By now most of you are probably familiar with the Pareto Principle, more commonly referred to as the 80/20 Rule. Richard Koch’s approach to this principle, captured in a series of books, promises to teach you how to build businesses, simplify life, work smarter not harder, manage better and get richer. Perry Marshall’s brilliant dissection of the 80/20 Principle, 80/20 Sales and Marketing, demonstrates how results magnify by fractals when this rule is applied to the marketing and sales process.
In a nutshell, the Pareto Principle says that 80 percent of your results will be caused by 20 percent of your efforts. So 80 percent of your income will come from 20 percent of your clients and 80 percent of your sales will come from 20 percent of your prospects. The trick, as you might have guessed, is identifying the 20 percent that will produce 80 percent of your results.
One of the principles I live by is that any true equation has to be true from either side of the equal sign. In simple terms, if nine plus three equals six times two, then six times two must equal nine plus three. Which means that if 20 percent of your efforts produce 80 percent of your positive results, then it stands to reason that 20 percent of your efforts also produce 80 percent of your problems.
In any business 20 percent of your employees cause 80 percent of your employee-related headaches. And 20 percent of your customers are the “problem people” who cost you 80 percent of wasted time and money. In your personal life 20 percent of your friends and family will prompt 80 percent of your fears, doubts, and insecurities.
I first noticed this phenomena consulting with owners of small service-based businesses. My clients were prone to talking about “staff” as a conglomerate group rather than a list of individuals. If I suggested an upgrade to processes or systems I would hear, “We’ll never get my staff to do that,” or “We can’t make that work because my staff always does this.” Likewise, when I suggested to their teams that we implement certain changes in service offerings or policies I would hear, “We shouldn’t do that because our customers will do this.”
I challenged my clients to go through their employees by name and tell me which employees wouldn’t do what we were asking, or which ones would take unfair advantage of the benefits I proposed. Usually, when they evaluated each team member individually they realized that no more than 20 percent were really undependable, lazy or dishonest.
I experienced similar results when I challenged service teams to go through the customers the business had done business with in the last few months. As they reviewed their sales or appointment history they soon realized that they were basing their beliefs about how their customers would respond to policy changes on the 20 percent who were most likely to twist policy to get as much as possible for as little as possible.
Their businesses models were designed to limit the damage from the lower 20 percent. Their focus and energy was devoted to setting up systems, policies and processes that left no room for anyone to “take advantage” of the business.
What if companies like Nordstrom and Zappos had designed their return policies around the belief that customers will rip you off if they get a chance? What if Disney had designed their employee policy around the belief that you cannot get employees to be dependable? What set those companies apart is that they not only focus on the 20 percent that yields 80 percent of positive results, they also refuse to give energy to, or make adjustments for, the 20 percent that would cause them 80 percent of their problems.
The next time you catch yourself saying, “I can’t do that because my customers will do this,” or “I have to do that because if I don’t my employees will do this,” or even “I can’t do what I want because my friends will think this,” I challenge you to ask yourself if it’s true that they will, or only true that 20 percent of them will. Because that 20 percent will hold you back, suck you dry, and eat you for lunch if you give it your focus and energy. But if you decide you can do without it, if those are customers you don’t need to cater to, employees you can afford to fire, or even friends you can gently release from your life, then you can take all that energy and focus it on the top 20 percent -- the 20 percent that will be the cause of 80 percent of your positive, and profitable, results.