The 80:20 Rule - Learn It For Success

The Italian economist, Vilfredo Pareto, observed in 1906 that 20% of Italy's population held 80% of that nations wealth. Vilfredo also found similar relationships in his garden. He was an avid gardener and loved fresh peas, it seemed. He also found, suprisingly, that 80% of his beloved peas came from 20% of the plant itself. The universailty of this analytic idea took hold of him and was the foundation for his later works on social structure and how it relates to the dispersal of wealth.
In the 1940's, his works enjoyed a renaissance and were formulated by a man named Joseph Juran into what has become the standard model of 'result dispersal' in business. You hear it by many names such as "the Rule of the Vital Few," or as it's more commonly known, "The Pareto Principle," or just the "80-20 Rule."
Simply put, it says that input and output are not balanced. In more practical terms, it states that 80 percent of your results come from 20 percent of your efforts. Now this is not hard and fast; there is some imprecision and you shouldn't follow it slavishly; in many cases the ratio can be a lot higher - 95/5 may be closer to reality.

Yet it still holds close to the truth and your results very often outweigh your inputs. Lets look at some examples for a minute.

Reducing costs
Look at the things you spend your money on. Then look at which ones you spend the most money on and analyze the results you get. Find the products or services that generate the most income for the least money (the "vital" 20 percent) and drop or modify the rest (the "trivial" 80 percent). Say you wanted to compare different entertainment items in your budget. You could value each expense on the pleasure it brought you. If you wanted to compare different investments or tools you could compare return rates or productivity gained. Take this blog for example. It's FREE (for now) and yet I can reach many, many people with it for only a few hours per week of my time. Seen as dollars for time, thats a great value! 80% results for 20% (or less) of marketing dollars spent. Could I get the same results for a $700 dollar ad account somewhere. Maybe, that's it. Maybe.

Maximizing personal productivity
Here we're taking things sort of in reverse. The first step here is admitting that 80% of one's time can be absorbed by "trivial, 20%" activities. To correct this, find the work that gives the most value and concentrate on that, instead.
For example, I have a friend who can tell some great stories. When he gets rolling, he's unstoppable and before you know it, far too much time has passed - and little else gets done! WE talked about it yesterday and even he admitted he is his own worst enemy when it comes to productivity. The challenge, then, is obvious: cut him off gently before he gets going, so his 80% "time eating stories" never get started. Then, both he and I can go find other things, the 20% "vital few," that give "80% results."

Increasing profits
This is tied to reducing costs, but also stands alone when you apply it to expended effort. Let me allow Yaro Starak, the "Blog Traffic King," to tell it his way:
"It’s very clear that a small handful of repeat customers account for most of my income. These customers become longterm users, and fit well demographically and socially with the business model. In analysis, they provide 80 percent of my value received - but only represent 20 percent (or much less) of the overall people that use my business. My job is to determine the best way to attract and convert more customers into longterm users.

With blogging I learnt (and teach in my Blog Traffic Tips newsletter) that there are a handful of activities that I do every day that produce the most results. Breaking things down further, there are usually a key 20 percent of elements within an individual blog article (think article headline) that have the most dramatic affect on results. The numbers of course are not clean 80/20 ratios but there are definitely dominant factors at play.

In a business sense, finding the 80/20 ratios is crucial for maximizing performance. Find the products or services that generate the most income (the 20 percent) and drop the rest (the 80 percent) that only provide marginal benefits. Spend your time working on the parts of the business that you can improve significantly with your core skills and leave the tasks that are outside your best 20 percent to other people. Work hardest on elements that work hardest for you. Reward the best employees well, cull the worst. Drop the bad clients and focus on upselling and improving service to the best clients."

The point in all this "80/20 cahtter" is to spend some vital time looking at all your efforts this way. It seems odd to do this, at first, when you cook dinner or look through your computers hard drive. But if you try it, you'll be surprised. You'll see that there are tasks in the meal preparation, for intance, that are key to the end result - but take little total time. Or, you'll find that there are literally a gazillion things on your hardrive that could be moved off or deleted, simply because they are used rarely, if at all. This leaves more space for the "Vital Few." Once you get used to doing this "Pareto Analysis," you'll begin to look for the 20% of anything that gives back the highest and best 80% results in all aspects of your life.

Next time, I'll delve deeper into how to create a hard "Pareto Chart" analysis, which graphically illustrates your "80/20" results in tabular form. So check back for that.nn nn