Summary of “The 80/20 Principle – The Secret to Achieving More with Less”: Even though it seems counter-intuitive, The 80/20 Principle (also known as the Pareto Principle), based on a number of analyses, teaches us that 20% of our efforts generate 80% of the positive results in our life and guides us to identify how to do more with less time, less effort and fewer resources, by simply concentrating on the essential.
By Richard Koch, 1998, 386 pages.
Note: This is a guest article written by Claire ESCALA of the blog ClaireESCALA.com.
Book chronicle and summary of “The 80/20 Principle”:
“We tend to believe that innovation is a difficult thing, but through imaginative use of the 80/20 Principle, innovation becomes both easy and fun! [Extract from The 80/20 Principle]
In life, there are rules that make all the difference between success and failure, between anxiety and personal satisfaction, between happiness and misery. In this book, you will find the rules that will help you to guide your existence in the right direction.
Part One – OVERTURE
Chapter 1 – Welcome to the 80/20 Principle
The 80/20 Principle can and should be put into practice by every intelligent person to:
- Accomplish more with less effort
- Make each one of us happier
- Improve performance
What is the 80/20 Principle?
According to the 80/20 Principle, a minority of causes, inputs or efforts lead to a majority of results, outputs, or rewards. Often this imbalance shows that 80% of what you accomplish in your work results from 20% of the time you devote to it, hence the name “80/20 Principle”.
The Pareto principle was discovered at the end of the 19th century by Vilfredo Pareto when he observed a systematic and predictable imbalance in the distribution of wealth. That is why it is also called Pareto’s Law.
In 1949, with the Principle of Least Effort, George Zipf expanded the concept by demonstrating that resources tend to arrange themselves in such a way as to reduce work to a minimum.
Then, in 1951, Juran established an additional rule, the rule of the “Vital Few”.
Between the 1960s and 1990s, these concepts were adopted in Japan and they led to significant progress.
Why the 80/20 Principle is so important?
Whether or not you realize it, this principle applies to your life, to your social world, and to your work environment. A good understanding of this principle will give you an exact idea of what is really happening in the world around you.
The 80/20 Principle and chaos theory
Probability theory teaches us that it is almost impossible for all the applications of the 80/20 Principle to happen randomly or by coincidence.
The question of balance – more exactly imbalance – is common to the theory of chaos and to the 80/20 Principle. They each posit (with a great deal of empirical evidence) that the universe is not linear, that cause and effect are rarely equally related.
There always exist some forces whose influence is disproportionate in relation to their number. These forces must be respected and watched over.
Up to a certain point, it is difficult for a new force – whether it is a new product, a new illness, a new rock band, or a new social activity such as jogging or roller-blading – to take over. A lot of effort ends up leading to few results. At this point, many pioneers give up. But if a new force persists and manages to cross a certain invisible line, the least additional effort will bring great results. This invisible point is what we call the “tipping point”.
“small changes can have huge effects… It all depends on when and how the changes are made.” Malcolm Gladwell
What is the 80/20 Principle good news?
The 80/20 Principle is full of promise. It repeats something that seems quite obvious, that tragic waste can be seen all around us, in the way nature functions, in the world of business, in society, and in our own lives. If 80% of results come from 20% of efforts, it is logical that the vast majority of our efforts – 80% – have few effects – 20%.
Paradoxically, this kind of waste can also be full of promise, if we can make use of the 80/20 Principle in a creative manner, not being satisfied with noticing lack of productivity and criticizing it, but by acting positively to remedy it. There is a lot of room for improvement. Improving nature, refusing the status quo, this is the path that leads to all progress, whether evolutionary, scientific, social, or personal.
“The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself.” George Bernard Shaw
The things that work fabulously need to be noticed, cultivated, nourished, and multiplied. At the same time, the rest – the majority of elements that always turn out to be of little use – should be abandoned or reduced to a minimum.
“God plays dice with the universe. But they’re loaded dice. And the main objective is to find out by what rules they were loaded and how we can use them for our own ends.” Joseph Ford
Chapter 2 – How to Think 80/20
Two applications of the principle – 80/20 Analysis and 80/20 Thinking– provide a practical philosophy that will help you to better understand your life and improve it.
80/20 Analysis is generally used to change the relationship that it describes… or to make better use of it! It is useful, in particular when you want to focus your attention on the main causes of the relationship, on the 20% of input that leads to 80% (or another proportion) of output.
