In 1896, Vilfredo Pareto published a paper titled “Cours d’économie politique.”
The paper shared Pareto’s research on Italian land ownership, which showed that 80% of the land was owned by 20% of the people.
Expanding on his original research, Pareto discovered that this distribution, what has become known as the Pareto Principle (further popularized by Richard Koch in “The 80/20 Rule”), affects everything in life.
From wealth and land, to cities (20% of cities are home to 80% of the population), to vegetation (a small portion of peapods are responsible for the majority of peas), this seemingly innocuous discovery has completely changed how we understand the world.
Why is this discovery so profound?
Because it’s counterintuitive to the way most (80% perhaps?) of us act in the world.
A great example:
Think of how most economies are structured.
The vast majority of individuals earn a wage based on the value of an hour of their time (salaries are the same, because they estimate hourly rates).
Think about it:
When you go to work for 8 hours today, you expect to be paid for 8 hours of your time.
You don’t expect to be paid for two hours, nor 30.
But in the real world, that’s exactly how things distribute naturally.
Entrepreneurs understand this.
You and I know that we could put in a year of work, and make barely enough money to survive…
But that, conversely, with one big sale, one closed client, or one viral piece of content, we could make a years worth of profit in a day.
Not only is it possible, it’s natural. It’s precisely the way things work.
(which has nothing to do with how we think they ought to work)
Perhaps more interesting is that the Pareto Principle was actually discovered thousands of years ago and established in one of the most popular books of all time:
“To anyone who has, more will be given and he will grow rich; from anyone who has not, even what he has will be taken away.” Matthew [12:13]
“But Tom, that’s not fair!”
Perhaps gravity is not fair. But we deal with it, right?
So the question isn’t how do we make gravity more equitable. It’s how do we use it to our advantage, in a way that’s helpful to you, your family, and community, now and in the future.
And I truly believe this is a moral imperative.
Because you can fight gravity all you want by jumping off buildings; and you could even recruit your family, friends, and neighbors to jump with you; and teach your children to do the same…
…or you can build a plane (or a Falcon Heavy), and transform and improve the lives of everyone, across the globe (or universe).
Which brings me to this proposition:
The moral imperative, for you and I, is to discover which 20% of our actions will produce 80% of our results.
Below are some ideas I’ve developed to help you get started.
How to Determine the 20% of Your Actions That Will Drive 80% of Your Results
My experience in the military, and as an author, publisher, and entrepreneur, has given me a particular perspective on the 80/20 Principle, and specifically how to take advantage of the 20% of things that will drive the most growth (personally, professionally, or otherwise). So if you see ways we can improve it, share in the comments below.
Here’s how you can improve your results using the 80/20 principle:
Step #1. Start with your best guess
Very scientific, right?
Well, actually, it is.
When presented with a problem – or perhaps seeking a problem to solve – scientists, engineers, and mathematicians always begin with a best-guess solution.
They evaluate the problem and decide which potential course of action is the appropriate one to pursue – at first.
Then they get after it.
For those with experience, that “best guess” is built on decades of experience. So their best guess is more likely to be right than, say, your or my best guess about the quantum mechanics of dark matter.
The bad news is:
If you’re starting from scratch, you’re at an extreme disadvantage compared to those with experience. You simply don’t have the foundation to know whether a given idea will solve the problem…
The good news is:
In business and marketing, the landscape is developed and accessible enough so anyone, regardless of degree, can carve out a meaningful and profitable living.
So where do you get started if you’re a “newbie”?
Option #1. Start anywhere, as best you can.
Take the metaphorical punches as you go. Educated yourself, and learn perseverance and patience in the process.
If you’re a fast learner, this learning curve may be steep, but achievable. If you’re a slow learner, this path could be your Mount Everest, and you don’t want to wind up dead because you tried to go it alone.
Which leads me to…
Option #2. Take the advice of the best in the world at the thing you want to do, and follow their advice with precision.
If you’re climbing Mount Everest for the first time, you’re going to hire a Sherpa. To find that Sherpa, you’re best bet is to ask people you trust who have used said Sherpa to summit the mountain themselves.
In business and marketing, it’s the same – but even if you don’t know someone personally who has reached the summit, you can do your due diligence by reading what’s out there, looking at reviews and what people are saying, and using your best judgement to decide: does this person have integrity?
So should you go with option 1 or option 2?
Well, would you rather invest your time or your money to get the result you want?
If you don’t have money, then you know the answer.
But if you have the money, you could reduce months or years of pain, and possible financial downside, by hiring the right coach, consultant, or team.
Somewhere in between? Consider investing in books, courses, and programs to get started – but only premium resources (those you have to pay for). There’s nothing free in this world, and a price tag of $0 means you pay in some other way. Tread carefully.
#2. Pay attention to your results
Okay, so you’ve hired someone (or hired a course or program) to help you get started.
The next step?
Pay attention to your results.
This means you need a way to track and measure your result.
A lot of people overcomplicate this.
I think a lot of this is the negative consequence of marketing and marketers. While many have good intentions, a few (20%?) purposefully convolute simple things to capitalize on ignorance.
This becomes exacerbated when these individuals become popular, and their slang becomes lexicon, and we are seemingly forced to use their terms (I’ve been pulled into this trap, so I’m speaking from experience).
For instance: “monetization.”
What a confusing word.
What does it even mean?
In business, you sell things. When you sell things for a price that is greater than the cost (what you spent to create, market, and distribute), you make a profit.
