The 80/20 Principle – Richard Koch [Book Summary]

by Nick

The book “The 80/20 Principle” was included in the Top 25 of the best business books of the XX century according to GQ.

It reveals the essence of the 80/20 principle, which states that 80% of the result is generated by only 20 percent of the effort.

This phenomenon has a huge impact on all areas of our lives, as it helps in any situation to isolate and put in the first place the most important factors.

Richard Koch is a former management consultant. In 1990, he left work and began to write books. Since then, he has written 18 books, including The Power Laws, Living the 80/20 Way, and Superconnect. He successfully managed to realize the 80/20 principle in his own life.

This book is available as:

Audiobook | eBook | Print

It’s More Important Than Ever to Know What is Truly Essential

In today’s incredibly fast-paced world, many of us are forced to struggle every day on unbearable to-do lists. We come to work, and while we are doing the first task from the list, two new ones appear in it.

Companies face similar difficulties trying to serve several markets, create a variety of products and juggle them like clowns in a circus.

In such chaos, it becomes more important than ever to know what is truly essential.

That’s why it’s so important to understand the deceptively simple but incredibly powerful 80/20 Principle. This almost universal imbalance between effort and results will help you use your work time in a more efficient way.

Moreover, it has already been proven that this principle helps companies achieve success in an entirely illogical way: doing less instead of doing more.

And finally, you can apply this principle even in your personal life in order to become happier and more satisfied in relations to others. You just need to start applying the 80/20 installation, and from this abstract, you will learn how to do it.

As a Rule, Only a Small Part of the Work Produces the Greatest Output.

Have you ever had this: did you look at the project just completed and found that most of the work was done right before the deadline? Probably in the last few days, when the time was running out, you managed to do more than in the previous few weeks?

In fact, a similar imbalance between effort and outcome can be observed in a wide variety of situations.

For example, in many companies, you may find that 20% of the entire product range brings 80% of the profits.

Or, for example, 20 percent of motorists cause 80 percent of all accidents. Most drivers drive the car very carefully, but the smaller part is more reckless, and it is they who most often get into accidents.

This phenomenon is known as the 80/20 principle: about 20 percent of the effort put in produces 80 percent of the output.

What is the reason for such a strong imbalance? The thing is that not all reasons can cause the same consequences and results. The reasons can be divided into two categories: the majority, which has small consequences, and the minority, which has large consequences. The result is such a split: 80/20.

It is important to clarify that the numbers 80/20 are given for simplicity: in fact, this ratio can be very different: for example, 70/30 or 99.9 / 0.01.

And of course, these numbers do not have to be a hundred. For example, a 1997 study showed that of the 300 films that were released, only four (representing 1.3%) sold more than 80% of the tickets.

As you can see, the 80/20 principle manifests itself in a wide variety of situations. Below you will understand how valuable this knowledge is.

People are not used to thinking on the 80/20 principle, because we usually expect justice from life.

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People Expect the World to Be Balanced.

But balance is an unnatural state for the world. Unlike imbalance.

Take linguistics: Isaac Pitman discovered that about 700 common words make up two-thirds of the spoken language. If you connect derivative words here, you can find that less than 1 percent of English words make up more than 80 percent of what we say.

But why is this happening?

This is due to the so-called feedback chains, thanks to which even small differences are multiplied and strengthened.

For example, if you have several goldfish of about the same size, living in the same pond, then when they grow up – they will all be very different sizes.

Why?

Because some fish are still slightly larger than others, so they have a tiny advantage. Thanks to this, they can find more food, and they will grow faster than smaller fish. This increases their advantages exponentially and with each life span of the fish this cycle repeats and increases, giving rise to a difference in size.

But, despite the fact that such an imbalance is a natural phenomenon, people consider it to be unfair. One example is the uneven distribution of income and wealth: when 20 percent of the population receives 80 percent of all money, we call it social injustice.

It seems to us so because the common belief is that the work and the reward for it should go in the same proportion 1: 1.

But the 80/20 principle clearly shows us that this is not so.

80/20 Helps You Increase Productivity and Improve Results.

Now you probably think: well, yes, it’s all great, but how is this principle connected with me and my life?

Let’s start with your professional activity – for sure your work can hardly be called productive now. Think about it: if you achieve 80 percent of the results with just 20 percent of your efforts, it means that 80% of your actions are highly ineffective.

Just imagine: if you were to perform those 20% of the most effective actions, instead of what you usually do, what would your results improve?

