“The 80/20 Principle” (Commentary)
How we get more with less
This book is the thesis of my life. I wholeheartedly attribute all my achievements and accolades to this single principle. When I give a synopsis of my life to others they ask how I’ve done so much at 23, and in response, I point to this particular rule. From someone who admires big data and data science, we can effectively quantify our objective and use the Pareto distribution to find practical strategies to achieve more with less.
READ ME:
I firmly urge each reader to look at the conclusion as I will summarize the book in a comprehensive and applicable summary. Revisiting “The 80/20 Principle” inspired me to write these articles in 80/20 fashion for you, the reader. If you wish to live the 80/20 life watch my videos and read the conclusion of these articles so that you can learn the most important information (the 20%) and achieve 80% of the effort (learning). The book may seem redundant but its giving application of the principle in various industries.
Richard Koch, the author, does a phenomenal job at dissecting the principle and placing its teachings into every imaginable aspect of life, especially in business. The book allows us to understand that decisive moments and actions have non-proportional effects. Like throwing the rock in a still pond(action), the ripples that are the result of the rock have non-proportional outcomes. Koch teaches us how to achieve more by doing less. This book, and by extension, this principle is teaching us how to learn.
Being concise, preferable to redundant, I’ll simply state that the Title is best explained in Chapter 1.
The Pareto Principle states that, for many events, roughly 80% of the effects come from 20% of the causes.
Parkinson’s Law is the adage that “work expands so as to fill the time available for its completion”. It is sometimes applied to the growth of bureaucracy in an organization.
Part One: Overture
Part one does a great job of illustrating the concept to think with the 80/20 mentality. A minority of efforts leads to the majority of results. Minority causes create the majority of effects. A minority of inputs lead to a majority of outputs.
1. Welcome to the 80/20 Principle
Vilfredo Pareto was an Italian engineer and economist who is most commonly known for creating the Pareto Principle, or rather the 80/2 rule. The book introduces the history of the 80/20 principle and more specifically Pareto’s observation of wealth distribution in society. Upwards of 80% of the wealth is accumulated by 20% of the population. This discovery was noticed across country lines in almost every society. The phenomenon transcended beyond economics and was recognized in various industries from IBM to national GDPs
Take Away: V. Pareto is the godfather of the 80/20 principle. He noticed it in wealth yet we see it in almost everything.
2. How to Think 80/20
Now that we better understand the 80/20 principle lets consider real-life integration. This particular chapter highlights the 80/20 principle being applied, inadvertently or not, across many different examples.
The most notable example is what inspired me to reconsider the structure of these articles. When Koch discusses reading he mentions that the principle can be applied to non-fiction books with considerable effectiveness. He suggests that we read the 1st section and the conclusions, repeat that twice. Once that is completed you can retain roughly 80% of the main ideas. Skimming through the book after knowing the core ideas than you can more effectively, and efficiently, retain the information. This works with non-fiction, specifically self-help.
Take Away: This method is a great way to read books efficiently but mainly can be applied in learning.
Part Two: Corporate Success Needn’t Be A Mystery
3. The Underground Cult
This section of the book focuses more closely on the business application of the 80/20 principle. Koch highlights how businesses who practice the principal intentionally or haphazardly reap the rewards of maximum profit efficiency.
Take Away: Thinking 80/20 in business allows you to become more efficient.
4. Why Your Strategy Is Wrong
This paragraph is an extension of the previous chapter in my opinion. The whole book is fairly redundant with various example and uses cases, specifically in business. He strongly advises that business perform a constant 80/20 evaluation throughout their whole business model and operation. Focus on the 20% of customers or goods that provide 80% of revenue. He mentions that this section takes strict discipline because he suggests that businesses cut 80% of goods or services that contribute to the loss of or lowered production in revenue and increase waste.
Take Away: Practice 80/20 evaluation to find goods/services that produce 80% of the revenue and cut or lower the rest.
5. Simple is Beautiful
I think this chapter starts to expose something that I like to do. This isn’t directly mentioned in the book, but from my understanding, Charles Munger suggested to use the inverse rule.
The rule states to look at the inverse of the data spectrum, in this particular instance, 20% of WORSE producing products. If we can reveal the products or services that are slow selling, have the least profit margin, take the most time, then we can significantly improve efficiency and effectiveness.
This is my interpretation of the chapter, however, I believe this rule to be HIGHLY important none the less.
Take Away: Do the inverse of the 80/20. Find the top 20% of items that severely UNDE- perform. Remove or avoid immediately.
6. Hooking the Right Customers
This chapter gives suggestions on not only retaining but also acquiring more of the “right” customers to your business with tremendous ease and efficiency. Koch suggests that once we have identified the top 20% of customers then we should make an all-means effort to keep them satisfied, even if it means temporarily losing profit. The benefit is colossal as referrals begin pouring in from those customers who bring in similar customers.
I can attest to this suggestion first hand as we experienced this with our members at PlutusX (www.plutusx.com). We tried our best to provide astounding service to the members that gave us the most value. The result was a cascading word of mouth marketing effect that delivered us more of the same client.
