The 80/20 Principle

The 80/20 Principle

Author
Richard Koch
Year
1997
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Review

What is it about? Was it worth reading?

The Pareto principle (or 80/20 rule) is an incredibly important concept. This book drags out the explanation and application of the concept over too many pages in my eyes. Despite doing that it doesn’t go far enough into the dangers of using the rule, and when it’s not applicable. There are better texts in the time-management / life-management realm that this book stumbles into (e.g. Essentialism by Greg MCKeown).

The author himself in the book admits that 80% of the value in a book comes from just 20% of the content; that applies in this case too. I hope you’ll find most of the value in my key takeaways below.

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Key Takeaways

The 20% that gave me 80% of the value.

  • The 80/20 rule in a nutshell: 20% of the effort, leads to 80% results.
  • ‘Cause and effect’ linear thinking is an oversimplification of reality.
  • In fact there is predictable non-linearity in the world. A systematic and predictable lack of balance.
  • Knowing this - we should shift resources and effort from low output activities to high output activities
  • There are many reasons why non-linearity exists:
    • Feedback loops contribute → E.g. the rich get richer
    • Small advantages and winner takes all → e.g. if you’re slightly better at a job interview you get the whole job
    • Tipping points → something struggles to get to a certain size then it explodes (epidemic theory)
    • First Come, Best Served → what happens first can have a disproportionate effect
  • How the author used the 80/20 rule
    • Exams → 20% subject matter 80% questions
    • Books → 80% value, 20% pages
    • Jobs → 80% wages, 20% jobs
    • Clients → 80% revenues come from 20% clients (less price sensitive, longer assignments staffed more profitably)
  • 80/20 analysis is → Precise, quantitative, investigation, facts, highly valuable
  • 80/20 thinking is → Fuzzy, qualitative, thought, insight, highly valuable
  • Constantly ask, what is the 20% leading to the 80%
  • Be selective, not exhaustive
  • Strive for excellence in a few things, rather than good performance in many
  • Calm down, work less, target a limited number of goals
  • We are trained in cause and effect, regular relationships, average returns, perfect competition and predictable outcomes. None of this is reality!
  • Causes may be influential without being noticeable, only a few decisions really matter, those that do matter a great deal, choice can always be exercised
  • Don’t let inertia make decisions for you
  • Find where your more productive than others, then double down
  • Be selective about the races to enter
  • Don’t put average effort into many things, out a lot of effort into selecting the right things
  • We spend most of our time of things in low value
  • Most of our achievements come from a small amount of time - Same with happiness
  • There is no shortage of time if we make use of such a small portion of it
  • Double productivity by halving the time
  • Dissociate effort from reward - hard work can lead to low returns.
  • Quality is more important that quantity
  • Be unconventional and eccentric with how you spend your time
  • Identify your happiness islands - small amounts of time that have contributed a lot to your happiness - try to deduce what’s common. Do the same for achievements.
  • Try doubling time allocated to your 20%s → which should increase your outputs hugely
  • Eliminate some of the 80% - don’t underestimate how possible this is!
  • Wastes of time → 1) other peoples priorities 2) things that always been done this way 3) things that have already taken 2x longer that you thought
10 High value uses of time
  • Advance your overall purpose
  • Always wanted to do
  • Things already in 20/80 time to results
  • Innovative ways of doing things that slash time required or multiply quality of results
  • Things people tell you can’t be done
  • Things people have done successfully in a different area
  • Thing that use your own creativity
  • Things you can outsource
  • High quality collaborators, who use their time effectively
  • Now or never things
  • The marginal utility of money declines sharply
  • Intensity, recency and frequency over influence the subconscious
  • Concerns with the principle:
    • Is it just corner cutting? If a book is important to us, should we not read all of it? It feels simplistic, materialistic and not authentic
    • You’re relying on the 80/20 of today, to guide your decisions. How sustainable is that? What works today might not work tomorrow?
    • The balance concern. Do you need the unhappy moments to have the happy moments. Do you need the unproductive moments to have the productive ones?
  • The two ways to apply the principles:
    • Going short on what doesn’t matter → The efficiency dimension, the means to an end approach. Get there the fastest possible way, with the least effort. You should only cut corners on things you want to do more efficiently
    • Going long on what matters → Do more of the things that enhance you life. Find more room for those.
  • Take responsibility for progress → Put away your pessimism → Take a longterm view
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Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

