Pareto Principle or the 80/20 Rule

If there is one law that I apply over and over, all day long, to whatever I possibly can in my life, personal or business, it is the genius of Italian economist Vilfredo Pareto and his brilliant 80/20 rule or Pareto Principle which simply states that 80% of the effects come from 20% of the causes.

The basic idea here can be seen everywhere:

  • 80% of your sales probably come from 20% of your products
  • 80% of your revenues probably come from 20% of your clients…20% of your clients probably also give you 80% of your headaches and probably not the same 20% that drives revenue
  • 80% of the wealth is held by 20% of the population
  • You probably wear 20% of your clothes 80% of the time
  • 700 common words make up 2/3 of everyday conversations
  • Who are the 20% of your acquaintances that make you the 80% most crazy

You get the idea. Sometimes it can be way more extreme than 80/20 and you need the right balance. Having 1 customer that drives 95% of your business may feel easy, but not when they disappear…look at all the companies that have supplied Apple in the past that they have laid to waste when they changed suppliers.

Think about how you apply this to your day, every day…

  • Focus on what to improve: Break your problems down and focus on the items that particularly move the dial…layer on resources to really make an impact. 80% of your effort on the 20% that really get things moving
  • Focus on what to remove: Look at the 5% of things that are not working in your business or your life…there is always 5% that can be cleaned up and may make you 20% more efficient or 90% happier!
  • It’s not 1 to 1: realize that to improve by 50% doesn’t necessarily mean a 50% bigger effort, maybe a 5 to 10% increase in methodology can easily turn into a 50% return…talk about creating separation from your competition in a hurry

…some things you cannot change that easily, but just identifying your strengths & weaknesses will help you better cope. Try channeling Mr. Pareto more often and 80/20 your way to more success, freedom, and happiness!

Don’t Strive for Better, Strive for Different

Most companies focus too much on better products, when perception is far more important… the first product in someone’s mind is usually superior.  In fact, it’s even better to be first than it is to be better. Be realistic about your place on the ladder (If You Ain’t First You’re Last) and then work to position yourself against the next guy in line. Everyone by now has heard of the Avis example of their “we try harder” slogan…whether or not they actually did try harder is besides the point, they were just trying to position themselves against number one (Hertz).

Don’t try to be better (it never works), try to be different. Think of these examples:

  • 7Up moved from the tiny lemon lime soda market into the number three spot in the much larger cola market by calling themselves the Un-Cola.
  • Apple focuses only on the high $$$ market…10% of the customers, but 75% of the profits

So, not only should you pick a niche, you must! But, make sure that it has enough profitable potential customers. All you need is 1,000 True Fans and you are off to the races.

What is your differentiator: Service, Distribution, etc. Look for the hole to fill. Everyone is interested in what is new, not what is better. Better is nowhere, different is where it’s at! I got a kick out of this video by Derek Sivers…one man dancing can start a whole crowd, but you must be bold enough to put yourself out there.

Now, go be different!

Eliminate, Automate, Delegate

Life out of control? Need to better prioritize/organize? Here are 3 steps that might help you reign things in a bit:

  • Eliminate – what can you just say “No” to? The “Hell Yeah”, or No approach is a great one for this
  • Automate – eliminate first, after that what can you automate so no one has to touch it?
  • Delegate – don’t do this until you’ve done the 2 steps above. Why pay someone to do something that shouldn’t even be done or can be done minus a human being?

No rocket science here, but a good way to try and bring back a little more control over your life. Here are some other ideas on how to Simplify even further.

Get Started: a Little Every Day…Inertia is Key

If you are interested in creating separation from your competition, you have to start somewhere. Here’s a post on how to get things going…

Travis Moench

Go
“The best time to plant a tree is 20 years ago. The second best time is now” -Chinese proverb

How many times have you had ideas, thoughts, or grand dreams that you never took action on. There is something to be said for having the discipline to say “No” to the majority of the flood of things that pop into your head and to focus on the few that have personal meaning for you. On the other hand, there are many things we know we should be doing, but taking that first step forward is our challenge. “Most of us have two lives. The life we live and the unlived life within us. Between the two stands resistance. Are you a writer who doesn’t write, a painter who doesn’t paint, an entrepreneur who has never started a venture? Resistance has no strength of its own, we feed it with power…

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The Last Mile…Keep Pushing Through

“Most of us are good starters, but poor finishers…failure cannot cope with persistence” – Napoleon Hill

The first time I heard the term “the last mile” was relatively early in my electronics career when a customer was speaking of how difficult it was to connect all internet users at “the last mile”. What he was referring to was a phrase used in the telecommunications industry of the final leg of physically getting copper wire run to every single house so that every house in the world could communicate with every other. Maybe not a big deal in New York City or L.A. where everyone lives in close proximity of one another, but another challenge all together on a farm on the plains.

It is a similar problem for moving things like electricity, water, even packages (easy to fly a plane full of packages between airports, but need lots of vehicles to get them from their pickup point and out to their final destination).

When I first heard this I thought about how much it applied to life in general. Sometimes as I have previously written about it is quite difficult to even get started, but how many things have you taken to 80 or 90% and just never put forth that final effort to finish up…that last mile can be a killer sometimes.

So the challenge is one of perseverance…how do you push through when you really just want to quit?

Try this…I think I got it from this Tim Ferriss podcast with Josh Waitzkin: sometimes people will slack off at the end of a workout or at the end of a workday knowing that they are headed home. Instead, try focusing the hardest on the last 3 things you are doing and you will carry that with you as you sleep overnight, as you drive in the car, etc. Your body is now focused on precision and your body will subconsciously think that way instead of being sloppy.

Keep pushing through…this is what we mean when we talk about creating separation…that finish line is in sight!

“Coffee is for closers” – Alec Baldwin, Glengarry Glen Ross

Minimum Effective Dose

Water boils at 212F…any more than that doesn’t boil it any more than it already is!

  • If you are in a race, you only need to be a fraction of a second faster than everybody else…winning by 30 minutes makes you no first-er
  • In basketball and football you just need 1 more point than the other team, in baseball just one more run…in fact if you are up by a wide margin, you sit your best players to let them rest
  • Maybe you don’t need to study at all to get a C, but need to study 40 hours to get an A…what’s it worth to you and what are your alternative options with that 40 hours?

The point is, you need to understand what it takes to get ahead and work toward that. Just working hard with no knowledge of what it takes to achieve your goal may make you severely over work or maybe even under perform.

So, the question really is…what is the minimum effective dose that it will take to achieve the outcome that you really want?