The 80/20 Principle: How to identify the clutter in your life and business
After hearing frequent references to the book “The 4-Hour Workweek,” I finally decided to put my assumptions aside and pick up a copy. To say I was skeptical is an understatement. The title of the book sounded just as cheesy and unstable as a pyramid scheme and I feared for what our “get rich quick” culture was buying into now. I wanted to be wrong about the book – and so far I can say that I was. While my reading has only progressed to page 139, I have already stumbled upon a few intriguing thoughts of author Timothy Ferriss. The most shocking realization is that he and I share a similar personality type and view on effectiveness in both work and play. I could spend weeks’ worth of blog posts regurgitating what I’ve read so far because it’s what I would tell (and have told) those who contact me for entrepreneurial advice. But instead, I want to share just one principle from the book which I’ve found to be the most thought provoking for my own business and life – The 80/20 Principle.
The 80/20 Principle or The Pareto Principle is by no means new. In fact, it was concocted by Vilfredo Pareto, an Italian economist who lived from 1848 to 1923. The boiled down back story is that through mathematical formula Pareto discovered that 80% of the wealth and income was produced and possessed by 20% of the population. And this application goes far beyond economics or distribution of wealth. Supposedly 80% of Pareto’s garden peas were produced by 20% of the pea pods he had planted. Since we don’t all grow peas, here are a few more relatable examples from the book:
- 80% of the consequences flow from 20% of the causes.
- 80% of the results come from 20% of the effort and time.
- 80% of company profits come from 20% of the products and customers.
- 80% of all stock market gains are realized by 20% of the investors and 20% of an individual portfolio.
At first glance I found this theory to be merely intriguing, but at further thought I realized it to be scarily accurate about my own life. The numbers 80 and 20 are the minimum ratio, but you too might find that some aspects of your life are more like 90/10, 95/5 or even 99/1. This concept made me take a critical look at my business and personal life. As I applied Pareto’s Principle, I had to answer some tough questions about clutter, time wasters and frustrations that were holding me back.
Applying 80/20 to Work – Nearly all businesses have more than one revenue stream. This could be a collection of different clients, projects, services and products. As a nurturing business owner, we naturally want to see all of these streams grow with equal strength. The tough realization is that this just isn’t always possible. So I had to ask myself, “Which 20% of my work and clients are resulting in 80% of my profits?” After crunching the numbers, I found that my ratio was even more skewed than 80/20. I don’t think this is necessarily good or bad, it’s just a realization of which you must be aware. Identifying the clients that account for the majority of my income helped me to also identify the qualities they have in common. I now have a clear understanding of my “ideal” client that I can market my services toward most heavily in the future. These are the ones I’m best suited to serve and the ones that will contribute most significantly to my bottom line. So long as my bandwidth allows, I will still continue to work with all clients (regardless of whether they fall into the “ideal” category or not); however, it’s infinitely helpful to know who I should be actively seeking when I’m in a cycle of business growth.
Applying 80/20 to Life – The Pareto Principle easily lends itself for application to economics or business, but what about personal life? To do this, I had to change the question I was asking myself. Instead of using money or clients as the measurements, I used happiness and stress. Which 20% of sources are causing 80% of my stress? And which 20% of sources are resulting in 80% of my happiness? I examined all the ways in which I use my free time. This includes hobbies, friendships, exercise/health, relaxation, etc. This principle helped me to personally identify the things that give me the most joy and the things that I could stand to eliminate. In doing so, I immediately reduced some of the stressors and time wasters in my every day. I even found areas within my budget where I could save money as the result of these eliminations.
We have just enough time each day to get done everything we need and want to do. We just have to learn how to identify which few inputs produce the greatest results for our time and energy. The 80/20 Principle doesn’t deter me from adding new things to my life, but it does make me regularly evaluate everything I have going on, prioritize the things that bring me happiness or fulfillment and eliminate the rest. Evaluate, prioritize and eliminate – this is the cycle that will help me to work smarter, not harder and to keep all aspects of my life uncluttered.
I look forward to continuing “The 4-Hour Workweek” with less skepticism than when I started. Even if my end goal isn’t working just four hours (and I’m not sure it is), I’m energized to read the ramblings of someone with whom I can relate. It’s encouraging to know there’s someone else out there who has ventured down a similar road and has lived to write intelligently about it…