The 80/20 Individual

Abstract: The 80/20 Individual is a sequel to the '80/20 Principle' written by Richard Koch. The 80-20 concept refers to Italian economist Vilfredo Pareto's (1848-1923) principle that 80% of results come from 20% or fewer causes. The 80/20 Principle applies to ideas, individuals, customers, partners, technologies, products, suppliers, and capital. The author explains how the 80/20 Principle is enabling individuals to become 80/20 people.

 

About the Author: Richard Koch, the author of the international bestseller The 80/20 Principle and The Power Laws of Business, is a highly successful entrepreneur whose ventures have included consulting (LEK), Personal organizers (Filofax), hotels (Zoffany), restaurants (Belgo), and premium gin (Plymouth). Formerly he was a consultant with The Boston Consulting Group and a partner of Bain & Company.

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It is also important to identify the vital few things that customers value. The most profitable players can be clues for finding the vital few activities, products and services. But imitation will not be enough. 80/20 individuals create their own vital few mix, something new and unique. One can mix and match some of the following generic strategies to the area that best fits the 80/20 spike: think big, think small, think upmarket, think mass market, pursue value innovation: provide more or less, use direct distribution channels, focus on activities with the highest ratio of value to cost. It is necessary to compress the time taken to deliver to customers. For this to happen the following ideas can be tried out: identify the 20 percent of activities that take 80 percent of the time and the 20 percent that comprise 80 percent of the total cost, what needs to be done to cut the time taken by half? This exercise can be repeated until there is 16 times improvement that is what is expected with the 80/20 principle. The next step involves identifying if there has been significant reduction in costs and higher customer satisfaction. The 80/20 Principle can guide employees to find a super-profitable business-a business where the return on capital is high.

80/20 Principle also shows that individuals and their ideas are key to creating value. The better one is at creating wealth using the 80/20 Principle, the more difficult it would be for him to stay within the firm. If one finds that the firm is exploiting him, he should leave the firm and start his own business. However, whether a person should leave the organization or not depends on social and personal considerations such as liking for the place where one works, and the people with whom he or she works, risk and hassle involved in starting a new business.

Individuals can use the 80/20 Principle to exploit their organizations in an ethical way. Individuals need to identify the few really powerful businesses that may account for the success of the organization. 80/20 individuals can find new ways to exploit the ideas that have made their firms successful. They can also choose the ownership solution that suits them the best. A hybrid solution-a joint venture between the existing company and 80/20 individual can add to the profits of the old company and also eliminate the risk of venturing into a new business all alone.

One should make it a rule to save 20 percent of his income. One should also use the cheapest available sources of external capital. Capital providers should be treated as values partners. Obligations should be taken seriously and one should exceed every budget target and expectations. 80/20 individuals start with a very small amount of capital and end up with huge amounts. They leverage and exploit capital but also respect its scarcity.

The 80/20 Principle reveals that there are always a few things that matter hugely while the rest can be ignored. Running a business on the 80/20 Principle can make one happier and have more impact on the world. Material progress in the past 300 years has demonstrated the 80/20 Principle's applications in business. We are constantly generating more from less. 300 years ago, 97% or more of people worked on the land, most threatened from time to time with malnutrition or starvation. In the developed world, only 2-3% of people work in agriculture, and yet they produce more and better food than ever before.