Messy Unstructured Notes

  • The 80/20 rule in a nutshell:
    • 20% of the effort, leads to 80% results
    • 20% of the inputs, lead to 80% outputs
    • 20% of the causes, lead to 80% of the consequences
  • Chaos theory: within apparent randomness of chaotic complex systems, there are underlying patterns, interconnection, constant feedback loops, repetition, self-similarity, fractals, and organisation
    • ‘Cause and effect’ linear thinking is an oversimplification of reality
    • In fact there is predictable non-linearity in the world. A systematic and predictable lack of balance.
    • The principle of imbalance → we’re in a non-linear world, cause and effect rarely link in a linear equal way
  • Therefore we should shift resources and effort from low to high output
  • The 80/20 concept is based on non-linearity. There are many reasons why non-linearity exists, there are few reasons for linearity to exist in the real world.
    • Feedback loops contribute → rich get richer
    • Small advantages and winner takes all → if you’re slightly better at a job interview you get the whole job
    • The tipping point → latest craze, struggles until it gets to a certain size then it explodes ... Comes from the epidemic theory, stable phenomenon turns into a global heath pandemic.
    • First Come, Best Served → what happens first can have a disproportionate effect
    • A 10% difference can lead to 100% dominance, especially in an early market
    • Equality ends in dominance
      • Movies - Box office giants are born through viral effects: the first set of movie goers initial reviews and word of mouth determines the size of the second wave and so on.
      • 80 to 1 → 80 percent of revenue is made by 1 % of films
  • 80/20 is a frequently occurring pattern
  • God plays dice, but they’re loaded dice, and we can use them for our own ends
  • How the author used the 80/20 rule
    • Exams - 20% subject matter 80% questions
    • Books - 80% value, 20% pages
    • Jobs, 80% wages, 20% jobs
      • Who you work for is more important than your job - 80% of rapid promotions happen in the growing companies
    • Clients - 80% revenues come from big clients, less price sensitive, longer assignments staffed more profitably
  • Better to be in the right place than to be smart and work hard in the wrong place.
  • Be cunning and results focused
  • Acting on a few key insights worked, being intelligent and hard working did not - guilt and conformity stopped the author from acting on the principles sooner.
  • 80% of profits went to the founder of his firm - so he set up his own
  • Wealth from investment can dwarf that of working - pick a few great companies
  • 80/20 Analysis - Precise, quantitative, investigation, facts, highly valuable
  • 80/20 Thinking - Fuzzy, qualitative, thought, insight, highly valuable
  • Mistakes
    • Applying in linear way. Book stores should cut range? If customers go to a book store they want a reasonable range of books. Core inventory that sells every year is the 80...
    • be wary of using the wrong moment in time, as it’s a freeze frame
  • Constantly ask, what is the 20% leading to the 80%

80/20 Explained further

  • Celebrate productivity don’t raise average effort
  • Look for the short cut not the full course
  • Exercise control over our lives with the least possible effort
  • Be selective, not exhaustive
  • Strive for excellence in a few things, rather than good performance in many
  • Delegate and outsource as much as possible
  • Choose careers and employers with care
  • Employ others vs being employed
  • Only do the thing we enjoy and are best at
  • Calm down, work less, target a limited number of goals
  • Make the most of lucky streaks in life

80/20 in Business

  • The quality revolution: a small percentage of quality characteristics account for a high percentage of loss. 20% defects lead to 80% of quality issues. Known as the ‘vital few’.
  • Perfect competition doesn’t exist, some suppliers are better than others
    • Get into a market with high return on capital and a relatively good margin
    • Increase surpluses - have fewer employees doing fewer things to serve only the most profitable customers or segments
    • Give the power to the parts of the firm than generate the surplus
  • We are trained in cause and effect, regular relationships, average returns, perfect competition and predictable outcomes. None of this is reality!
  • In the real world, cause and effect is blurred, feedback loops distort things, equilibrium is fleeting and illusionary

80/20 for you....