For example, imagine if you could work throughout the project with the same productivity with which you finish it at the last minute before the delivery.

In fact, a creative approach to using the 80/20 principle can greatly help you increase productivity, because you will switch your attention from inefficient tasks to those that bring you most of the results.

Start by analyzing your workflow — identify those components that are too inefficient. You may find, for example, that in the initial stages of work on a project, you think too much about your future actions and possible mistakes. Once you realize this, you can consciously stop thinking about possible failures.

And regardless of their reasons, you can streamline the workflow in such a way as to not only avoid these failures, but also increase the overall level of productivity.

Use the 80/20 Principle to Increase Business Profit

Now you know how to apply the 80/20 principle in work, but you are also probably interested to know how this principle can be used in business.

In fact, there are a lot of ways to use it, but perhaps the most important of them is the optimization of the product line of your business.

First of all, you need to determine which categories of products you produce to bring you the most profit. Just put the product names in order of increasing profit and sales, and you will probably find that only 20 percent of sales of certain products bring you 80 percent of all profits.

For example, the author conducted a study of an electronics company and found the top 3 products that accounted for 19.9% ​​of sales, but in money terms, this amounted to 52.6% of the profit.

Once you identify this gap in your company, the second step will be to develop and strengthen the potential of the most profitable 20%. It is necessary to completely redirect your attention and resources to increase sales of these products.

In the aforementioned company, the author instructed management to increase sales of the most profitable products as follows: they had to tell sellers that their only goal was to double the sales of these three products, ignoring everything else.

To Achieve Success, Simplify Your Business.

We all know that large companies are very complex. Managers constantly have to adapt and manage all the processes, most of them even like the feeling of excitement that arises in this process.

But is deliberate creation of complexities the best way to develop a company?

Most people are sure that the size and wide range of products is more profitable for the company, because the more products are sold, the greater the profit.

But in fact, in such a scheme there are many hidden costs. A wide range of products requires, among other things, a more complex delivery organization, more training for sellers, and much more administrative work. These factors in total increase the company’s costs of production – these costs can even exceed profit from additional products.

On the other hand, the simpler your business, the lower the cost. If you narrow down your product line, each employee of the company will be able to pay more attention to working on those few products that are best sold. This will allow them to treat the sales process more carefully than when they have to juggle dozens of different items. This, in turn, will simplify administrative work, as well as provide large-scale savings in areas such as production and logistics.

The result of these benefits is obvious. For example, a study of 39 medium-sized companies showed that those that are the easiest to organize were the most profitable. They had a narrow range of products, a small number of customers and suppliers, but as a result, the profit was much higher compared to competitors.

Thus, by simplifying your business, you will reduce costs, and therefore increase profits.

The 80/20 Concept Applies to Every Aspect of the Business, From Negotiation to Marketing Strategy.

Now you know how to apply the 80/20 principle to narrow the product line and increase profits. But what about other business areas?

Fortunately, the 80/20 principle is so universal that it can be used in almost any aspect of the business to increase the likelihood of success.

For example, one of the most important parts of running any business is negotiating with customers, suppliers or partners.

Usually, before the start of negotiations, the necessary points are prepared in advance, but sometimes there are too many of them. An analysis based on the 80/20 principle will help you identify several points that will really matter for a successful deal, so you will need to focus on them, rather than trying to cover the entire list.

Another example of using the 80/20 principle in practice is marketing. If 20% of your customers provide you with 80% of your business success, you need to focus on identifying just those customers and how to convince them to continue to shop with you.

Once you understand who these customers are, provide them with your loyalty and first-class service. Subsequently, when you create new products or services, you need to purposefully sharpen your products specifically for this 20 % of customers. This will allow you to increase your profits by selling to the same customers.

Take the example of Nicholas Barsan, one of the leading realtors in the United States, who earns more than a million dollars a year on his deals. About a third of his profits come from regular customers who resell their homes, so his main focus is on meeting the needs of his best customers – and, of course, this is a very profitable strategy.

So, there is no doubt that the 80/20 principle is applicable in almost every aspect of doing business.

You Can Change Thinking by Applying the 80/20 Principle to Everyday Life.

As you saw in the business development example, the 80/20 principle is usually applied to the analysis of 20 percent of the input effort, which gives 80 percent of the output result. But in everyday life, conducting such an analysis is sometimes difficult.

That means you need something else: 80/20 thinking.

Traditional thinking is linear. It assumes that all the raw data that we have is equally important. For example, in childhood, we were taught that all our friends are equally valuable to us.

