In all aspects of life, 80% of outputs, results and consequences come from 20% of inputs, efforts and causes. Richard Koch was the first to write a book to present how individuals and groups can apply the 80/20 Principle to achieve much more results with much less effort. In this summary of the 80/20 Principle, we’ll give a synopsis of how the principle works and how you can apply it to multiply your productivity and happiness.
What’s the 80/20 Principle?
The 80/20 Principle says that the majority of your results or outputs will come from a minority of causes or inputs. The principle was discovered in 1897 by economist Vilfredo Pareto and became popular after WWII. Today, it’s also known as the Pareto Principle, the 80:20 Rule, the Principle of Least Effort, the Principle of Imbalance, the Pareto Law, the Law of the Vital Few, and the Principle of Factor Sparsity.
The ratio may not always be exactly 80:20, i.e. it could be more imbalanced at 90:10 or less imbalanced at 60:40. The key idea is—there’s typically a non-linear relationship between input and output, between effort and results, and between causes and consequences. In business, 20% of our products/customers tend to contribute to 80% of our revenues/profits. In society, 20% of people own 80% of the wealth. At home, we’ll wear 20% of our clothes 80% of the time.
In the book, Koch elaborates on why small inputs can create disproportionate results. [You can also get an overview from our full book summary]. By understanding and applying the principle, you can become a lot happier and more effective.
Applying the 80/20 Principle
The 80/20 Rule means that there’s great inefficiency all around us, but there’s also a huge potential to improve our current results. Here are some general tips on how to use the 80/20 Principle:
Identify your top 20% vs bottom 80%
You can do so using a more analytical approach or a more intuitive approach:
• 80/20 Analysis: Develop a hypothesis about an 80-20 relationship and test it by collecting and comparing 2 sets of data. For example, ask 100 friends how much beer they drank the previous week, then rank the data in decreasing order to find out what percentage of your friends consume the majority of the beer. You may find that 15% of your friends drank 90% of the beer.
• 80/20 Thinking: Think deeply about an important question, form your 80-20 hypothesis intuitively, then take action to apply it.
Reallocate your time/resources in 2 ways
• Allocate more resources to the top 20% by moving time/resources away from the unproductive 80%. Do more of what’s working well.
• Address the under-performing 80%: Find ways to make the unproductive activities more productive or effective.
Remember these points when applying the 80/20 Principle
• Be selective. Working harder in every area won’t bring results. Seek to excel in the few things that matter the most. Remove or outsource the rest.
• Keep moving your resources from low-value to high-value uses.
• Don’t make simple/linear conclusions or jump into action. Think deeply to look for non-linear relationships that can bring you exponential results. Dig deep to understand why you’re getting surprisingly good or bad results in certain areas.
• There’s no such thing as luck in success. When things go unexpectedly well or badly, look for the hidden causes at work.
The 80/20 Principle in Business and in Life
In any business, 20% of the market players will make 80% of the surpluses or profits. 80% of these surpluses will be generated by 20% of market segments, 20% of customers, 20% of products and 20% of employees. 80% of the value from the employees will also come from 20% of their activities. In our personal lives, 80% of our achievement comes from 20% of our efforts, 80% of our happiness comes from 20% of our life experiences, and so on.
In our complete 12-page summary, we’ve distilled how businesses can apply the Pareto Principle to generate the most money with the least effort and resources (including applications in strategy, cost reduction, sales and marketing, decision-making, negotiation, inventory and project management). We also elaborate on how you can apply the 80/20 Principle to your personal life (including how to change the way you see and use time, and multiply your achievements, wealth, relationships and happiness).
Other Details in “The 80/20 Principle”
Besides the key ideas outlined in our summary, the book also includes details of how the 80/20 Principle has been conceptualized and applied over the decades. Koch provides examples of how various companies have used the principle, with additional insights and contributions from readers who have applied the principle.
Check out The One Thing summary to find out how to apply the Extreme Pareto Principle to focus on just 1 most important thing!
Achieve more with less effort using the 80-20 Principle!