shawn wang y.x.

Richard Koch’s The 80/20 Principle: The Secret to Achieving More with Less

By Swyx on August 8th, 2009

80-20 principle: old school lifehacking

Interesting quote:

Let’s look at a quote from the article “Performance Research, Part 1: What the 80/20 Rule Tells Us about Reducing HTTP Requests” by Tenni Theurer on the Yahoo! User Interface Blog.

Table 1 shows popular web sites spending between 5% and 38% of the time downloading the HTML document. The other 62% to 95% of the time is spent making HTTP requests to fetch all the components in that HTML document (i.e. images, scripts, and stylesheets). The impact of having many components in the page is exacerbated by the fact that browsers download only two or four components in parallel per hostname, depending on the HTTP version of the response and the user’s browser. Our experience shows that reducing the number of HTTP requests has the biggest impact on reducing response time and is often the easiest performance improvement to make.

• Part One: Overture
  • Welcome to the 80/20 Principle
  • How to Think 80/20
• Part Two: Corporate Success Needn’t Be A Mystery
  • The Underground Cult
  • Why Your Strategy is Wrong
  • Simple is Beautiful
  • Hooking the Right Customers
  • THe Top 10 Business Uses of the 80/20 Principle
  • The Vital Few Give Success to You
• Part Three: Work Less, Earn and Enjoy More
  • Being Free
  • Time Revolution
  • You Can Always Get What You Want
  • With A Little Help From Our Friends
  • Intelligent and Lazy
  • Money, Money, Money
  • The Seven Habits of Happiness
• Part Four: Fresh Insights – The Principle Revisited
  • The Two Dimensions of the Principle

