The 80/20 principle or Pareto principle is something that all of us entrepreneurs should know. Management consultant, Joseph M. Juran named it after Italian economist Vilfredo Pareto. It is named after Pareto because it was he who noted that approximately 80% of the land in Italy was owned by 20% of the population.
While he was at the University of Lausanne in 1896, this was published in his first work, Cours D’économie Politique. He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied. Below is a distribution of world GDP in 1989 as reported by United Nations Development Program (1992):
Most of us entrepreneurs have to deal with hundreds of issues on daily basis – staffing, delegation, project updates, client reverts, investor pitches, presentations, accountancy and so much more. And it often gets overwhelming. It becomes difficult to understand and segregate tasks. That’s where this Pareto Principle or 80/20 Principle comes to rescue. When applied to founders, it says 80% results will come from 20% tasks. You can use this to decide what could potentially be those 20% tasks and finish them on priority. Similarly if you have overwhelming client base, this tells you - 80% of sales come from 20% of clients.
This can help you focus on your goals, decide which ones are to be checked off before the others. This will help you realise what initiatives are helping you get maximum returns. This will also help you close on VC talks while short listing on fundraising process. And will also help you identify which profiles in your company you should be focusing upon and hire for.
Identifying the most effective 20% areas, can help you better channelize your resources.
For any queries, write to me on Rajeev@TBSPlanet.com.
Rajeev Tamhankar is Founder, TBS Planet Comics, ex-IITR, Flipkart, Xiaomi