Share

Vilfredo Pareto.  You may not be familiar with his name, but you’re definitely familiar with the rule named after him:  The Pareto Principle, or better known as the 80/20 rule.  Pareto was an Italian economist. In the early 1900s he observed that 80% of the land was owned by 20% of the population.  He discovered that same ratio applies to many things in business and life.  For this post we’re going to focus on how Pareto’s Principle can be used to increase the productivity and growth of your business (resisting the temptation to spin off on the tangent of uneven income distribution).  Here are a few 80/20 statements to get you thinking:

  • 80 percent of the results are achieved by 20 percent of the group.
  • 20 percent of your effort will generate 80 percent of your results.
  • In any process, few elements (20 percent) are vital and many elements (80 percent) are trivial.
  • 20 percent of the tasks account for 80 percent of the value.
  • 80 percent of your usage will come from just 20 percent of your features.

Figure 1 illustrates what a Pareto curve looks like graphically:

pareto-curve

With this graphic it’s easy to see how profound this effect is.  With 20% of the work, you get 80% of the value. This specific curve shows that by doubling your effort, you can achieve another 13% increase, but that last 7% of value takes 60% of the time.  I should note that the Pareto curve doesn’t always apply with mathematic precision.  So, rather than focus on the exact numbers it’s better to use Pareto as a conceptual framework for optimizing your time — the bulk of the benefit comes from the initial investment.

Tim Ferriss has created a series of best-selling books based in large part on the Pareto Principle. The Four Hour Workweek and Four Hour Chef both emphasize the power of building knowledge quickly.

Let’s say you’re an aspiring guitar player.  It won’t take long for you to learn a song with just a few chords.  With the help of GuitarTutorMan on Youtube you could be playing “Horse With No Name” by this evening.  But if your goal is to read music, play improvisation and multiple genres of music, it will take years of practice.

Tim Ferriss makes the same point in his chapter on learning new languages:

We can adapt this principle and prioritize material based on its recorded likelihood and frequency of usage. To understand 95% of a language and become conversational fluent may require 3 months of applied learning; to reach the 98% threshold could require 10 years. There is a point of diminishing returns where, for most people, it makes more sense to acquire more languages (or other skills) vs. add a 1% improvement per 5 years.

The leader of the “Lean Startup” movement, Eric Reis, also draws inspiration from the Pareto Principle.  He advocates developing a “minimum viable product” or “mvp” rapidly to gather feedback.  By incorporating that feedback into the development process you can focus on the the 20% of features that are driving 80% of the value — or at least take another market-informed guess at what features will achieve that 80% lift.  With this rapid, iterative approach, less time is wasted and it becomes clearer much more quickly whether your project is on track and solving the problem that you’re targeting.

Looked at another way, the Lean methodology is actually taking the first part of the Pareto curve and repeating them continuously to get the most value from each time period.  This brings us to the inspiration for the title of this post:  If you organize your activities as “mashed paretos” you end up with a graph that looks like Figure 2.

mashed-pareto-curves

Figure 2: “mashed pareto” curves

In this illustration each color represents a new code release in a technology company, but it could just as easily represent separate tasks like call planning and demo prep for a sales rep, or research on multiple competitors by the marketing team.  You can see the objective of mashed paretos is to squeeze the most productivity out of your time; you’re always focusing on what’s most important and refining in subsequent passes.

As with most advice from self annointed Though Leaders, you’re likely to see a conflict with this theory.  You may be wondering whatever happened to “giving 110%” and “never settle for anything less than perfection”?   Cranking out 80% and calling it a day is hardly the recipe for success.  Shooting for a “good enough” level of quality may work for Lean Product Development, but it won’t be acceptable in the long run.  Companies need to deliver something special that stands out   No one is going to pay to listen to a bumpkin playing Horse with No Name on guitar; only the best-of-the-best musicians can attract large paying audiences. It’s important to realize that the two philosophies — attention to detail and mashed paretos — can actually apply at the same time.

Differentiation can be achieved by moving fast — using mashed paretos — or it can be achieved by having  a key feature or aspect that is markedly better than other options, or “going deep”.  Twitter was mashed paretos.  When it first launched it wasn’t pretty or clear how to use it, but it was unique and got consistently better over time.  Facebook? Mashed paretos.  Zappos?  “Going deep” and differentiating with ultra-responsive customer service.

GoogleReader

Figure 3: Google Reader for RSS

Another good example of going deep is Flipboard.  There isn’t anything magical about the technology.  Fundamentally Flipboard is not much different than an RSS reader.  It organizes content by topics and provides an excerpt you can read before clicking through.  An RSS reader is functional and served a similar purpose for years.  Figure 3 shows an example of what stories look like through Google Reader.

Flipboard decided to “go deep” with their UI and provide a dramatically better interface tuned specifically for the iPad.  They chose the UI as their primary differentiation and nailed it.    They didn’t work for an 80% solution as Google did.  They pushed themselves much further out the curve until their UI was better than all other options.  And, based on the popularity of the app, their work paid off.

Even though Flipboard spent the time to refine the interface to be distinctly beautiful, it’s unlikely they accomplished this by locking themselves away and working in isolation for months before launching.  They probably had rapid releases where they tested the best way to layout the page and UI and got feedback from smaller groups before launching to the public.  And even now, they continue to look for the features that users are asking for and quickly make adjustments to the products capabilities.  So, in a way, they used sequential application of Pareto’s Principle to create the perfect interface.

flipboardLet’s circle back to your desire to become a guitar player.  If you’re committed to becoming a virtuoso you can use the “deep mashed pareto” concept like Flipboard did to achieve your goal.  For example, you can learn basic chords first.  After learning chords, you can focus on scales.  After learning scales, you can practice reading.  After learning how to read, you can play different types of songs and learn new “licks” that get added to your repertoire.  So, even though the overall time invested in becoming an expert guitarist is considerable — likely many years — the payback from each phase of learning is maximized.

Pareto’s 80/20 rule holds a very important lesson for time management, product planning, sales pursuits, and everything else you do to improve your skills or product.  If you think in terms of mashed paretos, you’ll likely succeed.

 

 

 

Afterthought #1:  you’d do well to fight against the Pareto Principle when it comes to your client base.  If you end up with 80% of your revenue coming from 20% of your customers that’s a recipe for sleepless nights.  With this revenue concentration you lose leverage and one or two cancellations could dramatically change your business.  Hunt for some big deals but make sure that you diversify your sources of revenue.

Afterthought #2:  The Kindel Principle.  Charlie Kindel was General Manager for Windows Phone 7 at Microsoft and is now an active blogger and Angel investor.  He wrote a related post entitled “90% of the Decision You Make Don’t Matter“.  The math is a little different but the concept is the same.  Take a minute to read it.