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Why it matters today?

As humans we make assumptions, and one of those is that all causes have the same significance, more or less. We assume every bit of business, every product, every lead is as good as the next. While that’s a surprisingly democratic view of life, Koch calls it the ’50/50 fallacy’. He argues that pretty much everything in life is naturally imbalanced – it may not always be 80/20 but things aren’t as balanced as we assume – and we’re often surprised at the extent of the imbalance.

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Introduction

The 80/20 principle (aka the Pareto principle) states that 80% of the results come to form 20% of the cause. A few things are important; most are not. He notices that a tiny number of pea pods in this garden produced the majority of the peas. At the time, Pareto was studying wealth in various nations. As he was Italian, he began by analyzing the distribution of wealth in Italy. To his surprise, he discovered that approximately 80 % of the land in Italy was owned by just 20 percent of the people.

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The 80-20 Rule in Business

The 80-20 rule has found applications in business management. For business sales, 20% of a company’s customers are responsible for 80% of the sales. Also, 20% of the employees are responsible for 80% of the results. For project management, many managers have noted the first 20% of the effort put in on a project yields 80% of the project’s results. Thus, the 80-20 rule can help managers and business owners focus 80% of their time on the 20% of the business yielding the greatest results.

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What’s the 80/20 Principle?

The 80/20 Principle says that the majority of your results or outputs will come from a minority of causes or inputs. The ratio may not always be exactly 80:20, i.e it could be more imbalanced at 90:10 or less imbalanced at 60:40. The key idea is- there’s typically a nonlinear relationship between input and output, between effort and results, and between causes and consequences. In society, 20% of people own 80% of the wealth. In business 20% of product/customers contriubtes 80% profits.

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The Power of Accumulative Advantage

The Amazon rainforest is one of the most diverse ecosystems on Earth. Scientists have cataloged approximately 16,000 different tree species in the Amazon. But despite this remarkable level of diversity, researchers have discovered that there are approximately 227 “hyper dominant” tree species that makeup nearly half of the rainforest. Just 1.4 percent of tree species account for 50 percent of the trees in the Amazon.

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Inequality, Everywhere

Examples of the Pareto Principle exist in everything from real estate to income inequality to tech startups. In the 1950s, three percent of Guatemalans owned 70 percent of the land in Guatemala. In 2013, 8.4 percent of the world population controlled 83.3 percent of the world’s wealth. In 2015, one search engine, Google, received 64 percent of search queries

  • 20% of drivers cause 80% of all traffic accidents
  • 80% of the pollution originates from 20% of all factories and so on.

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