The “80 / 20 Principle” author says the 80/20 Principle can and should be used by every intelligent person in their daily life, by every organization, and by every social grouping and form of society. It can help individuals and groups achieve much more, with much less effort. The 80/20 Principle can raise personal effectiveness and happiness.
Summary of 80/20 Principle By Richard Koch
Author says the 80/20 Principle asserts that a minority of causes, inputs, or effort usually lead to a majority of the results, outputs, or rewards. Taken literally, this means that, for example, 80 percent of what you achieve in your job comes from 20 percent of the time spent.
In the home, 20 percent of your carpets are likely to get 80 percent of the wear. Twenty percent of your clothes will be worn 80 percent of the time. And if you have an intruder alarm, 80 percent of the false alarms will be set off by 20 percent of the possible causes.
Those who developed the personal computer and its software in the next generation, such as Apple, Lotus, and Microsoft, applied the 80/20 Principle with even more gusto to make their machines cheaper and easier to use for a new generation of customers.
HOW TO THINK 80/20
Author says every person I have known who has taken the 80/20 Principle seriously has emerged with useful, and in some cases life-changing, insights. You have to work out your own uses for the principle: they will be there if you look creatively.
Calm down, work less and target a limited number of very valuable goals where the 80/20 Principle will work for us, rather than pursuing every available opportunity.
For every step in your business process, ask yourself if it adds value or provides essential support. If it does neither, it’s waste. Cut it. [This is] the 80/20 rule, revisited: You can eliminate 80 percent of the waste by spending only 20 percent of what it would cost you to get rid of 100 percent of the waste. Go for the quick gain now.
Think small. Don’t plan to the nth degree on the first day. The return on investment usually follows the 80/20 rule: 80 percent of the benefits will be found in the simplest 20 percent of the system, and the final 20 percent of the benefits will come from the most complex 80 percent of the system.
80 percent of value perceived by customers relates to 20 percent of what an organization does. What is that 20 percent in your case? What is stopping you doing more of it? What is preventing you from “making” an even more extreme version of that 20 percent?
The 80/20 Principle suggests that your strategy is wrong. If you make most of your money out of a small part of your activity, you should turn your company upside down and concentrate your efforts on multiplying this small part.
Marketing, and the whole firm, should devote extraordinary endeavor toward delighting, keeping forever, and expanding the sales to the 20 percent of customers who provide 80 percent of the firm’s sales and/or profits.
Direct your attention where the real threat of competition exists. In most instances, the 80/20 rule still ] applies—80% of the revenue comes from 20% of the customers. Know who the top revenue-producing customers are and make sure you meet their needs.
Focusing on 20 percent of your customers is a great deal easier than focusing on 100 percent of them. Being customer centered on all of your customers is pretty nigh impossible. But cherishing the core 20 percent is both feasible and highly rewarding.
About the Author
Richard Koch was a consultant with the Boston Consulting Group and partner of Bain & Company. He co founded LEK Consulting, rescued Filofax and Plymouth Gin from near death, built up Zola Hotels, started the Belgo restaurant chain, and played a key role in making Betfair by far the world’s largest betting exchange. He is the author of eighteen books, including the self-help guide Living the 80/20 Way. A self confessed “lazy entrepreneur,” he lives the 80/20 way in London, Cape Town, and the sunniest part of southern Spain.
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