In this regard, 80/20 thinking will imply the need to accept the fact that not all relationships are equally valuable. Some of our friends are more important to us than others, and the relationships that we have built with these people mean much more to us.

We can say that 20 percent of your friendships give you 80 percent of “value,” that is, for example, the feeling of joy and camaraderie that you get from these relationships.

The key difference between analysis and thinking on the 80/20 principle is that analysis requires you to collect and sort data to find the most relevant 20 percent of them, while thinking just allows us to assess the situation.

Of course, the value of your relationship cannot be measured in absolute terms, but you can always ask yourself the question: “Which of the people who surround me is more important to me? How much time per week do I spend with them? ”

Such questions will help you understand which relationship is most important to you.

80/20 thinking will also encourage you to strive to improve the quality, not the quantity, of your friendships, focusing accordingly on 20 percent of the people most significant to you.

This kind of thinking without reference to clear data can be used in so many areas of life.

Instead of mastering time management, spend time on the most important tasks

You are probably familiar with the concept of time management, popular among books on self-development. The main idea is to help you achieve more in the time at your disposal, and in principle, this technique works: it increases productivity by 15-25 percent.

But there is a much more efficient way.

In time management systems, the main way to increase productivity is to shove as many tasks as possible in the allotted time period. As a rule, such techniques are designed for heads of firms and divisions – for such people, the schedule is already clogged with different things, and it is logical that the first step is to sort the daily affairs into categories and priorities.

Here the problem arises: most people have no idea which tasks are the most important, therefore, as a result, about 60-70 percent of the to-do list is awarded the highest priority category.

What is the result? The schedule is even more crowded, the working day is stretched. There are so many cases, and adding some more tasks to them is clearly not the best solution, otherwise, you can get exhausted and burn out very quickly.

Time management based on the 80/20 principle is a great alternative solution that will help you determine 20% of your tasks, by completing which you will get 80% of the results. And then you need to focus on precisely these tasks.

For example, while working in a consulting firm, the author discovered that his firm was more successful than others without any special effort.

Usually, consultants try to solve a lot of different problems of their clients, as a result, their work is superficial, and the client must also take care of the implementation of all these recommendations.

In contrast, the author’s colleagues focused on 20% of the most important tasks of clients and used the time saved to help clients implement the recommendations received. This approach helped them bypass other consulting firms and increase the profits and results of customers.

This revolutionary approach will help you set aside some free time without sacrificing productivity.

How to Improve the Quality of Life Using the 80/20 Principle at a Generalized Level

Most people determine the quality of life by how happy they feel in general. It is interesting, however, that very few of us actually make any attempts to make ourselves happier.

In fact, most people spend a huge amount of time doing things that do not bring them happiness. For example, many people go to work that they hate. Most office workers spend days sitting in their small booth, mindlessly performing tasks and counting hours until the end of the working day and days until the end of the working week.

How can this be fixed?

Everything is quite simple – you need to identify the distribution of happiness and unhappiness in your life and track the causes of both states before taking any action.

Ask yourself, what 20% of your life brings you 80% of happiness and vice versa? As soon as you determine 80% of life, which brings you very few positive feelings, this is where the time comes to act: just reduce the time you spend on these things.

For example, if you do not like your job, think about how you could change it. Look for other options, try a different field of activity, or just try to reduce the number of hours you spend on work, and so on. But whatever you do now, in no case doom yourself to the work that makes you unhappy until the end of your life.

As soon as you manage to reduce the things that make you unhappy, you will find that you have more time and energy for what makes you happy. For example, if you decide to spend less time at work, you will have more time for family and friends.

Just think about what 20% of your classes bring you 80% of happiness, and try to find more time for these classes. And then your life will become much happier.

The Final Words

The 80/20 principle states that in almost any field, 20 percent of the effort is 80 percent of the outcome. This means that 80 percent of the effort is spent inefficiently, and if you focus on the 20 percent that gives most of the result, your efficiency will increase significantly.

This simple concept is applicable in any area of ​​life, ranging from business to relationships with friends and quality of life.

Work to improve your business. If you are a business owner, be sure to use the concept of this book in your work. For example, analyze your current product line and focus on developing 20% ​​of the goods or services that bring you 80% of the profits.

Why You Should Read “The 80/20 Principle”

  • To achieve better results, while spending less time.
  • To have more free time and enjoy life.
  • To increase profitability in your business.

This book is available as:

Audiobook | eBook | Print