80/20 Thinking and why it is necessary
In order for the 80/20 Principle to become the guiding light in our everyday life, we need something less analytical and more immediately accessible than 80/20 Analysis. We need 80/20 Thinking. 80/20 Thinking is the way to use the 80/20 Principle on a daily basis for non-quantitative applications. Instead of gathering data and analyzing it, we will simply estimate it. It teaches us to distinguish the essential from the accessory.
To engage in 80/20 Thinking, we have to keep asking ourselves: what is the 20% that leads to the 80%? We can then use 80/20 Thinking to change behavior and to focus our attention on the 20% that counts.
The 80/20 Principle using 80/20 Analysis and Thinking allows us to:
- Celebrate exceptional productivity
- Take short cuts
- Exercise control using the least possible effort
- Be selective
- Strive for excellence
- Delegate as much as possible
- Choose our career and our colleagues
- Only do the things we do best
- Slow down, work less
- Make the most of “lucky streaks”
SIDE READING: Find how to use the Pareto Principle in sales and marketing
Chapter 3 – The Underground Cult
It is difficult to gauge how well the 80/20 Principle is known in the world of business. Many successful companies and individuals swear by the 80/20 Principle. And yet, the 80/20 Principle, which has touched the lives of millions of individuals, perhaps without them even noticing, remains strangely almost unheard of.
The first 80/20 wave: the quality revolution
The quality revolution that took place between 1950 and 1990 genuinely transformed the quality and the value of consumer goods and other items. The objective, now reached for most products, was to get to a stage of 0% of defective products.
“The economist Pareto found that wealth was non-uniformly distributed in the same way. Many other instances can be found – the distribution of crime among criminals, the distribution of accidents among hazardous processes, etc. Pareto’s principle of unequal distribution applied to wealth and to distribution of quality losses.” Joseph Juran
In the quality movement, this means identifying the defects that lead to a loss in quality and to organise them starting with the most important ones. This encourages companies to perform a diagnosis of the defects that are behind the majority of problems. With the development of the quality movement, the importance given to 80/20 techniques was heightened.
“For every step in your business process, ask yourself if it adds value or provides essential support. If it does neither, it’s waste. Cut it. The is the 80/20 rule revisited: you can eliminate 80% of the waster by spending only 20% of what it would cost you to get rid of 100% of the waste […] Go for the quick gain now.” Niklas von Daehne
The second 80/20 wave: the information revolution
The information revolution which took hold in the 1990s, has transformed work and customs. The 80/20 Principle was and will be the key accessory to that revolution, by helping to deploy and direct its force intelligently.
“Think small. Don’t plan to the nth degree on the first day. The return on investment usually follows the 80/20 rule; 80% of the benefits will be found in the simplest 20% of the system, and the final 20% of the benefits will come from the most complex 80% of the system.” Chris Vandersluis
The information revolution will last
The information revolution is the most powerful subversive force the world of business has ever seen. It allows “doers” in a company to create a lot more added value for their key customers. The key that allows this power to be used effectively, both today and in the future, can be found in selectivity, in the application of the 80/20 Principle.
The 80/20 Principle is still the best-kept secret in the world of business
The gradual and not very systematic recourse to this principle means that it is under-exploited, even by those that recognize its value. This extremely flexible principle can be usefully applied to every industry or organization, to every position within the organization, and to every individual task.
Why the 80/20 Principle is so effective in the world of business
In its business application, the biggest objective of the 80/20 Principle is to produce the most income using the least amount of human effort.
- The first implication of the 80/20 theory in the corporate world is that prosperous companies exercise their business in markets where they can make the most money using the least effort.
- The second practical implication for all companies is that it is always possible to increase the economic surplus, generally to a large degree, by focusing your attention on the customers and the market segments that currently lead to the biggest surplus.
- Third implication: any company can increase the size of its surplus by reducing the imbalance between outputs and rewards within the company.
How a company can turn to the 80/20 Principle to increase its profits
Any company has a lot to gain from applying the 80/20 Principle. We begin the following chapter with the most important use of the 80/20 Principle in any company: target the areas where you make genuine profits and, equally essential, the places where you genuinely lose money.
Chapter 4 – Why Your Strategy is Wrong
If you have not used the 80/20 Principle to redirect your strategy, you can be quite sure that it is deeply flawed. You are almost certainly doing too many things for too many people. To settle on a useful strategy, you must closely examine the various parts of your company, especially from the point of view of their profitability.
Where do you make the most money?