  • Joy over guilt
  • Intelligence over genetics
  • Choice over pedestrianism
  • Life over death
  • Not selfish, requirement helping others
  • Concentrate on what’s important
  • Plan and execute
  • Cause and effect is attractive - because linear thinking is simple
    • Nothing flows from a single cause, nothing is inevitable, nothing is ever in equilibrium or unchangeable
  • Causes may be influential without being noticeable, only a few decisions really matter, those that do matter a great deal, choice can always be exercised
  • Imagine and create circumstances which make you happy and productive

80/20 Insights

  • 80% of achievement comes in 20% of the time
  • Don’t let inertia make decisions for you
  • Find where your more productive than others, then double down
  • Choose the right competition, team and methods so you can win. Be selective about the races to enter
  • Don’t put average effort into many things, out a lot of effort into selecting the right things
  • We spend most of our time of things in low value
  • Choose allies, especially life partner, inner circle of friends, nurture life partner properly,
  • Multiply money, use it to increase happiness and lifestyle

80/20 Time Revolution:

  • Most of our achievements come from a small amount of time
  • Same with happiness
  • Most of what we do is low value
  • Some small fragments of time are more
  • Valuable than the rest
  • Do something radical
  • There is no shortage of time if we make use of such a small portion of it

80/20 Time principle asserts following:

  • Your current use of time is likely not rational
  • No point seeing marginal improvement
  • There is no shortage of time
  • Don’t worry about time lost, there’s a continuous flow of time
  • Our use of time
  • Double productivity by halving the time
  • Time is the link between past, present and future
  • Try not to think about speeding up
  • Time keeps coming round, opportunities to learn, deepen relationships, better products, add more value to life
  • Future is a dimension of the present and the past
  • Tactics & Mindset - Time & 80/20
    • Dissociating effort from reward - hard work can lead to low returns.
    • Hard work for somebody else often leads to low returns for you
    • Insights into what we want leads to higher returns
    • Buffet - fewer decisions, held longer
      • Think of a hero who doesn’t do much (buffet, trump)
    • Give up guilt
    • Focus on the things you enjoy - make them your job
    • Most people know their desired level of work vs play
    • Quality is more important that quantity
    • Think of yourself as a business - work for yourself or behave us if you do
    • Hard to make good use of your time if you don’t control it
  • What are the unconventional ways you spend your time? Can you use that? 
    • How far from the norm can you deviate without being thrown out of your world?
    • Be unconventional and eccentric with how you spend your time
    • Achievement or Happiness - what’s the 20% that gives you 80%
    • Identify your happiness islands - small amounts of time that have contributed a lot to your happiness - try to deduce what’s common
      • Do the same for unhappiness islands
    • Achievement islands - deduce what’s common
      • Do the sane for achievement deserts