Detailed Notes

• Part One: Overture
  • Welcome to the 80/20 Principle
    • The 80/20 Principle asserts that a minority of causes, inputs, or effort usually lead to a majority of the results, outputs, or rewards. In Business, Society, and at Home.
    • This pattern was discovered by Vilfredo Pareto in 1897, known as the Principle of Imbalance. He discovered that 20% of contemporary England enjoyed 80% of the wealth. THe key point is not the percentages, but the fact that the distribution of wealth across the population was predictably unbalanced.
    • 1949: Zipf’s Principle of Least effort: resources tended to arrange themselves so as to minimize work, so that approximately 20-30% of any resource accounted for 70-80% of the activity related to that resource.
    • 1951: Juran’s Rule of the Vital Few: used to root out quality faults in Bell Telephone System’s Western Electric. Responsible for Japanese quality revolution.
    • 1963: IBM discovered that about 80% of a computer’s time is spent executing about 20% of the operating code.
    • Why the principle is so important: because it is counterintuitive.
    • Why you should care: Our daily lives can be greatly improved by using the 80/20 principle.
    • Chaos theory points to a “predictable nonlinearity” pervading our lives, a self-organizing logic behind the disorder
    • Feedback loops amplify initial influences, until it reaches a tipping point.
    • 80/20 principle sorts good movies from bad.
    • The implication of the principle is that output can be not just increased but multiplied, if we can make the low-productivity inputs nearly as productive as the high-productivity inputs.
    • There are 2 routes to achieving this: One is to reallocate resources from unproductive to productive uses (find a square hole for a square peg) and two is to find ways to make the unproductive more effective.
  • How to Think 80/20
    • Causes, inputs, or effort divide into the majority that have little impact or the small minority that have a major, dominant impact.
    • It is unfortunate that 80 and 20 add up to 100. It makes many people think that we are dealing with one set of data. Not so. To apply the principle you have to have two sets of data, both adding to 100 percent, and one measuring a variable quantity owned, exhibited or caused by the people or things making up the other 100%
    • “Somehow, without working very hard, I ended up with a congratulatory First Class Degree.”
    • Who you work for is more important than what you do
    • Are you working to make others rich or is it the reverse? His experience of working in a consulting firm where 80% of profits went to the founder.
    • Wealth from investment can dwarf wealth from working.
    • How to use the principle:
      • 80/20 action (Precise, quantitative, requires investigation, provides facts, highly valuable). Establishing a precise relationship between causes and results, revealing the true relationship (may not be 80/20)
      • 80/20 thinking (Fuzzy, qualitative, requires thought, provides insight, highly valuable). This requies deep thought about any issue that is important to you and askss you to make a judgement on whether the principle is working in that area.
    • BAR charts show 80/20 relationships best.
    • 80/20 analysis used to change the relationship it describes.
    • Dont apply 80/20 analysis in a linear way: Be selective and contrarian – don’t be seduced into thinking that the variable that everyone else is looking at is what realy matters.
    • 80/20 thinking enables us to spot the few really important things that are happening and ignore the mass of unimportant things. It teaches us to see the wood for the trees.
    • 80/20 wisdom implies that we should:
      • celebrate exceptional productivity rather than raise average effots
      • look for the short cut, rather than run the full course
      • exercise control over our lives with the least possible effort
      • be selective, not exhaustive,
      • strive for excellence in few things, rather than good performance in many
      • delegate or outsource as much as possible in our daily lives and be encouraged rather tahn penalized by tax systems to do this (i.e. use gardeners, car mechanics, and other specialists to the maximum instead of doing the work ourselves)
      • choose our careers and employers with extraordinary care, and if possible employ others rather than being employed ourselves
      • only do the thing we are best at doing and enjoy most
      • look beneath the normal texture of life to uncover ironies and oddities
      • in every important sphere, work out where 20% of effort can lead to 80% of returns
      • calm down, work less and target a limited number of very valuable goals where the 80/20 principle will work for us, rather than pursuing every available opportunity
      • make the most of those few “lucky streaks” in our life where we are at our creative peak and the stars line up to guarantee success.
• Part Two: Corporate Success Needn’t Be A Mystery
  • The Underground Cult
    • 3 Companies that have used 8020 in history
    • 3 action implications
      • successful firms operate in markets where it is possible for that firm to generate the highest revenues with the least effort relative to monetary profits and relative to competition.
      • it is always possible to raise the econ surplus by focusing only on those market and customer segments where the largest surpluses are currently being generated
      • it is possible for every corp. to raise the level of surplus by reducing the inequality of output and reward within the firm.
  • Why Your Strategy is Wrong
    • it is almost inevitable that you are doing too many things for too many people
    • reanalyze your business by product group, customer group, geo area, distri channel, or competitive segment
    • Competitive segment is a part of your business where you face a different competitor or different competitive dynamics
      • do you face a different main competitor in this part of your business compared to the rest of it?
      • do you and your competitor have the same ratio of sales or market share in the two areas, or are they relatively stronger in one area and you relatively stronger in another?
