Vilfredo Pareto was a philosopher, economist and academic, fascinated by social and political statistics and trends. Legend has it that one day he noticed that 20% of the pea plants in his garden generated 80% of the healthy peapods.
He took this observation into a study about wealth and income, and discovered that 80% of the land in Italy was owned by 20% of the population. He investigated different industries and found that 80% of production typically came from just 20% of the companies, publishing his findings in a paper, Cours d’économie politique.
Sadly, Pareto didn’t live to see the general appreciation and wide adoption of his principle, and it was left to Joseph Juran to suggest The Pareto Principle or the 80/20 rule, the law of the vital few, that states that for many events, roughly 80% of the effects come from 20% of the causes – a small minority will have a disproportionate impact, generating a larger share of results.
Whilst there is nothing special about the number 80% mathematically, many natural phenomena have been shown empirically to exhibit such a distribution. Check it out yourself: I have 20 rooms in my house, but I spend about 80% of my time in four – the front room, kitchen, my study and bedroom (exactly 20%). On my iPhone, I have 30 different mobile apps pinned to the tiles, but 80% of the time I’m only using the six (20%).
When I socialise, 80% of my time is spent with the same 20% of my friends; 80% of the time I listen to 20% of the music on my iPod. In perfect accordance with the Pareto Law, 80% of the people reading this blog will gloss over it and be on their way, but 20% will stop, read, reflect and take action.
Pareto’s Principle also applies to the odds of success: your odds of winning go up to 80% when you achieve the 20% of the drivers that give you the most results. That is great odds. Intuitively, we know this to be true, but very few people understand how far this principle extends into business, and it’s especially useful when grafting in a startup.
So how can you apply Pareto’s Principle to focus on those things that matter in your startup life, and which will move the needle the most?
You’re faced with the constant challenge of limited resources. It’s not just your time you need to maximise, but your team’s capacity. Instead of trying to do the impossible, a Pareto approach is to truly understand which projects, actions and activities are the most important, the ‘Vital Few’ you need to focus upon.
The temptation is always to try the new and exciting. There’s nothing inherently wrong with that, but an 80/20 mindset helps you to stay focused on your North Star and execution, and spend less time chasing stuff which isn’t on the radar, which can be distracting and is often the cause of entrepreneurs losing their way.
The simple takeaway is this: stop beating your head against the wall on working harder and putting in longer hours. Most of what you’re spending time doing doesn’t matter, and that’s before we get onto the law of diminishing returns in terms of impact/effectiveness and hours worked.
Most startup founders I’ve discussed this with find it hard to accept this thinking, and the 80/20 can appear paradoxical. We are predicting the future not measuring the past, so our thinking is to do everything because we can’t really decide what is important. Often I see exhausted entrepreneurs walking around wearing burnout as a badge of startup life.
This needn’t be the reality. The opportunity cost of doing the 80% is not doing the 20% of what really matters. Once you focus on predicting the 20% instead of trying to get everything done, and always feeling you’re living on a hamster wheel and constantly behind, you’ll move forward faster. Doing more and working hours does not necessarily increase the likelihood that your startup will succeed. In fact, it may decrease it if it makes your thinking narrow and clouds your judgment. You may be too focused on breadth of work and not depth of work.
For example, if you persist in working equally across your entire product range then you miss the reality that perhaps 80% of customer traction derives from just 20% of the products. By discovering these statistics, your decision-making will clearly signpost where to direct your efforts. It’s a return-to-basics call that gives clarity.
Think of it this way: most of us work five days a week, but in four of those days we’re only creating 20% of what we do in the week; there’s a single day buried in there when we create 80% of our output for that week. What if we could track that day down and make the rest of the week more like that day? According to the Pareto Principle you can do just that, as:
· 80% of outputs come from 20% of the inputs.
· 80% of all consequences come from 20% of causes.
· 80% of your results come from 20% of your effort and time.
· 80% of your startup revenue comes from 20% of your products and customers.
Ask yourself ‘Which 20% of my current efforts are resulting in 80% of my desired outcomes and happiness? Which 20% of my current challenges are causing 80% of my problems and unhappiness?’ Workaholics don’t actually accomplish more than non-workaholics. They may claim to be perfectionists, but that just means they’re wasting time fixating on inconsequential details instead of moving on to the next important task.
