Book Summary

The 80/20 Principle – Richard Koch

INTRODUCTION

You have probably observed that often the majority of output stem from the minority of input. It could happen in your business when the majority of sales come from a little subset of your products. Often this ratio is around, but not limited to 20% and 80%.

That’s why it’s called the 80/20 rule or principle. Aka the Pareto principle, the law of the vital few, or the principle of factor sparsity.
The ratio could be more dramatically like 99.9/0.01 or less drastic 60/40, but the point is that, in most cases, there is a non-linear relationship between input and output, effort, and results.

A famous example is the wealth distribution. When 1% of the world’s population own more than the 99% combined, we call it unfair.
People assume that work and reward should have a fair 1:1 ratio. But the laws of nature seem not to work like that.

Lets review how to apply the 80/20 rule to get better results.

80/20 in business

If you want to optimize your business with the Pareto principle, the first thing to do is identifying the products which bring you the biggest reward (the 20%).

The second step is to focus on those products and exhaust their potential. That could mean doubling the production until the profit ratio drops to normal.
The author told the management of an electronics company that their only goal should be to double the sales of their best three products, ignoring everything else.

Marketing is another good target for the Pareto principle. Focusing on the 20% of customers who generate 80% of your revenue, could significantly increase your income. Their loyalty of those profitable customers would be improved by providing them with a more focused customer service.
For Nicholas Barsan, one of the top real estate brokers in the US, a group of customers who resell their houses, bring over a third of the $1 million he makes in personal commissions each year. Clearly, his focus on those clients is a profitable strategy.

People expect life to be fair and balanced, but it’s not.

Imbalance is the natural state of life and we all have to come to grips with that.

When you put 5 fish of the same size into a pond, eventually, 1 will end up a lot bigger than the rest. That particular fish might only be slightly bigger than the rest in the beginning, but that slight edge allows it to catch more food and grow faster.
Of course, this reinforces its advantage, and because it grows faster it can get even more food, until it completely outgrows all the other fish.
Life works the same way, so stop blaming external factors like “unjust wealth distribution” and get started on creating those advantages for yourself so you’ll end up on the better side of the imbalance.

Koch extends this principle throughout the book to help you use it in your own life as well, not just in business.
The beauty of it is that you don’t need to have exact numbers.
Of course it’s impossible to pinpoint the 20% of your friends that give you 80% of the happiness, but Koch says your gut feeling provides a good estimate.

He calls this 80/20 thinking and says you can use it to dramatically improve the quality of your life, by focusing on exactly that (as opposed to quantity).
Ask yourself: “Who do I really enjoy spending time with? How much time am I spending with them?”

You’ll see that you don’t have to look far and that it’ll be easy to spend more time with who really matters to you, instead of trying to manage as many relationships as possible.
Your friends are just one example, and you can use 80/20 thinking to improve your happiness in plenty of other areas of your life.

Practice time revolution instead of time management

Time management strategies fill your day with more things to do, while “time revolution” optimizes time by focusing on the 20% of tasks that are the most important in your day.

In Summary,starting from now Use the 80/20 rule to pinpoint where to deepen your focus and where to reduce your focus to exponentially increase the positive outcomes in your business and life.