    • Electronic Instruments did this and reallocated management time to focus on the biggest turnover businesses.
    • The best way to start making money is to stop losing money.
    • More strategies: self-service, discounting, massive retail, fast-food. Why do you need people in your business? cut them.
  • Simple is Beautiful
    • not small is beautiful
    • Cost of Complexity
    • Hidden costs of Internal Complexity. Managers love Complexity
    • Be selective: cost reduction is an expensive business!
  • Hooking the Right Customers
    • 4 steps to lock in core customers
      • know who they are
      • exceptional (outrageous) service to them
      • target new products and services at this group, developing them solely for them
      • aim to keep them forever – make it a company wide obsession
    • 6 steps for managing salespeople
      • keep the high performers
      • hire more of the same type
      • try to identify when they sell the most, and what they did differently
      • get everyone to adopt the methods that have the highest efficiency
      • switch a successful team from one area with an unsuccessful team from another area
      • salesforce training: get those who are the best to train them and reward the best according to subsequent performance of trainees. invest the most training in those who perform best after the first series of training
    • 3 golden rules
      • Marketing should focus on providing a stunnin gproduct and service in 20% of the existing product line – that small part generating 80% of fully costed profits
      • Marketing should devote effort to forever delighting that 20% of customers who provide 80% of firms profits
      • There is no real conflict between production and marketing.
  • The Top 10 Business Uses of the 80/20 Principle
    • top 6 given above:
      • Strategy
      • Qualtiy and IT
      • Cost reduction and service improvement
      • Marketing and Sales
    • Decisionmaking and analysis
      • Rule 1: not many decisions are very important
      • Rule 2: the most important decisions are often those made only by default
      • Rule 3: gather 80% of data and perform 80% of analyses in the first 20% of time available, and then make a decision 100% of the time and act decisively as if you were 100% confident that the decision is right
      • Rule 4: if what you have decided isn’t working, change your mind early rather than late
      • Rule 5: when something is working well, double and redouble your bets.
    • Inventory management
      • export th eproblem and cost of inventory management to other parts of the value chain – suppliers or customers.
    • Project Management
      • Simplify the objective – the greater the number of a project’s aims, the effort to accomplish the project satisfactorily increases geometrically.
      • Impose an impossible time scale – so the team only does really high value tasks
      • Plan before you act
      • Design before you implement
    • Negotiation
      • Few points in a negotiation really matter
      • Dont peak too early – 80% of the concessions will occur in the last 20% of time available.
      • How to secure a pay raise: If your supervisor has another appointment at 10am, expect the critical moments to occur around 9.50. Pace yourself accordingly.
  • The Vital Few Give Success to You
    • Progress means moving resources from low-value to high-value uses.
    • Resources are always misallocated
    • Success is underrated and underrecognized
    • Equilibrium is illusory
• Part Three: Work Less, Earn and Enjoy More
  • Being Free
  • Time Revolution
    • there is no shortage of time. in fact, we are positively awash with it. We only make good use of 20% of our time.
    • Don’t start a time revolution unless you are willing to be a revolutionary. If unwilling, fair enough.
    • 1. Make the mental leap of dissociating effort and reward
    • 2. Give up guilt – nothing wrong with doing things you enjoy.
    • 3. Free yourself from obligations imposed by others
    • 4. Be unconventionall and eccentric in your use of time.
    • 5. Identify the 20% that gives you 80% (happiness, achievement)
    • 6. Multiply the 20% of your time that gives you 80%
    • 7. Eliminate or reduce the low-value activities
    • Top 10 low-value uses of time
      • Things other people want you to do
      • Things that have always been done this way
      • Things you’re not unusually good at doing
      • Things you dont enjoy doing
      • Things that are always interrupted
      • Things few other people are interested in
      • Things that have already taken twice as long as you originially expected
      • Things where your collaborators are unreliable or low quality
      • Things that have a predictable cycle
      • Answering the telephone
    • Top 10 high-value uses
      • Things that advance your overall purpose in life
      • Things you have always wanted to do
      • Things already in the 20/80 relationship of time to results
      • Innovative ways of doing things that promise to slash the time required and/or multiply the quality of results
      • Things other people tell you can’t be done
      • Things other people have done successfully in a different arena
      • Things that use your own creativity
      • Things that you can get other people to do for you with relatively little effort on yoru part
      • Anything with high-quality collaborators who have already transcended the 80/20 rule of time, who use time eccentrically and effectively
      • Things for which it is now or never.
    • Four Illustrations of Eccentric and Effective Time Use
      • William Eward Gladstone (4x UK PM) – whenever he felt even slightly ill, he would go to bed for at least a whole day where he would read and think.
      • Fred – set up consultancy but controlled everything through an alliance with his five subordinates, visiting the office once a month.
      • Randy – one of Fred’s lieutenants, working from home, paying zero attention to admin matters, spending all energy working out how to increase revenues with the most important clients and then putting mechanisms in place to do this with the least personal effort.
