rule?
In the late 1940s Dr. Joseph Juran, working in the US, observed a universal principle – that 20 percent of something usually accounts for 80 percent of the output. He accredited it to Vilfredo Pareto and named it the Pareto Principle.
When 80 and 20 doesn’t add up to 100
If looked at more closely, then the 80/20 has nothing really to do with the numbers 80 and 20. The rule just observes the fact that most things in life are unevenly distributed. The 80/20 ratio doesn’t have to add up to 100. The ratio doesn’t matter, it could be anything, 70/10 or 90/15.
When life isn’t fair
Basically, what the take home message is that a select few individuals, tasks or whatever are responsible for the majority of the result or output. So to put things in perspective this could mean:
- 20% of customers are responsible for 80% of your business
- 20% of customers are responsible for 80% of complaints
- 20% of input creates 80% of work
- 80% of results come from 20% of effort
Remember we said that the 80/20 doesn’t have to add up to 100. So we could have 10 people working on a project, in this case 20% (or 2 people) could be responsible for 30% of the result, or 50% or 90%. We could have just one person actually working, whilst the other nine don’t do anything. In that case that one person (or 10%) is responsible for 100% of the work!
The point is that the 50-50 relationship between two related sets of data is an exception rather than a phenomena. However, we still have this notion that there is a direct correlation between input and reward. The age old saying ‘what you put in is what you get’ doesn’t hold true.
How it can help you
The 80/20 rule is an invaluable principle. Once you understand the principle (and hopefully you have a good understanding now), you will notice the 80/20 ratio everywhere. The key, however, is to determine which or what the key activities are. Your aim should be to stop wasting time on the 80% of the activities that cause you dissatisfaction. Instead devote your resources on the 20% of actives that produce the best outcome.
The 80/20 business
In a business environment, this is usually easier to identify then it is in your personal life. In your work, consider the things you do day-to-day. Only around 20 percent of all of these tasks really make a difference. That may sound harsh, but I challenge you to analyse your work and I’m sure you will come to a similar conclusion.
Now identify and focus on those 20 percent of things. If you need to push things off your to-do list then make sure it’s not one of the above things. If you’re in a management position, then you may realise that about 20% of your staff are responsible for 80% of the output. Make sure to reward those staff members.
Similarly, identify the 20% of the customers that are responsible for 80% of your revenue, then make sure to look after those customers.
That does not mean that you should fire or stop looking after the other 80% of the staff or customers. Instead, you should focus as much of your time as possible in looking after and improving/encouraging these staff/customers. This may seem somewhat illogical, but you will get better results turning good to better than you will making the better into great.
The 80/20 lifestyle
It can be a bit more tricky to try and apply the 80/20 rule to your life, but it can potentially yield higher results.
This quote pretty much sums it up for me:
You can have anything you want, but you cannot have everything you want
My understanding of this quote is that you should be focusing on a small number of goals, that will get you closer to the dream that you will achieve. As oppose to doing a bit of everything and not really getting anywhere.
So you need to decide on what your true passions are and what your true values are and focus most of your efforts on that.
Most people tend to be working towards something that requires 80% effort to only produce 20% of results. What you need to do is to slowly start shifting these two ratio’s around. You need to start chasing your passion.
This does not mean that you quit your current job and start your own business (if that’s your passion). But, you could start your business part-time whilst working and start shifting more and more focus on to your business over time. You will not only benefit from the monetary rewards but will also find more fulfilment because now you are focusing on what you want to be doing.
Final thoughts
The point of the Pareto principle is to realise that most things in life are not evenly distributed. Choose to and focus on the 20% of things that are most important. Don’t just work harder but work smarter. And work smarter on the right things.
It is important to understand that the Pareto principle is only a rule, and not law. It doesn’t apply to everything. if you’re seeking quality then you need to focus on all the detail, you need all 100%. However, If you’re trying the get the most bang for your buck then focusing on the critical, high yielding information is the best strategy.
Lets hear from you. What are your thoughts on the 80/20 rule? Do you think it applies to you?
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