8.2K views The "Vital Few Law" , "Pareto Principle", or "20/80 rule" are synonyms of the same concept. This principle states that 20% of the work done by anyone results in 80% of the results he/she achieves 1.
The concept is a call to take action on the most important tasks that result in achieving most of the success one can gain. In retrospect, it also means that 80% of the work done results in only 20% of the results.
Part A of Pareto Principle: Focus on Utilizing the 20%
Looking to this principle from a business perspective it could mean a number of things:
- 20% of customers provide the business with 80% of the revenue.
- 20% of the staff and workers produce 80% of the result.
- 20% of product lines offer 80% of the value for the business.
- And so on.
Thus, the Pareto Principle guides us to tackle the 20% first, which becomes something like this:
- 20% of customers provide 80% of the revenue: Since customers don't provide equal value to the business, they should not be all treated the same. Identify, attract, and nurture those 20% key customers well before focusing on other clients.
- 20% of the staff produce 80% of the result: Focus on getting the best talent possible without extending the team too much. It is okay to start with a handful of such 20% employees.
- 20% of products offer 80% of the value: Focus on collecting customer feedback to identify top products creating most value, and then improve their features, channels to market, distribution, and price to appeal to as many as possible.
Take this as a good example on applying this principle at work: A business decides it needs to improve its profits and does analysis on its current offerings. It discovers that 2 out of its 10 products are creating the vast majority of revenue, so it decides to increase production on those products and reduce production on others.
Part B of Pareto Principle: Focus on Limiting the 80%
Having stated the apparent side of the Pareto Principle- utilizing 20% of important tasks- now we turn to the other 80%. It should be understood that in order for a business to run and for operations to be smooth, it still needs to do boring stuff to keep its processes intact, including activities and product lines falling into the 80% gap. The trick here becomes to shorten the time and limit the resources spent on these 80% activities as much as possible so that they are implemented just right. No need to excel at them.
This is the main reason behind devising the Minimum Viable Product (MVP) including wireframes and blueprints to showcase a new product or service, since this particular MVP falls into the 80% area, so it makes sense to keep it as simple as possible, and save resources for the real product or service. A Prototype and Proof of Concept follow the same logic.
So let's use the Pareto Principle again to tackle the 80% of the sample list we have mentioned before like this:
- 20% of customers provide 80% of the revenue: The 80% remaining customers (not creating as much value) should not be totally ignored. Here, the business should assign resources just enough to keep these 80% customers around and try to push them into the 20% stack.
- 20% of the staff produce 80% of the result: When the business is working to restructure and organize its spending, the 80% of staff who are not as productive should be considered to become outsourced or limited as much as possible.
- 20% of products offer 80% of the value: Keeping the 80% of products alive is possible if they are turning in revnue, but the entrepreur should consider discarding losing product lines.
Take this as a good example on applying this principle at work: A design studio gets a new client needing a product design. the studio follows the principle and provides a wire frame design to the customer instead of fully designing a prototype so that the customer can get grasp on what is being offered without losing much time and financial resources. The customers requests some modifications on the wire frame and then the design studio does the final design.
