Pareto was right. How to use the 80/20 rule to your benefit in every area of life.

posted in: Mind Tools, Shop Manual for Men | 1

You know this is true without needing a explanation why.

Every time you pass by a crew of guys making repairs to the road you see it. Most are standing around watching while one or two are doing the work. You see it in sports, just a few guys are scoring most of the points and winning the game.

This one thing, the 80/20 rule makes you a leader or a loser. A doer or a watcher. Getting tired of watching while others make it? Want to know the secret sauce of success? If you are a 20% guy then you’ll read on. If you are an 80% guy then you are already clicking to watch some YouTube.

Vilfredo Pareto saw what you see.

Pareto was a numbers man, and being that way he noticed that only 20% of the people in Italy owned 80% of the wealth. While Pareto was an economist, the quality management pioneer Joseph Juran was seeing that 20% of something was nearly always responsible for 80% of the results either good or bad. 20% of the workers were getting 80% of the work done. 20% of your inventory takes up 80% of your warehouse space. 20% of defects caused 80% of the problems in a production line. 20% of the workflow in the office causes 80% of the slowness in getting work done.

horse-racing

Betting on 20% of the horses

If you go to the track and place bets only on horses that are in the top 20% of winners, you are more likely to win than if you placed bets on the bottom 80% of horses. I’m not a gambling man, but I hear that professional poker players do the same. They fold on the 80% of weak hands, and double down on the 20% of good hands. Same thing is generally true with sports, financial investments, etc. You are betting on the high probability payoffs. So why aren’t you doing this in your life?

I usually sleep 7 to 8 hours, lets just say 8. That leaves sixteen hours that I’m awake. Twenty percent of that is three hours. I use that three hours to get my most important things done. I go to the gym, I work on this blog, I write my book. For me, it works best if I get up early and put in my best three hours, for you it might be in the evening. It doesn’t matter when. It matters that you spend three hours a day on the things that are most important, the things that will give you the most payoff.

At work, I keep a to do list and prioritize it daily by a simple A, B or C. A means the shit will hit the fan if I don’t get it done. It’s a 20% thing that will cause me 80% of my problems if it isn’t completed. C means that nobody really cares that it gets done this week. B is somewhere between A and C. I’ve been doing this for years, and I’ve found that things listed in C wind up staying there for months, and it’s  not unusual for me to eventually remove it from the list altogether. I work on the B’s if and when the A’s are done. That is a practical application of the 80/20 rule. I’m only focused on the 20% that really matters.

My dad used to call the upper management in the Post Office “ass kissing paper rustling son’s of bitches”. Unfortunately I do a fair amount of paper rustling that needs filing. I have an 80/20 trick for that too. I have a tray for filing, and I just keep stacking that stuff until it gets about a foot high which usually takes several months. Then I go through the stack and file what I need to file. Guess what, I wind up throwing away 80% of it and filing the other 20%. If I need it before the stack is a foot high, then at least its in one place and I just quickly go through the pile and get the document.

Risky Bets

In my right hand I have a $100 bill. In my left hand I have $100 of Power Ball tickets. You can have one of them. Which would you choose? That choice illustrates the difference between the high probability/low payoff bet vs. the low probability/high payoff bet. In the long run you will get richer with the high probability bet, particularly when you do it over and over. I talk about this more in the section “Risky business. Take and manage risks for fun and profit“, but for right now the example above shows you how this works.

One of my side businesses is writing and selling books, and I’m always looking at what successful writers/self-publishers are doing. In the self-publishing world, one of the big topics is how to price your book. Do you sell for $9.99 or $4.99? There are a lot of factors that go into that such as whether you self-publish through Amazon, or via your own shopping cart, the market for your topic, size, etc. But one guy talked about how he started out a certain book at $9.99 and it wasn’t selling much. He dropped the price down and it started selling a lot better. So he was forced to ask himself, will I make more money eventually with the lower price and higher sales, or will I do better with far fewer sales at the higher price. He had to make a bet to increase the probability of a sale, but at a lower price. He was making money either way, but he made more money by taking the high probability bet.

The Best and the Worst

Here is another way to apply the 80/20 rule. There is a fairly recent approach to customer service where a company surveys customers to rank the sales or service experience from 1 to 10, with 10 being best, in a few key areas. Then the company only focuses on the areas that scored the top two (9-10) and that scored the bottom two (1-2). They totally ignore the range of customers who ranked them 3 to 7. Why? First they wanted to identify what made the customers wildly happy (9-10), and keep doing that more. Secondly, they wanted to identify what pissed customers off most (1-2) and stop doing that altogether. By doing this they can shift the whole customer experience towards the positive without even paying attention to the majority in the middle. It’s a focused approach. Yeah, I know it’s really 60/40, but it’s the same principle. Don’t get hung up on precision.

What is it that you are best at? Find ways to do more of it. What are you worst at? Can you improve at it? If not, can you outsource or delegate it, or live without it? Avoid the low activities that have a low probability for payoff.

One Response

  1. […] have to be at an expert level in those skills, just OK. I go into this in detail in the “Pareto was right. How to use the 80/20 rule to your benefit in every area of life“ section. But to give you the short cut, if you were a boss, who would you hire? The guy who […]

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