Similarly, our CMO Patrick proposed a top-down method for marketing. We reverse engineered our desired members. Members that we know would produce the 80% results that we required. Then the marketing was easy, we signed up members who were less of a headache and produced the results that we anticipated.
Take Away: Thinking 80/20 in customer acquisition. Reverse engineer your desired client.
7. The Top Ten Business Uses of the 80/20 Principle
This particular chapter is a conglomerate of the various other other lessons taught by Koch revolving around the business world, again. However, he expands his horizon by talking about the application of the 80/20 principle in inventory, management, employees, etc.
He stressed managers and business executives to continually conduct 80/20 analysis across all sectors of the business. You will find that many inefficiencies can be uncovered and must be equipped to make the difficult decision of handling such decisions. Even if it means firing employees who are not producing, or eliminating products that are producing revenue, wastefully.
Take Away: Conduct 80/20 evaluation on personal in business.
8. The Vital Few Give Success to You
This chapter is a continuation of the previous chapter. The section gives more insight into how the few employees contribute to the majority of your success, specifically in sales. Be aware of who is contributing and who is leaching. Guide, teach and lead the majority who are underperforming. If improvement fails to manifest, you must be tasked with the hard obligation as a manager and let them go. Sacrificing one member of the team places all other members of the team at risk, and the overall mission, as Jocko Willink says (see my summary on his book, “The Dichotomy of Leadership”.
Take Away: After finding the non-performers, guide, lead, and teach or fire.
Part Three: Work Less, Earn and Enjoy More
This particular section of the book transitions from a business focus to a more life application.
9. Being Free
More effort does not equal more reward
Many place nominal efforts in multiple tasks, or strenuous efforts on irrelevant tasks. This ineffective use of time leads to an average life.
This chapter urges people to perform 80/20 analysis on their own life. Let’s identify the aspects of our life that are MOST significant to us, and bring us the most joy and satisfaction. Koch employees us to spend the majority of our time and efforts on those areas of life that provide non-proportional happiness. This is the preamble to whats to follow.
Take Away: Apply the80/20 in personal life too.
10. Time Revolution
Koch infers that time management is not the solution to a designed life. Rather, the suggestion to identify “worthwhile” things and use the inverse to identify that that can be eliminated, immediately. Next, maximize your time accordingly so that you focus solely on those “things”.
Here is a personal example: I love fitness and have challenged myself to achieve goals that are rather difficult to accomplish, such as a 100-mile marathon, strength comps and possibly a physique show. In parallel, I am still enjoying life while traveling and running several successful businesses. I often get asked, “How do you have the time? How can you do so much with so little time? How did you go from scratch to achievement time and time in various fields of life?” The answer is NOT time management to many peoples surprise. Time management is the partial solution, however, 80/20 analysis is how I can get more with less. Once I identify the most important tasks that lead me to my desired results I implement time management to stay on track and organized. Time management is secondary to 80/20 analysis and implementation.
Take Away: Time management is secondary to 80/20. Find what is important and use time management to focus on that.
11. You Can Always Get What You Want
This chapter argues that you will not be fully content with life until you are equally happy working as you are not working. By extension, you need to be happy 80% or more of the time regardless of the task.
This may be a bit abrasive to readers as they do not have total control over their financial life, and job. They may not be able to pursue something that satisfies them OR cannot alter the rules of engagement with their work life.
Koch offers a solution for those who are not able to modify their work life with ease, see Chapter 13.
Take Away: Your life is more important than money.
12. With A Little Help From Our Friends
20% of our relationships contribute to 80% of our value in relationships. That is the premise of this particular chapter. The call to action is to cultivate the relationships with the significant people in our lives.
This is from my personal understanding of relationships, extrapolating on Dunbar’s Number. The number is a suggested cognitive limitation that we have to maintain a stable social relationship. The number states that anyone can roughly know 150 people but can only really know 10 or fewer people, personally.
This suggestion is much more utilitarian. Identify the top 10 people, you choose to be most significant to your business and personal life. Build and cultivate those relationships. The remaining 140 and beyond should be considered as opportunities, but don’t stress over them.
Take Away: Use Dunbar’s Number to and find the 5–10 people most significant to you. Focus on nourishing those relationships and treat others as building opportunities. Don’t use them to be altruistic but seek an opportunity as well.
13. Intelligent and Lazy
Koch uses this chapter to demonstrate how we can implement the 80/20 principle in our careers. Similar to reverse engineering our ideal client in CHAPTER 6, we must reverse engineer our career with our passions in mind. He argues that once we identify our passion and implement it into our career we will naturally rise to the top 20%. Similar to the identity shift that occurs in behavior change (see my commentary on “Atomic Habits”). The habits and actions will follow effortlessly. The result, become a top producer in your respected field of interest.
