What is the 80/20 Rule?
More formally the 80/20 rule is also known as the Pareto Principle. To Quote Wikipedia: “The Pareto principle known as the 80-20 rule, the law of the vital few Business management thinker Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population.”
We hear the 80/20 rule as it is applied to business and sales. Twenty percent of your employees produce 80% of a companies problems, 80% percent of your corporate sales are produced by 20% of your sales force and in network marketing, 80% of your profits may come from 20% of your distributors. We hear of it as it relates to wealth and wealth accumulation: 80% of the money is controlled by 20% of the people.
Joseph Duran was born in 1904 and he credited this principle to an economist who lived in the 1800’s. Is the Pareto Principle an abstract economics principle or is it a model of human behavior?
Going back an estimated 5000 years we see a beautiful example of the 80/20 rule in the Old Testament: Numbers 13 and 14. After an arduous journey through the desert, the Israelites arrived at the borders of the promised-land. Finding it already occupied, Moses sent an exploration party, a representative from each of the 12 tribes of Israel, to explore the land and bring back a report. Ten of the party members brought a negative report: the land flowed with milk and honey but the current occupants were powerful and their cities were large. They recommended retreat. Two brought a positive report and recommended taking possession of the land. Seventeen percent of the exploring party were in agreement with taking the land and 83% were opposed to taking the land. Two disparate courses of action though they were all members of the same exploration party and saw the same things. A curious thing happened, the 80% then went to the whole of the Israelites and caused them to abandon heart and not take the promised land. The Israelites were not able to take the promised land until the 80% and were gone.
There are 5 lessons here that can be applied to business
1) New Ideas will be Opposed: Business innovation and success are governed by vision. Yet in any corporate structure, the 80/20 rule describes human behavior: 80% of people will oppose a new idea concept or vision and 20% will support it.
2) The majority will seek to garner support for their opinion usually among those people who do not have all the facts, in this case the people who did not have direct experience with the promised land, and disrupt positive moves of the corporate body.
3) Facts alone will not persuade. All members of the exploration party went to the promised land. They all received the same facts, yet 10 of them did one thing with the facts they received and 2 did another. What they each did with the facts they received was colored by their vision and purpose.
4) Movement in any business is governed by vision; in order to move in a given direction, a company may have to shed the part of its work force that does not tap into the overall corporate vision. If 20% of the people at any given time catch the vision, the other 80% will find themselves vulnerable. I explore this concept further in my companion article, “Moses, Death and the Entrepreneur’s Journey”
5) Change is inevitable and necessary for growth in any organizational structure. In this story, the Israelites could only possess the land when the 80% who lacked vision had been replaced.
Using this model of human behavior and the lessons it teaches can allow any business owner, whether a free agent or the owner of a traditional business, to focus on the few strategies and the few key individuals that can bring a business success rather than attempt to persuade the majority of the rightness of a course of action.