To identify this, carry out an 80/20 Analysis of the profits by:
- segment of competition
Don’t draw simplistic conclusions from the 80/20 Analysis
The 80/20 type analysis of profitability is a necessary but insufficient condition for good strategy. On the other hand, incontestably, the best way to begin to make money is to stop losing it. This does not mean that the strategic analysis ends with the 80/20 Analysis, but that it should begin with it.
80/20 as a guide to the future – transforming your company
The 80/20 Principle is also invaluable when it comes to foreseeing the next leaps forward for your company. We tend to presume that our organizations and our industries have more or less reached their maximum potential in terms of performance. Nothing could be further from the truth!
It would be better to start with the proposition that your industry is screwed up and could be much better structured to respond to customer needs. Innovation is what counts; it is essential to anyone who wants to enjoy an advantage over competition in the future.
Conclusion about why your strategy is wrong
According to the 80/20 Principle, your strategy is wrong. If you make the largest portion of your profits from a limited number of activities, you should up-end your habits and focus your efforts on the minority of activities that bring in money. However, this is only part of the solution. Behind the necessity to direct your focus properly lies a truth that is even more important in matters of business. This is the theme that will be tackled in the following chapter.
Chapter 5 – Simple is Beautiful
“My effort is in the direction of simplicity. People in general have so little and it costs so much to buy even the bare necessities … Because nearly everything we make is more complex than it needs to be. Our clothing, our food, our household furnishings – all could be much simpler than they now are and at the same time be better-looking.” Henry Ford
In the previous chapter, we saw that almost all companies can be chopped up into “chunks” of business with variable profitability.
Evidently, intuition tells us that certain chunks of business can be more profitable than others. Few people stop for a moment to ask themselves why unprofitable activities are so. The truth is that unprofitable activities are this way because they require high indirect costs and also because multiplying chunks of business makes a company organization extremely heavy and complicated. It is possible to simplify a complex company, and its profitability can rise rapidly.
Simple is beautiful – complex is ugly
Those among us who believe in the 80/20 Principle will never succeed in transforming industry until we can prove that simple is beautiful and explain why. Too many people do not understand this and they will never be willing to give up 80% of their current business (thereby eliminating 80% of their overhead costs).
Simple is beautiful explains the 80/20 Principle
A study conducted by Gunter Rommel with 39 German average-sized companies revealed that one single characteristic makes flourishing companies stand out from the others: simplicity. Prosperous companies sell a narrower range of products to a lower number of customers and order stocks from a smaller number of suppliers.
Go for the simplest 20%
What is most simple and standardized is infinitely more productive and cost-effective than what is complex. The simplest messages are the most appealing and universal for colleagues, customers and suppliers. The simplest structures and process flows are both the most attractive and the most economical. Try to identify the simplest 20%, always and everywhere. Cultivate this 20%. Refine it to make it even simpler. Standardise. Improve. Every time something starts to become complex, simplify it. If you cannot, eliminate it.
Reducing complexity at Corning
How can a struggling company use the 80/20 Principle to reduce its complexity and increase its profits? Thanks to the elimination of low volume, unprofitable products that contributed little to revenue, and sometimes even reduced profits, Corning was able to downsize its engineering department by one quarter.
At Corning, complicated and unprofitable activities monopolized the factories. The simplification and reduction in the number of products rapidly restored the profits.
Reduction in costs using the 80/20 Principle
All efficient cost reduction techniques are founded on three 80/20 type intuitions:
- simplification by eliminating unprofitable activities;
- focus on the key drivers of improvement;
- comparison of performance.
“You don’t want to get too bogged down in microanalysis.” Carol Casper
Conclusion: simplicity power
Because business is wasteful and because complexity and waste feed on each other, a simple business will always be more successful than a complex one. The large and simple business is the best. The way to create something extraordinary is to create something simple. Progress requires simplicity; simplicity requires ruthlessness. This could explain why simplicity is as rare as it is beautiful.
Chapter 6 – Hooking the Right Customers
“Those who analyze the reasons for their success know how the 80/20 rule applies. 80% of their growth, profitability, and satisfaction comes from 20% of the clients. At a minimum, firms should identify the top 20 percent to get a clear picture of desirable prospects for future growth.” Vin Manaktala
Four steps to lock in core customers
- Know who they are
- Provide them with exceptional service
- Design your new products and services exclusively in relation to this 20 percent of key customers.
- If your key customers are happy, then the long term expansion of your company is guaranteed.
Offering good service to the 20% of key customers should become an obsession for the entire company
COMPLEMENTARY READING: Find out how highly successful entrepreneurs boost their careers with these 7 habits.
