Leveraging the 80/20 rule; the power of focus

We all know about the “80/20” rule. This rule – also known as the “Pareto Principle” (named after the Italian economist Vilfredo Pareto), and the “Law of the Vital Few” says that, for many life situations, 80% of the value is generated from 20% of the effort.

In organization after organization, I’ve witnessed this easily measurable phenomenon, even in well-managed places … i.e., where 80% (or more) of the profits (or sales, or whatever) was generated by: 20% of the customers; or 20% of the employees; or 20% of the operating divisions; or 20% of the products; or 20% of the effort; or whatever.

Similarly I’ve seen this math apply (vividly and equally strongly) in my own life and that of a number of my friends and colleagues – where 80% or more of the “good stuff” in our lives (whether measured in dollars, or pleasure, or relationships) is a product of no more than 20% of our productive efforts.

Think about this rule for a second. It offers a huge clue about how to become happy and productive. Here’s a mathematical corollary to the Pareto Principle:

If you and I were to double our focus on the 20% of activities that generate value in our lives … and substantially reduce our focus on the other 80%, we’d work a lot less, and generate a lot more value in our lives.

I have dozens stories to share about mind-blowing business and life situations I’ve witnessed where the obvious “answer” to a business or personal struggle was simply that the person (or organization) had to re-focus their efforts on the vital 20%. My guess is that you have as well.

The amazing thing here is that, when presented with tangible evidence of the Pareto Principle at work, it’s somehow nearly impossible for most of us to internalize the obvious implications of what we’re seeing and focus our attention on the vital few. Rather, we all seem to gravitate toward focusing our efforts on problem areas that are time-consuming and useless. And for the several people I know who live their lives feeling overwhelmed, this situation seems to compound itself, amplifying their sense of being overwhelmed.

I’ll share several life examples with you:

• A venture capitalist, who has a portfolio of 10 companies where two of the companies are clear winners and two have serious problems is devoting most of his time to putting out fires for the two loser companies. He “doesn’t have time” to focus on the winners right now, but if he “weren’t so busy,” there would be several things he could do to fuel the growth of the winner companies.
• A non-profit organization which is having fundraising challenges in today’s economy, has a list of 50 activities they are theoretically pursuing to raise money, but 3/4ths of their efforts are being directed toward three financially useless activities (e.g., an auction that has never generated meaningful dollars), and meanwhile, the two things they should clearly be working on (including Board development) are getting no attention right now because their staff is “too busy.”
• Hospitals (which are having financial difficulties right now) have been laying off collection agents in their finance departments lately due to budget constraints despite the fact that the average collection agent collects 5x their salary in incremental revenues for the hospitals per year.
• For the past six months, I’ve had it on my “to do” list that I should get Google Voice to transcribe my voicemails. I haven’t gotten around to this 5 minute task (so I can read my voicemails on my blackberry), and meanwhile, I bet I’ve lost 20 hours going through the painful and unnecessary voicemail-checking process that my phone requires.
• My son devotes 3 times as much of his time to resisting homework as he does to doing the homework.
• An ASP I know provider generates $5 in sales for every dollar they spend on telemarketing, but they don’t have the budget to increase the size of their telemarketing efforts.
• And I have so many more examples…

When training as a doctor in emergency rooms, one of the mantras they taught us was: “when 6 people in life-threatening situations arrive all at once, the first thing to do is to take your pulse.” Basically the message here was that, when you feel overwhelmed and panicked, take a breath, think through the 80/20 rule, and then focus on the vital 20%. When I’ve been able to remember this lesson, it has served me quite well.

So … here are my words of wisdom for the day – directed (as usual) to me as well as you.

David’s words of wisdom for the day:

Please respond intelligently to the Pareto principle’s impact on your life.

To be specific, let's all take 5 minutes to ask ourselves:

• What are the “vital few” activities I’m doing in my life right now that generate most of the value even though they don’t take much time?
• And what are the few time sink activities I’m pursuing right now that generate no value for me, but take a lot of effort?

Then, let's all try to avoid our normal human impulse to focus on the fires in our lives, and see if, instead, we might be able to double our time or effort devoted to the vital few and halve our time on the useless many. This little change will make a huge impact; I promise.