One of the most mysterious and effective principles of life is the 80/20 principle. Also known as the Pareto principle, it describes a very interesting relationship between inputs and outputs. This principle says that 20% of the inputs which you make are responsible for 80% of the outputs that you get. It was proposed by an economist of Italian descent named Vilfredo Pareto. This rule has been extrapolated from the economy into our day to day working lives. Richard Koch wrote a book exploring the phenomenon and named it "The 80/20 Principle".
The principle explains in detail how anyone can identify the 20% of personal effort that they need to maximize so as to achieve 80% of their overall results. The author indicates that this principle can be applied successfully to personal lives as well as organizations. He explains how we can achieve much more in life by focusing on the activities that are most crucial. These are the 20%. These activities deliver the majority of our returns. In this way, we are able to perform efficiently because we are utilizing much less time, resources and effort. Koch gives a systematic formula on how we can use this principle to our advantage and excel in any field. Here are some mind blowing lessons that we learned from "The 80/20 Principle."
A small percentage of your efforts produces majority of your satisfaction
There are some activities which you perform that are responsible for majority of your happiness and tangible output. These activities can be anything. They can be your job, your fitness workouts, your interaction with family or even your meditation. The outputs are related to the inputs. Thus, they can be financial rewards, family relationships or even overall health. The 80/20 principle indicates that spending time on these core activities results in exponential output that brings extra benefit to you. Accordingly, Robert Koch encourages us to find out the 20% of our activities that brings about 80% of results and focus on those.
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A few critical decisions in your past are responsible for where you are today
We all make very many decisions every day concerning our lives and those of others around us. Each decision that we make has its own consequences. However, only a few critical ones resulted in your present circumstances. One or two major decisions resulted in the current path of life that you are now experiencing. Robert Koch expresses that this perspective can also be applied to investment. Most of the returns from a portfolio are based on the decision to either buy or sell specific, important securities. Thus, ensure that you make the right choice when you are considering critical decisions for they have a long term effect on your life.
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A small number of skills are responsible for majority of your daily career success
To keep up with the professional demands of today, we strive to get an education so as to get a job and build a career. To excel at both of these activities, we need to have some special skills. Due to the fact that we are usually instructed in a variety of subjects, we can gain many different skills and abilities. However, in most cases we find that only a few of these skills are required to perform our jobs in an excellent way. Only a handful of skills are required for the generation of majority of your income. This principle is replicated in your projects at work too. You only need a small number of skills to accomplish your projects successfully. Hence, the author of this book encourages us to find out these skills and focus on improving them. This will result in better performance at work and even in your professional projects.
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Let go of the irrelevant activities so as to free up your time and resources for the critical few that matter
As you find out the activities which are critical to your success, you should also root out those that only cause you to waste time and valuable resources. You only have a limited amount of energy and resources to use every day. Therefore, you should utilize them wisely. If an activity is not useful to you, proceed to delegate it to someone else or delete it from your list of things to do. Sometimes the activities that are taking up your time and resources are simply menial tasks. You can overlook them and the consequences will not be disastrous. In such a case, if a menial task is holding you back or taking up your time such that you are unable to complete the more important ones, you can simply ignore it. You will receive a minor repercussion but you will have completed the critical task and made tremendous progress overall.
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Reduce your opportunity cost by getting rid of bad customers and retaining your best ones
As indicated by Robert Koch, you can apply the 80/20 principle to your business endeavors too. This is especially so in the sector of customers or clients. Not all customers are equal to your business. There are some who are of high value and others who are of low value. The ones with a high value are enthusiastic about your product, make repeated purchases and are loyal to your brand. On the other hand, the ones with low value are bothersome, they complain, do not make many purchases and are quick to demand special treatment. To apply the 80/20 principle in your business, simply identify the customers who are of low value and get rid of them. Holding on to them is clogging up your business processes and resulting in a huge opportunity cost that reduces your profits. Maintain complete focus on your high value customers and you will observe your business growing more prosperous.
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The Important Take Away
Also known as Zipf's Principle of Least Effort, the 80/20 principle is one of the most practical productivity guidelines available today. Robert Koch explains how you can use this principle to make your business, life and livelihood flourish. Some of the lessons in the book are indicated above. They are practical and you can apply them in your life to enjoy higher returns and success from less effort.
You can get 'The 80/20 Principle: The Secret to Achieving More with Less' by Richard Koch here.