Chapter 7 – The Top 10 Business Uses of the 80/20 Principle
The field of application of the 80/20 Principle knows no limits: it can be applied to almost any area to spark strategic or financial improvements.
Some of the main commercial applications of the 80/20 Principle are detailed below.
Decision taking and analysis
Not many decisions are truly very important.
The most important decisions are often made by default. You need intuition and perspicacity; you need to ask the right questions, instead of getting the right answers to the wrong questions.
Gather together 80% of the data and perform 80% of the relevant analyses during 20% of the time available. Then make a decision 100% of the time and move decisively towards action as if you were 100% sure that you have made the right decision. If what you decided on turns out to be ineffective, change your mind sooner rather than later. Do not be afraid to experiment and do not stick with losing solutions. Do not fight the market.
When something works, double and triple your investment in it. Investors in capital risk know this. Most of the investments in their portfolio are disappointing to them, but they are bought back through a handful of extraordinary investments whose yield far exceeds the debts.
Drastically reduce unprofitable stocks. Reduce the number of variants, export the problem and the cost of stock management to other links in the value chain.
In every case, the focus is the motor behind accomplishing progress: focusing on the most important customers, on a simple range of products, on simplified management and delivery.
Project management is an odd thing. So:
- Simplify the objective
- Impose an impossible time scale
- Plan before you act
Chapter 8 – The Vital Few Give Success to You
The underlying logic of the 80/20 Principle requires us to understand and internalize some very simple rules; once we have done this, we can easily “think 80/20” and “act 80/20” in everything we do.
Stop thinking 50/50
The best way to start thinking 80/20 is to start acting 80/20, just as the best way to act 80/20 is to think 80/20.
Move money from 80% type activities towards 20% type activities. You cannot spend the mental energy that you waste on 80% type activities on the 20% of 20% type projects. All resources are limited and should be deployed where they reap the most rewards.
The 80/20 Principle is a life principle, not a business principle. The fact is that it has been put to the test much more often in the world of commercial business than anywhere else. It is high time to liberate the power of the 80/20 Principle and apply it to areas outside business. The most precious part of life lies in the inner and outer life of individuals, in personal relationships as well as the interactions and values of society. In the following part, let’s try to apply the 80/20 Principle to our own lives, to success and happiness.
Part Three – Work Less, Earn and Enjoy More
Chapter 9 – Being Free
Like truth, the 80/20 Principle can set you free. You can work less while earning more and getting more out of life. How? By doing some serious 80/20 Thinking. What is great about 80/20 Thinking is that it is pragmatic; it comes from within and it is centered around the individual. There is, however, one tiny obligation: you have to be the one who does the thinking. You should adapt and develop the contents of this book in relation to your own end purposes.
80/20 Thinking is reflective
The objective of 80/20 Thinking is to generate action that will make significant improvements in your life and in that of others. This requires exceptional intuition, reflection, and introspection.
80/20 Thinking is unconventional
To move forward, you need to identify under-optimization and waste that is inherent to life, starting with your daily life, and then do something about it. To succeed, you need to reflect and find out why most people don’t do things right or only use a fraction of their potential.
80/20 Thinking is hedonistic
80/20 Thinking seeks pleasure. It believes that life is meant to be enjoyed and that achievement is a by-product of interest, joy, and the desire for future happiness. This may seem unquestionable, but most individuals do not strive to do the simple things that can lead them to happiness, even when they know what they are. They spend a lot of time with people they do not much like, do jobs that they are not enthusiastic about, and waste their “spare time” on activities that they do not particularly enjoy. Most human beings are not optimists, and even those that do not take the trouble to work out a plan to make their lives better in the future.
Trying to accomplish something worthwhile without deriving any pleasure from it is very hard and always leads to waste.
80/20 Thinking believes in progress
Progress is a duty. If we do not believe in the possibility of progress, we can never improve our universe. We need to apply progress to the quality of our lives, both individually and collectively. 80/20 Thinking is fundamentally optimistic. Only 20% of resources are truly necessary for success. Progress can help you climb several steps of the great staircase. And even when you reach this new landing, the input/output ratio will still be 80/20, so you can continue your ascension.
“The real wealth, the happiness, the knowledge, and perhaps the virtue of the human race has increased in every age of the world, and still increases.” Edward Gibbon
80/20 Thinking is non-linear
Nothing is the result of a single cause. Nothing is inevitable. And nothing is ever balanced or immutable. Few people truly know what causes anything. The balance of a situation can be greatly modified by a minor action.
Do not look for causes, above all the causes of failures. Imagine, then create the conditions that will make you both happy and productive.
