The 80/20 Principle - Richard Koch
30 September 2010
This post contains my personal notes about the big ideas in Richard Koch’s The 80/20 Principle. My book notes are different from many of the book summaries you’ll find on the web. Instead of following the structure of the book in question, we’ll isolate and examine the key ideas and themes that make the book useful. Along the way, I’ll tell you how I actually apply the ideas. Enjoy!
Would you like to learn how to get more done with less effort, eliminate wasteful activities, and sell more to your best customers? Richard Koch’s The 80/20 Principle will show you how to ensure your efforts produce the best possible results.
About Richard Koch
Richard Koch is the author of the Personal MBA-recommended book The 80/20 Principle_. For more information about Richard Koch’s work, check out blank">http://www.the8020principle.com/.
Here are 10 big ideas from Richard Koch’s The 80/20 Principle…
#1: A minority of inputs lead to a majority of outputs.
Think of all of the clothes you own. Think of how often you wear each of them. It’s very likely that you have a few favorites that you wear over and over.
Now consider the contacts you have in your address book or cell phone. It’s very likely that a small group of contacts represent most of the time you spend on the long time.
#2: A minority of causes create a majority of effects.
Think of the decisions you’ve made over the course of your life. You make hundreds (thousands?) of decisions every day, but where you find yourself now can be traced back to just a few critical choices that have led to your present state.
The same goes for things like investments – most of the returns a portfolio generates comes from a few critical decisions to purchase or sell certain securities. Most of the losses a portfolio generates also come from a few small decisions.
#3: A minority of efforts lead to a majority of results.
Think of everything you’ve accomplished in your education and career so far. It’s very likely that the skills you need to do your job well are a small fraction of what you know and what you can do well, but they produce the majority of your income.
Even the projects you’re working on follow the same principle: the vast majority of the value of any project lies in just a few critically important tasks. The rest of the tasks involved don’t matter nearly as much to the end result.
#4: There are many names for this common phenomenon: The 80/20 Principle, Pareto’s Law, Zipf’s Principle of Least Effort, Juran’s Law of the Vital Few
The 80/20 Principle has been articulated in all sorts of ways by many different people, but the central idea is the same: a few things matter a lot, and most things matter very little. Personally, I prefer to refer to this concept as The Critical Few.
#5: The Critical Few – identify and build upon the 20% of efforts that produce 80% of the results.
If you want to improve your effectiveness at anything, focus only on what matters most. It doesn’t matter if you’re conducting business, working on a personal project, trying to get into a competitive position, or finding a romantic partner, or strengthening a personal relationship. There are a few things that matter a lot, and much that doesn’t matter at all.
If you intentionally set out to study what matters most, you can tremendously improve your effectiveness. You’ll spend less time, less money, and less effort – and get better results at the same time.
#6: Most of what we do is low value – eliminate or reduce the 80% of efforts that produce poor results.
The flip-side is also true: in every endeavor, there are many ways to waste your time and resources. You only have so much energy to use, so it pays to use it wisely. If something is only marginally useful, delegate or delete it.
This advice is sometimes difficult to put into practice, because it requires what Tim Ferriss (author of The 4-Hour Workweek) calls, “the art of letting bad things happen.” If it’s largely a waste of time to answer every last e-mail or tie up every loose end, that doesn’t mean you won’t experience repercussions from skipping them. On the balance, you’ll come out ahead, but it’s easy to not feel that way in the moment.
By making some hard decisions about what to focus on and what to delete, you’ll free up huge amounts of productive time and energy to focus on what will really get you where you want to go.
That’s why I advise my clients to create a “not-to-do” list – by deciding in advance what’s not worth their time and energy, it becomes much easier to say no to low-value tasks and requests when they’re presented to you. Cessation is often a the best (and easiest) way to improve your performance.
#7: In business, focus on the products and customer that make you the most money, and minimize or eliminate the rest.
All people are created equal, but all customers are not. Some customers will feel like gifts sent from heaven – they’ll be excited, considerate, and will enthusiastically purchase everything you offer. Other customers will feel like they were sent from hell – they’ll buy what you’re selling, but they’ll never be happy, they’ll clog you will complaints, and they’ll demand special treatment or exceptions to your business practices.
Here’s the rule: discover who your best customers are, and focus on doing everything you can to give them the best experience and service possible. Also discover who your worst customers are, and fire them – they represent a huge Opportunity Cost in terms of time and effort. By politely inviting bad customers to not do business with you anymore, you free yourself to focus on customers who will actually help you meet your business goals. (Side note: if anyone asks you for a refund, don’t fight them – grant their request immediately, and be happy doing it. They are not your best customer.)
#8: In life, focus on the activities that produce the majority of life satisfaction.
The 80/20 Principle also extends to your life satisfaction – a few things will contribute the most to your overall happiness and inner peace. Those are the things that you should build your life around: for me, they’re spending time with family and friends, having deep conversations with people, sharing what I know with others, doing fun experiments, and reading everything that piques my interest. If I want to lead a happy life, that’s how I should spend most of my time.
A wide body of research indicates that daily experiences contribute far more to your overall happiness and life satisfaction than possessions do. That means you’re far better off investing in a trip around the world with friends than a huge house or luxury car.
On the flip side, you should ruthlessly eliminate things that don’t contribute to your happiness or life satisfaction. The classic example for most people is commuting: very few people love the feeling of sitting in a car or train for 1-3 hours every day. If you eliminate your commute by moving very close to where you work you both eliminate a source of dissatisfaction AND free up more time and energy to do things you find far more rewarding. That decision can be a net positive, even if it’s more expensive.
#9: A minority of decisions will produce the majority of your results: choice of work, debts, investments, relationships.
There are a few specific decisions it pays to take special care before making: what you do for a living, borrowing money, contractual commitments, and who you spend the most time with – particularly the transition from romantic partner to marriage or civil union.
Think of these decisions as inflection points – you’re making a commitment that’s very difficult (not impossible, but difficult) to reverse or change. They also effect how you will be spending your time and energy on a very fundamental level, such that they can drastically alter your income, priorities, and life satisfaction.
Accordingly, it pays to spend a disproportionate amount of time and energy making sure these decisions are made well, and you put yourself in the best position you can in the process. For example, purchasing a home is one of the biggest financial decisions people make, so if you want to buy a house, don’t do it quickly or lightly. Do your research, understand the complete financial picture, create a masterful budget, improve your credit, and negotiate hard with the bank if you’re taking on debt. What can look like small improvements can end up producing huge results: negotiating 1% off of your interest rate can save you hundreds of thousands of dollars on a 30-year mortgage, so it pays to push as hard as you can.
#10: More effort does not equal more reward – focus only on what is crucial, and ignore the rest.
Here’s the ultimate lesson, and it’s an important one: YOU ARE NOT REWARDED FOR EFFORT. People ultimately doesn’t care how long you spend doing something – it cares far more about how important and meaningful your work is.
You can spend 50 years digging a pit in the Sahara desert, and no one will care a bit. Spend those 50 years doing something like curing cancer, and EVERYONE will care.
Whatever you decide to do, spend some time at the beginning Deconstructing the goal – what appears to be critically important to master, and what appears to be a waste of time?
You’ll certainly have an incomplete list until you actually get started and start learning as you go, but establishing your “focus-on” and “Not-To-Do” lists from the outset can save you huge amounts of time and effort in the long run.
This summary was created by Josh Kaufman, a business advisor and author of The Personal MBA: Master the Art of Business. To receive Josh’s notes on the best business books available and other Personal MBA blog updates, be sure to sign up for the Personal MBA newsletter – it’s absolutely free.
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