So when someone talks about monetizing something, you’re best bet is to pause, think about it, and ask yourself (or better yet, ask them): what do you mean?
For example, I often hear people talk about building an email list, and then monetizing an email list.
The only thing this could possibly mean is they want to turn visitors into prospects (individuals who could be buyers), prospects into leads (people ready to buy), and leads into customers (people who complete a purchase).
Okay, so let’s not overcomplicate this.
How do you make a profit?
That’s a good question to start with.
Now ask yourself: what are you producing and selling, and for whom?
From there, determine how you get those people to notice what you’re doing, and how you ensure the right people have an opportunity to buy.
Next, decide how you will measure success or failure, and put a number to it.
Now track this as you experiment selling your product or service.
What you might discover is that something like getting a sale requires getting on a phone call. From there, you may discover that 1 out of 3 phone calls, on average, end in a sale.
So the more phone calls you get on, the more sales, and therefore profit.
That means scheduling phone calls would form the basis for your KPI (key performance indicator).
This KPI is the thing you measure.
You’re still paying attention to, and tracking, everything you’re doing as best as possible, but the thing you really want to see are scheduled phone calls.
From there, you can optimize each part of the “funnel” (another somewhat confusing term: just means the steps you have to take in a sequential order to make a profit) to improve your results (grow profit).
Simple, but it takes work.
(all of this takes work – if you’re not up for it, quit while you’re ahead)
#3. Double down where you see results
At this point, you are doing things that help you make sales, which is making you a profit (the purpose of all this).
You’re also tracking the actions you’re taking, and paying attention to KPI’s.
Do this for a period of time (could be a few weeks, could be a few months), and then analyze and evaluate the work you’re doing.
When you do something (activity or actions) that help you achieve your KPI’s, we call that traction.
So now the question is:
What are the activities that are helping you hit your KPI goals?
Let’s stick with our example from before:
What is getting you the most scheduled phone calls?
Is it cold email? Is it your YouTube channel? Is it being featured on podcasts? Is it collaborating with influencers?
Whatever it is, double down on that. As in, do more of it. Do it better and faster.
At the same time, reduce or eliminate the other things that were taking up your time, money, or energy.
So you can do more of the thing that’s working.
(or, if it’s working really, really well, and your goal now is lifestyle design and work life balance, perhaps this means taking more time off to enjoy with your family…I just wouldn’t rush to this if you’re still building your foundation)
#4. Continue to experiment with the other 80% of your time
By this point, you will see more sales and more profit, because you’re focusing on the 20% of things that are working…
…however, there may come a time where you “max out” on the returns of this particular strategy (the “strategy” I’m referring to is the thing you’re doubling down on that’s getting you traction).
That’s when you should begin to experiment with at least 20% of your time on things that might improve your process, or create a new avenue of profit.
This is experimental again, and starts at Step 1 above.
Wash, rinse, repeat.
The 80/20 Principle and Diminishing Returns
It seems to me there’s a misunderstanding about the 80/20 Principle.
When people hear it for the first time, they think: I need to figure out the 20% of things I need to do, so I can stop wasting time…
But that’s not how it works, precisely speaking.
You see, if you strip away the 80% of activities that are driving 20% of your results…
That new 20% will naturally distribute into a Pareto Distribution.
20% of THAT 20% will produce the majority of your results. And so on and so forth.
You see this in massive corporations. According to Price’s Law (a riff on Pareto’s work), 50% of all work is done by the square root of the number of employees.
So fire everyone else, right?
Well, of course not.
The organization couldn’t function if you removed everyone but the top producers.
So there’s something about the diminishing returns of the Pareto Principle that I think can get lost on entrepreneurs.
The goal isn’t to get rid of waste by getting rid of the 80%; it’s to magnify, multiply, and compound your results by doing more of the 20%, which is fundamentally about increasing your Return On Investment (ROI) on any given activity.
But there’s no way to truly eliminate the 80% of activities that produce the least amount of results…
…This means, no matter how much you optimize, you will always do things that are seemingly wasteful.
The Pareto Principle: Moving Beyond Return On Investment
Sometimes, the 80% of things you do that only get you 20% of your results are important, regardless of their ROI.
What is the ROI of live chat support for your SaaS customers?
The user could just find the answers inside the FAQ or documentation or forum. So cut out the time and resource intensive live chat, and boom: ROI, right?
But that user is human, and so they’re busy, and sometimes lazy, and sometimes just don’t want to be bothered; they just want a clear, simple answer, right now, from a human.
Even the best survey software probably won’t capture the true impact of something like this, so how do you decide whether it’s the optimal choice? Maybe it is regardless if you can measure it…
What is the ROI of replying to emails directly?
It would be a lot easier to outsource that. Put a $5 per hour worker on it to give you more time to do whatever it is you like to do. But sometimes the human being, whether customer or not, would just love to hear from YOU, directly, to know you’re real and that you care.
Is it sensible to reply to every email personally? I don’t know; perhaps that’s a good question to ask Seth Godin, who somehow manages to reply to emails from subscribers.
I could share more examples, but you get the point.
It’s Time To Apply the Pareto Principle to Your Work or life
So where do you go from here?
Try it out.
Commit to testing out the 80/20 rule in your work or life. Go through this process for 3 weeks. See what happens.
Best case, you’ve multiplied your results, and your life will never be the same.
Worst case, you’ve learned some things about you, or your work, and you have more information to make better guesses in the future…
…which means you have a higher chance of success moving forward.
In either case, it’s win-win.
So start today.
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