Try doubling your 20%s which should increase your outputs hugely

Aim is to get to 100% but that will lead to career change etc

  • Eliminate some of the 80% - don’t underestimate how possible this is!
  • Try to eliminate your involvement
  • Work out what needs to be done, who should do it
  • 10 wastes of time
    • Other people’s priorities
    • Always been done this way
    • Things you’re not good at
    • Things you don’t enjoy
    • Things that are always interrupted
    • Things few others are interested in
    • Things that have already taken twice as long as you intended
    • Collaborators that are low quality or unreliable
    • Things that have predictable cycles
    • Answering email
  • 10 High value uses of time :
    • Advance your overall purpose
    • Always wanted to do
    • Things already in 20/80 time to results
    • Innovative ways of doing things that slash time required or multiply quality of results
    • Things people tell you can’t be done
    • Things people have done successfully in a different area
    • Thing that use your own creativity
    • Things you can outsource
    • High quality collaborators, who use their time effectively
    • Now or never things
  • When using time, ask.. Is it unconventional? Does it promise to multiply effectiveness?
  • You can always get what you want -
    • Work out what you want - job, relationships, social, mental & aesthetic stimulation, money
    • If you don’t aim for it all, you won’t get it
  • Lifestyle 80/20
    • Am I living with the right person or people?
    • Am I living in the right place?
    • Working the right hours? Work/play rhythm
    • Do I feel in control?
    • Can I exercise or meditate when I want?
    • Relaxed and comfortable in surroundings?
    • Creative and fulfil potential?
    • Do I see my close friends enough?
    • Travel too much or too little?
    • Partner and family have the lifestyle they want?
    • Do I have everything I need right here?
  • If you’re happier outside of work, spend more time outside- if your happier in work, spend more time in work. Take a total lifestyle approach
  • On pay of workers: Above average workers get paid more than below average workers - but nowhere near enough to reflect the differential.
    • The best are underpaid + the worst are overpaid
    • Therefore, consider working for yourself if you’re underpaid.
  • The marginal utility of money declines sharply
  • Select the best alliances and relationships for your purpose
    • Key collaborators- list of allies - where does the value come from?
    • Rank based on potential future value
  • People help you if you have a strong relationship, you have a strong relationship if....
    • Mutual enjoyment (company)
    • Respect
    • Shared experience
    • Reciprocity
    • Trust
  • Get 1 or 2 mentors
    • Make sure they’re extremely good at what they do
    • In return you must provide - ideas, stimulation, enthusiasm, hard work, knowledge of new technology
  • 2-3 peer relationships
  • 1-2 Mentees
  • When hiring or running a team, you’re looking for hard working people that intelligently work on the right things
  • Career success - Get very good at what you do, very few ‘names’ in each field. Those well known take almost all the spoils
    • Superstars have access to many people and the additional cost of reaching one more person is small
  • Winner takes all - there’s an imbalance of financial reward for talent
10 rules for success
  • Specialise in a niche skill
  • Become a leader in your skill
  • Knowledge is power
  • Identify your market and serve them best
  • Find your 20-80 effort to return
  • Learn from best
  • Self employed
  • Employ net value creators
  • Outsource
  • Exploit capital leverage
Happiness Habits
  • Exercise
  • Mental stimulation
  • Meditation / artistic stimulation
  • Doing a good turn
  • Taking a pleasure break with a friend
  • Giving yourself a treat
  • Congratulating yourself
Happiness Hacks
  • Maximise control (but be stoic about what you can’t)
  • Set attainable goals
  • Be flexible - when chance events
  • Close relationship with partner
  • Few happy friends
  • Close professional alliances
  • Evolve your ideal lifestyle
  • Intensity, recency and frequency over influence the subconscious
  • Two paths to happiness. Knowing what you want, and getting there AND enjoying what you have, and being grateful for it.
    • List things that make you grateful, creative, connect you with your work, things you’re lucky to have or things that you’re enthusiastic about
  • On goal setting:
    • Be precise and specific
    • Be emotionally committed to the goal
    • Visualise attaining the goal
    • Make sure the goal is your goal, not somebody else’s
    • Imagine having attained the goal now
  • Networks
    • The power law of the internet dictates that all of the revenue is in the head - more power for fewer brands and fewer people
  • Use the 80/20 rule to delegate
    • Keep your best 20, delegate your 80.
    • Your 20 is where you generate the most value, operate comfortably and are uniquely good at
    • You will become reliant on others to do your 80, that’s a great place to be. Encourage them, they’ll value you - this is a great cycle

Three concerns with the principle:

  • If a book is important to us, should we not read all of it? 80/20 feels like corner cutting - a simplistic, materialistic and not authentic
  • You’re relying on the 80/20 of today, to guide your decisions. How sustainable is that? What works today might not work tomorrow?
  • The balance concern. Do you need the unhappy moments to have the happy moments. Do you need the unproductive moments to have the productive ones?

2 dimensions of the principle

  • Efficiency dimension → the fastest possible way, the least effort. The means to an end approach. You should only cut corners on things you want to do more efficiently
  • Sustainability - take a long term view.
  • Go long on things that enhance you life. Find more room for those. Go short on the stuff that doesn’t add any value.
  • Take responsibility for progress → Put away your pessimism