Almost every business owner we know despairs at the sheer number of demands on their time. They complain about the lack of hours in the day; time simply slipping through their grasp. So why would any business owner in their right-mind waste 80% of their working week, generating just 20% of their profits?
Are you working 4 days a week, producing just one day’s worth of results?
What is it all about?
In 1897, an Italian economist called Wilfredo Pareto, theorised an outlook that shapes all the results we all achieve. The world is unbalanced. The work we do is also unbalanced, hence it pays to focus on the few things that really pay off for our businesses. Pareto demonstrated, in a 1897 analysis of wealth distribution trends in Italy (or perhaps England, this point is disputed) that 80% of the wealth was controlled by just 20% of the population. Moreover (and more powerfully), he suggested that this relationship could be extrapolated to any statistical distribution;
80 percent of a restaurants turnover comes from just 20 percent of its menu;
80 percent of traffic accidents are caused by just 20 percent of drivers;
80 percent of the difficulty in achieving something comes from just 20 percent of the challenge.
When you start to look closely at your use of time, you’ll almost certainly find an 80/20 imbalance. Think of the opportunity you have if anything like 4 days of your working week produces just 1 day’s worth of results. There’s huge value in understanding how 80/20 works for you and your business.
Let me give you an example, Interface Inc. They sold carpets and achieved modest results. 80/20 thinking changed all that. Interface realised that 80% of the wear and tear to carpets, only occurs on just 20% of the surface area. So they completely altered their business model to suit. Interface now lease carpet tiles and have grown their revenues to in excess of £500m. It lowers costs for both Interface and their customers; as their customer’s no longer need to replace the whole carpet when 80% of it is still in perfect condition. Instead with their leasing contracts, Interface regularly inspects and replaces worn carpet tiles.
Are you ready to apply 80/20 thinking to your business, your use of time, your marketing or your customer database?
‘An 80/20 view of our business is too simplistic. Some of the 80% needs to happen to ensure the 20% also happens.’
Yes, your business is unique. And yes, 80/20 may be too simplistic, but as Koch suggests “We give too many resources to low-margin activities and too few to high margin activities”… hence its more than possible you will find at least one way to improve your businesses results.
‘It’s unprofessional to look after 20% of customers brilliantly and 80% poorly - this could jeopardise our reputation’
We hear you. Your reputation, like ours, is vitally important. However, it is still possible to apply 80/20 thinking as long as you’re clear about your offer and scope.
Establishing crystal clear expectations with each level of customer and you protect your reputation. By providing these customers with a different (yet expected) level of service your reputation is preserved, and capacity is created to surpass expectations in your top 20% and will turn your customers into fans for live - they will stay with you longer, buy from you more often and recommend your services to others.
’80/20 is too-short term a view - business changes, markets move, and we must be adaptable to these changes’
There’s certainly a balance to be struck, concentrating solely on the 20% is hard to achieve. When you start to look, I guarantee these low-level customers often generate the most hassle and the worst word-of-mouth. Koch suggests “80% time drives out 20% time… 80% business relationships displace 20% ones… Mental energy expended on 80% activities takes away from 20% projects”
Until you test it, and modify it to suit your business, you will not know. Pareto’s law is potentially too valuable to ignore. Then again, you can always run the risk of missing out on awesome results.
What’s next, and what can you do about it.
Your time is precious. Infinitely precious. So, if 20 percent of your time produces 80 percent of your results, it suggests two options;
- Reduce the time you invest in low-value work
- Increase the time you invest in high-value work
Take a look at your customer list, chances are, you’ll discover 80 percent of your profits are generated by just 20 percent of your customers. Yes, it may not be 80/20, it may be 70/30 or 99/1 but there will be a relationship.
Richard Koch suggests;
“Being customer focused is pretty nice impossible… but cherishing the core 20% is both feasible and highly rewarding”
It makes sense for a hotel to look after it’s long-term penthouse guest. The single room, one-night stay, one-off business guest must wait longer at check-in, have a view of the car park or receive slower room service - but that’s okay - not every customer you interact with wants, needs or expects penthouse service.
With such potentially large gains, it is surely worth the effort and a little time to look for 80/20 insights and changes?
The first job is one of analysis, (not the most exciting task; but evolved accountancy will help you with that) to identify your top 20% of customers, most effective 20% of marketing activity or most valuable 20% of time.
Do this today.
Look at last week’s/month’s diary and mark each activity red or green. Red for low-value time - time with lower level customers, spent on low-level admin etc. Green for high-value time - time with high-level customers, time spent training your best people, time with influential contacts etc.
Work out which ‘red-time’ jobs can be delegated easily, either internally or externally, or simply don’t do them at all. Of course, some of these jobs must be completed - just not by you.
Work out which ‘green-time’ activities deliver the best results for you and your business. So much of your diary activity happens by accident rather than being deliberately scheduled. Yet, by looking for your 80/20 wins you bring greater planning, insight and results from your most precious resource - your time.
Richard Koch’s stirring book ‘The 80/20 Principle - The secret of achieving more with less’ is available on Amazon