![]() Thus a bigger company and a broader range of products should result in more profits. Most people think that more always generates more. ![]() By selling a narrower range of products and having fewer suppliers, they could focus more efficiently and make higher profits. Reduce complexity by focusing on the essential and economics of scaleĪ study of 39 medium-sized companies found that the least complex ones were the most successful. The author told the management of an electronics company that their only goal should be to double the sales of their best three products, ignoring everything else. That could mean doubling the production until the profit ratio drops to normal. The second step is to focus on those products and exhaust their potential. If you want to optimize your business with the Pareto principle, the first thing to do is identifying the products which bring you the biggest reward (the 20%). Making sure to rearrange your process to avoid those mistakes will considerably increase your productivity. You could identify what makes the first phases of your project less productive, for example, over-thinking and procrastination. If 20% results in 80%, that’s a ratio of 4, which means extending that 20% to 100% would give you 400% of your current results or potentially much more since there could be other external feedback loops.Ī typical example where the rule could be applied is in the productivity spike which tends to occur once people approach the deadline for a project. You should analyze what you do differently during that efficient 20% of your time and apply it regularly. Think about it, if 20% of your work accounts for 80% of your results, that means that the 80% of your work is egregiously inefficient. How to apply the 80/20 rule to get better results But the laws of nature seem not to work like that. People assume that work and reward should have a fair 1:1 ratio. When 1% of the world’s population own more than the 99% combined, we call it unfair. A famous example is the wealth distribution. Many people consider such imbalances unfair. With each loop, the difference in size and the speed of growth gets bigger, ending in a substantial difference in size between the fish. Why is that? Some of the fish started out slightly larger than others which gave them a small advantage, which in turn, allowed them to catch more food and so they grew faster than the smaller fish. ![]() Multiple goldfish for instance, despite living in the same pond, still grow into very different sized fish. Sir Isaac Pitman discovered that about less than 1% of the words in the English language make up over 80% of what we say.īut why does this non-balanced relationship happen? It turns out that feedback loops generate those types of disproportion. The ratio could be more dramatically like 99.9/0.01 or less drastic 60/40, but the point is that, in most cases, there is a non-linear relationship between input and output, effort, and results. Aka the Pareto principle, the law of the vital few, or the principle of factor sparsity. That’s why it’s called the 80/20 rule or principle. Often this ratio is around, but not limited to 20% and 80%. It could happen in your business when the majority of sales come from a little subset of your products. You have probably observed that often the majority of output stem from the minority of input. Explore this principle of nature to improve your life
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