How the 80/20 Rule Will Change Your Life and Grow Your Business
Monday Sep. 30th, 2013
Imagine focusing on fewer things, yet seeing better results. How might narrowing your focus improve both your lifestyle and business?
As an entrepreneur, I constantly battle with the proposition to take on new jobs, offer more services, and expand my line of products. While accepting to custom cater to a client is appealing, you must realize it is important to niche down and become really good at what you want your company to be known for. One of the hardest things to do is say NO to customers who want to do business with you, and understand you are not alone. What you will find out is that having a laser-like focus will help steer your business and life in the right direction.
In the past, I’ve written entire articles about improving your focus and learning to turn away business. These are two important skills for entrepreneurs to work on. But today, I’m going to write about the 80/20 rule because I mention it frequently, and think it is time to go more in depth on how it applies to our lives on a daily basis and in business.
Let’s first go over the history of the 80/20 rule and it’s definition sourced from the New World Encyclopedia. The 80/20 rule, also known as Pareto’s Principle, was introduced in 1906 when Italian economist Vilfredo Pareto observed that approximately 20% of the population owned 80% of the wealth in developed countries. Based off his findings, Pareto started to apply his principle to a number of aspects in life.
In fact, one of the most well known comparisons is the rule relating to sales in business. You have probably heard that 80% of a company’s business comes from 20% of the customers. In many cases the principle certainly holds true. A second variation is that roughly 80% of your results come from 20% of your effort. No matter how we apply the rule, you’ll learn to understand that the 20% of things we truly focus on in life will lead to 80% of our well-being and satisfaction.
In business, we need to find and optimize the 80/20 situations. Focus on your core strengths that will get your business to the next level.
With my online sign company, I’ve certainly found that a large outcome of my profits come from spending time on just a few of my products. For instance, my E-commerce store makes and ships personalized ski and trail signs all over the United States and Canada. I have about 20 different products to choose from, yet over 80% of sales come from my top 2 selling items. It’s forced me to spend much more time marketing and improving the 2 sign styles, because I know the extra time spent will lead to the best outcome financially.
Applying the 80/20 Rule
Recently, a friend of mine with a very successful business based in Wisconsin recommended a book named Built to Sell, by John Warrillow. The book strikes a chord with many entrepreneurs because it talks about an entrepreneur who starts a business to find more freedom. But, Alex struggles because he tries to do everything in the business and essentially makes himself irreplaceable. He created logos, designed business cards, wrote advertisements, and took on any new job he was offered. Alex became so scattered and spread thin that he wasn’t an expert or the best at any one thing. Essentially he was a jack-of-all-trades and a master of none.
The tipping point in the book is when Alex finds a mentor who teaches him to develop a business that is teachable, valuable, and repeatable. When Alex worked on creating a valuable business he started turning down business and specializing. Instead of offering any service under the sun, Alex began packaging his products and services. He only created logos and became the most well-known logo business around. Because of the company’s specialization, they could avoid price wars and create logos better than anyone else. His learning to focus on the 20% of the business he was most passionate about led to his company doing over 80% more sales in just one year, and eventually turned into a multi million-dollar business.
More important than talking about business is how the 80/20 rule applies to our lives. Without a doubt, I’d say 80% of my happiness is extracted from 20% of what I enjoy doing most. This would include being around family and friends, spending time in the outdoors, flying small airplanes, and building my business. The other things I do are just a part of life, but don’t necessarily generate happiness or satisfaction.
If you are reading this and are spending 80% of your time working a job or doing something you don’t enjoy, why not make a change? You should spend more than 20% of your time enjoying life, without a question. If you don’t enjoy what you are doing and are stuck in a rut it is time to rethink and pivot in a new direction. I am not saying to quit your job and go right into starting a business. What I recommend is to slowly plan more time into your day to do what you enjoy. Get up a little earlier; take an afternoon off to focus on something you are passionate about, or schedule a lesson to learn a new skill.
80/20 Applied to Friends
Have you ever heard the saying you are average of the 5 friends you hang out with most? Jim Rohn is famous for his findings, which play off the law of averages. Say you hang out with 5 people making decent incomes. It is highly likely you’ll be in a similar range. You may also find that 80 percent of your happiness comes from 20% of your friends. You may discover that you spend 80% of your time with 20% of your friends. Make sure you are surrounding yourself with other motivated and successful people, so that you will continue to grow and challenge yourself.
To take action you must start to focus on your outputs instead of inputs. This means consume less. IE: watch less tv, don’t focus on materialistic goods, and spend fewer evenings on the couch. Instead, start producing and creating for the world. Go out and volunteer at one of our amazing non profits in Bozeman. Mentor a young person or donate time to make someone else’s life better. Start focusing on others and helping them reach their goals. Teaching is one of the most rewarding things a person can do in life. You’ll find teaching to be an amazing way to build trust with others, which will help in business and life. If you’d like to start a business, find a pain in the market and provide a solution to it. Finding answers to problems and helping others will take you to the next level.
You will begin to notice a difference and see a positive change in both your business and lifestyle when you focus on your passions and strengths. Learn to say NO because you will have more time to focus on the most important things, in turn leading to greater rewards. Above all, if you mean well and act with kindness, good things will be around the corner.
Pete Sveen helps and inspires others through his ThinkEntrepreneurship.com Blog and Podcast. He also owns SignsofTheMountains.com