Here Koch offers a solution to the individuals who cannot modify their work to satisfy themselves or produce 80/20 results. He suggests that we identify our passions quickly and move towards self-employment. The modularity aspect associated with being self-employed allows you to live a satisfied life while becoming primed to be a top 20% producer in your desired niche.
Take Away: Go towards self-employment as soon as possible.
14. Money, Money, Money
I feel as if this chapter is accurate but misleading. The chapter focuses on finances, especially investing. Although there are tons of algorithms that can be applied to quantitative analysis using the 80/20 rule is one that could potentially prove to be profitable.
He states that 80% of impressive gains, long term safe growth, etc can be attributed to 20% of stocks. This may be true but from my personal experience and knowledge in investing using this rule alone as a technical analysis for purchasing is a poor strategy. This chapter could be a lifetime of research, so I will leave it as such. Don’t go take out loans or go all in in the stock market using this principle alone.
Take Away: 20% of stocks can attribute to 80% of gains. Yet, this is a poor mechanism for market analysis to be used alone, in my opinion. NOT FINANCIAL ADVICE.
15. The Seven Habits of Happiness
The title is pretty presumptuous. This chapter creates areas we should focus on daily that can contribute to happiness in our daily lives.
- Exercise. Kosh recommends 30 minutes before the day starts, and for busy executes to have their assistant NOT schedule anything before 10 am to be sure that there is adequate time for exercise and to get ready.
- Mental stimulation. Read a book, learn something new, or talk with an intelligent friend about abstract concepts.
- Spiritual/artistic stimulation/meditation. Spiritual simulation is not reserved exclusively to the religious. Meditation, writing, journaling, walking through nature, etc can all be indications of spiritual enlightenment.
- Doing a good turn. Altruism with a kind heart is always a great way to create joy. Acts of selflessness have immense benefit.
- Taking a pleasure break with a friend. See chapter 12. Spend QUALITY time with those individuals no less than 30 minutes a day.
- Giving yourself a treat. This is self-explanatory. Accomplished necessary tasks and treat yourself, read my commentary on “Atomic Habits”. This will undoubtedly keep you self-motivated.
- Congratulating yourself. If you have completed 4–6 of these tasks pat yourself on the back and congratulate yourself. You have done many things that most would consider habits of happiness.
Koch Prescribes that we spend no less than 30 minutes of our daily time on each subset of these listed habits above.
Take Away: Implementing 4–5 of these items into your daily routine can greatly improve your happiness.
Part Four: Crescendo
16. Progress Regained
This last chapter was very abstract to me. This is what I gathered so please be patient with me.
Koch suggests that the 80/20 could inherently be “right winged”. Like the economist Pareto suggested, 80% of wealth will be accumulated by the 20% of the population. This is why redistribution of wealth is not a sustainable policial philosophy. This is the second time I heard a book say this. One form an economist and another from a moral psychologist, both of which are socially very liberal.
The books end with a story of happiness and greed.
Take Away: More is not the goal, simply progress.
Conclusion
A minority of efforts leads to the majority of results. Minority causes create the majority of effects. A minority of inputs lead to a majority of outputs. Less is more. We can apply this book and more specifically this principle in almost every aspect of our life. I prescribe you ALL to do continuous 80/20 analysis of facets in your life. The discoveries will be surprising and when implemented the results even more so.
If we desire to seek mastery or acquire new skills and or knowledge we should consider implementing the 80/20 principle and in respect to the inverse rule as well. Finding outliers in the redistribution bell curve will help us learn the habits that we should reinforce and ones we should eliminate or avoid. Utilizing this principle will help teach us effective us ways to learn new enlightenment.
Let us implement this principle and learn how to work smarter NOT harder.
Application
Mirroring the intro, I often use this principle throughout my whole life, ESPECIALLY in learning new skills. I want to know the most effective way to achieve a task with minimum effort needed, that IS NOT cheating. The goal here is to move the odds in our favor, ethically. My life is littered with examples of times I implement this but is most notable visible in my life in business, learning, and fitness.
I’m a geek at heart. I always gravitated towards STEM as a kid as my main vehicle for escapism. My passion for learning is why many false identify me as someone who is intelligent. I simply regard myself as a curious mind who knows how to learn. I focus on learning for the top 5–10 people in the respected fields of interest. Then I try to identify the most crucial information that is needed to be acquired for me to posses ~80% of the knowledge or skill required.
This leaked into fitness. I learned ways to manipulate hormones via sports nutrition and more efficiently achieve my desired outcomes. Similarly, I learned more effective ways to lift to break 405 lbs squats for reps and 245 lb bench at 160 lbs. Now I am doing my 1st marathon (March 17th, 2019) with a 35 lb vest as practice in preparation for a 100-mile marathon. I have manipulated my weight with ease form 187 to 160 and back. Learning from the best of the best allowed me to gain 80% of the results by implementing small MINOR tweaks that made all the difference.
How To Apply the 80/20 in Your Life
- Do 80/20 analysis in your life and the inverse,
- Identify things that non-proportionally attribute to your desired goal and focus more effort on that, and do the opposite with the inverse,
- Repeat.