So, here are some thoughts on how to apply the 80/20 thinking to your startup. There are three things to thing about from a business perspective, and three from a personal perspective.
Focus on 20% of your target market It is possible to have a successful business that either focuses on a niche market or just a segment of an overall market. Your target isn’t the ‘market’, but identify a demographic and define your addressable market with precision to ensure you have discipline, clarity and focus on your customer development.
Work with your top 20% of customers Not all customers are created equal. Apply the 80/20 principle to time consumption: what 20% of people take up 80% of your time? Put high-maintenance, low-profit customers on autopilot, process orders but don’t pursue them or nurture them, and cultivate low-maintenance, high-profit customers. Respect your time – if you don’t, they won’t.
Get intimate with your top 20% of products Likelihood is that 80% of your new customers result from 20% of your products. Therefore identify which offerings generate most new customers, and then use the identified offerings more often (and use the less-effective offerings less often, or not at all). Get intimate with your product data, and focus on the 20% that your customers want.
Hyperactivity vs. Productivity Being busy is not the same as being productive. Forget about the start-up overwork ethic that people wear as a badge of honour, you don’t scale! Get analytical and stay analytical, use 80/20 principles to stop putting out fires, duplicate your few strong areas instead of fixing all of your weaknesses. Calm, not chaos.
Step out of the drama Drama is a diversion that keeps us busy and not moving forward, it absorbs all our attention such that we leave important tasks ignored or at best incomplete, resulting in our failure to push our startup to its fullest.
Habitually, we create drama by dwelling in interminable thought loops, or continuing to participate in dead-end activities. We entangle our mind in a web of ultimately inconsequential details, clouding our long-range vision and side tracking our self-direction.
We additionally feed our self-perpetuating drama by projecting ourselves into a future of worst-case scenarios constructed from our assumptions. Being preoccupied by our drama makes it impossible to get centered, keep the focus on our real self, and use the Pareto 80/20 to give yourself discipline.
Use your third eye According to ancient wisdom, we all have a third eye, placed in the middle of our forehead. This third eye gives us perception beyond ordinary sight, the extension of what the mind knowingly is aware of. Use your spiritual third eye to look at yourself with a new perspective. Use it to focus on yourself and bring yourself in focus and responsible for your choices.
Everyone wears several hats in a startup, with overloaded schedules and too much to do, but getting stuff done does not have a linear relationship to doing the stuff that makes a difference. You already have all the time you’re going to get, and the law of diminishing returns applies – time is a bandit, and we often use extraordinary effort to keep things moving forward, but this is simply not sustainable. Management by crisis and fire fighting can become the norm, but are hugely unproductive and energy sapping. Urgency itself is not the problem.
The Pareto Principle enables a startup founder to work ‘on’ the business, not just ‘in’ the business, providing visibility for thinking time and space to focus on priorities, working to do the stuff that makes a difference. The reality is most of what we do doesn’t matter, so we need to change this and focus on the 20% that moves the needle.
Are there occasionally stressful moments? Sure, such is life. Is every day peachy? Of course not . But do your best so that on balance be calm, by choice, by practice. Be intentional about it. Make different decisions than the rest, don’t follow-the-lemming-off-the-cliff worst practices. Step aside and let them jump!
Chaos should not be the natural state at work. Anxiety isn’t a prerequisite for progress. Keep things simple and leave the poetry in what you make. Chose fulfilment ahead of growth. Small is not just a stepping-stone. Small is a great destination itself. Build something of purpose, of intent.
Growth can be a slow and steady climb. Curate rather than blitz. I am turned off by the testosterone fuelled super rapid growth companies, don’t let them set your bar, it’s how high you want to jump that matters. It’s not stable. Just look at oak trees. They grow slowly, but they have the kind of solid foundation to withstand storms. You need a solid core, which is why I’m an advocate of consistent and steady growth.
So do the 20% of your work that leads to 80% of your results. Prioritise the 20% of your network who provide 80% of your support and enjoyment. Fill your life with the 20% of experiences that provide 80% of your happiness. Use the 80/20 rule to pick out the imbalance of effects, maximise the small and powerful 20% and reduce the wasteful 80%. Go on, give it a go yourself.