      • Jim – spent all his time working out which tasks were high value and who should do them and then ensuring that they got done.
  • You Can Always Get What You Want
    • Lifestyle
      • Am I living with the right people? in the right place? Do I feel in control? can I exercise when I want? Am I nearly always relaxed and comfortable with my surroundings? Does my lifestyle make it easy for me to be creative and fulfill my potential? Do I see my close friends enough? Does the lifestyle facilitate whatever contribution I want to make to enriching the lives of people I want to help?
    • Work
      • Career alienation – people who dont like their work but feel they “must” do it because it provides their livelihood.
      • Career is not a separate box. Start from the premise that there does not have to be any conflict between your work life and the things you enjoy outside work. Leisure industries now make up a large slice of the economy.
      • Types of careeer: On one axis, High/Low degree of need for achievement, vs. left-to-right “prefer workign in organizations”, “prefer being a self-employed sole trader”, or “prefer employing or organizing others”.
  • With A Little Help From Our Friends
    • Compile your top 20 personal relationships chart (Destroy the list once you are done!!) including parents, children, partner, friends.
    • allocate 100 points between the relationships.
    • note against each name the proportion of time you spend with the person.
    • go for quality rather than quantity.
    • The common pattern of people in any society (from antrhopologists’ “village theory”) is to have two child-hood friends, two significant adult friends, and two doctors. You fall in love only once, and there is one member of your family whom you love above all others.
    • If you are in the early stages of your career, fill your ally slots carefully.
    • Relationship five ingredients: mutual enjoyment, respect, shared experience, reciprocity, and trust.
  • Intelligent and Lazy: How to get ahead in your Career
    • “There are only four types of officer. First, there are the lazy, stupid ones. Leave them alone, they do no harm. Second, there are the hard-working inteliligent ones. They make excellent staff officers, ensuring that every detail is properly considered. Third, there are the hard-working, stupid ones. These people are a menace and must be fired at once. They create irrelevant work for everybody. Finally, there are the intelligent lazy ones. They are suited for the highest office.” General Von Manstein on the German Officer Corps
    • Winner take all is a modern phenomenon, but superreturns accrue to superstars.
    • 4 forms of labor leverage
      • Leverage your own time
      • Capture 100% of value by becoming self-employed
      • Employ as many net value creators as possible
      • Contract out everything that you and your colleagues are not several times better at doing
    • 10 rules for careeer success
      • Specialize in a very small niche; develop a core skill
      • Choose a niche that you enjoy, where you can excel and stand a chance of becoming an acknowledged leader: Everyone is excited by something; if not, they are dead or dying.
      • Realize that knowledge is power
      • Identify your market and your core customers and serve them best
      • Identify where 20% of effort gives 80% of returns
      • Learn from the best
      • Become self-employed early in your career
      • Employ as many net value creators as possible
      • Use outside contractors for everything but your core skill
      • Exploit capital leverage
  • Money, Money, Money: How to get money
    • Unless redistributed by progressive taxation, incomes tend to be unequally distributed, with a minority gaining most of aggregate income
    • Even with progressive taxation, wealth follows an even more unequal pattern than incomes; it is even harder to make wealth equal than to make incomes equal.
    • This is because the majority of wealth is created from investment rather than from income; and because investment returns tend to be even more unbalanced than income returns
    • Investment creates high amounts of wealth because of the phenomenon of compounding.
    • Exceptions to the rule: acquisition of money from legacies, marrying into a wealthy family, windfalls from lotteries, crime.
    • Some b/s investment cliches
  • The Seven Habits of Happiness
    • People are not powerless to deal with unhappiness
    • Making ourselves happier
      • by strengthening emotional intelligence
      • by changing the way we think about events
      • by changing the way we think about ourselves
      • by changing events: changing people we see most
    • Daily Happiness
      • Exercise
      • Mental stimulation
      • Spiritual/artistic stimulation
      • Doing a good turn
      • Taking a pleasure break with a friend
      • Giving yourself a treat
      • Congratulating yourself
    • Medium Term
      • Maximize your control over your life
      • Set attainable goals
      • Be flexible
      • Have a close relationship with your partner
      • Have a few happy friends
      • Have a few close professional alliances
      • Evolve your ideal lifestyle (work-social-personal balance)
• Part Four: Fresh Insights – The Principle Revisited
  • The Two Dimensions of the Principle (or two criticisms)
    • Does the 80/20 principle really apply to our personal lives?
      • Church growth, business expansion, life focus
    • Isn’t the 80% essential too?
      • “I wonder if the author will think 80% of sex pleasure derives from 20% of the time between climax, so probably we should drop the foreplay altogether?”
    • Concerns with 8020
      • Corner cutting concern – unless we go into something fully and deeply we wont achieve anything worthwhile or enjoy it
      • Sustainability concern – focus too much on what works today
      • Balance conern – we cant focus on just the best parts of life
    • Response: Two dimensions of 8020
      • There is the efficiency dimension: where we want to achieve things in the fastest possible way with the least possible effort
      • Then there is the life-enhancing dimension: anything that is truly important to our lives

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