80/20 Thinking joins extreme ambition with a relaxed and confident manner
We have been conditioned to think that great ambition goes hand in hand with hyperactivity, long hours of work, a ruthless nature, sacrifice of oneself and others. In short, the rat race. A much more attractive and at least equally possible combination is that of extreme ambition and a confident, relaxed and civilised manner. Think Archimedes sitting in his bathtub or Newton sitting under his apple tree. Intuition flows when we are relaxed and we feel good about ourselves.
80/20 insights for individuals
We let things happen to us instead of molding our own lives. Everyone can accomplish something valuable. We can succeed, not with effort, but by first discovering what is the appropriate thing to accomplish.
You can be a winner if you choose the right competition, the right team, and the right method.
Few people devote enough time to thinking about and cultivating their own happiness. Money that is not spent can be invested and, through the magic of compound interest, it will multiply. But happiness that is not spent today will not lead to any additional happiness tomorrow. Happiness, like the mind, will atrophy if you do not stimulate it.
Time is waiting in the wings
The best place to start 80/20 Thinking about success and happiness is a reflection on time. Our society evaluates the quality and the role of time poorly. Hundreds of overworked executives try to find freedom through time management. But all they are doing is tinkering around with their schedule. Our attitude towards time is what needs to change. We don’t need time management, we need a time revolution!
Chapter 10 – Time Revolution
Almost everyone, from the busiest of people to the idlest of people, needs a time revolution. What causes the problem and also represents an opportunity to be seized, is the way we handle time. The time revolution constitutes the fastest way to take a giant step in the direction of happiness and efficiency.
The 80/20 Principle and time revolution
- 80% of success is obtained during 20% of the time devoted to obtaining it.
- 80% of happiness is experienced during 20% of life.
It’s not about managing your time better!
If the use of your time is unbalanced, a time revolution is required. You don’t need to organize yourself better or change your schedule around the edges; you need to transform the way you use time. And you probably need to change your concept of time.
80/20 time heresy
According to the 80/20 Principle, if we double the time spent on the top 20% of activities, we could work two days a week and achieve 60% more than now. The 80/20 Principle says that we should do less.
Time is a benign link between the past, present, and future
It is not a shortage of time that should worry us, but the tendency to spend the majority of time in low-quality ways. Time always comes back around, bringing with it the opportunity to learn, to strengthen precious relationships, to create a better product or output, and to add value to life.
The benefit of seeing time this way is that it underlines the necessity to carry within us, throughout our life, the most precious and most appreciated 20% of what we possess. And to be sure to feed it, develop it, extend it, amplify it and deepen it, in order to improve our efficiency, our value, and our happiness.
Guide for the time revolutionary
- Make the mental leap to dissociate effort from reward
- Give up guilt
- Free yourself from obligations imposed by others
- Be unconventional and eccentric in your use of time
- Put your finger on the 20% that gives you 80%
- Multiply the 20 % of your time that gives you 80%
- Eliminate or reduce low-value activities to a minimum
The top 10 low value uses of time
- Things that other people want you to do
- Things that have always been done this way
- The things you are not unusually good at doing
- Things you do not enjoy doing
- Things that are constantly interrupted
- The things that not many other people are interested in
- Things that have already taken twice as long as you planned
- Things where your associates are unreliable or mediocre
- And things with a predictable cycle
- Answering the telephone
The top 10 most valuable uses of time
- Things that bring you closer to your goal in life
- Things you have always wanted to do
- The things that already represent an 80/20 type ratio
- Innovative ways of doing things that reduce the time required or increase the quality of the results
- Things that other people say are impossible
- Things that have worked for other people, in other fields
- The things that call upon your creativity
- Things that you can entrust to other people with little effort on your part
- Things with associates who have already transcended the 80/20 rule in time management, who have an eccentric and efficient schedule
- And the last – things of the “now or never” type
Chapter 11 – You Can Always Get What You Want
Reflect upon what you want in life. Everything that you want to have should be yours If you don’t aim for everything, you will never get everything Most of us don’t think about what we want Remember the promise of the 80/20 Principle: if we take what it teaches us into account, we will be able to work less, earn more, enjoy life better and succeed better.
The 80/20 Principle can act as a measure and tell us whether we are working too much or too little. If you are happier when you are not at work, you should work less or change jobs. Conversely, if you are generally happier at work than anywhere else, work more or change your non-professional life.
You should definitely have a clear idea of what you like to do and you should try to integrate it into your professional life. Figure 36 illustrates the choice to make. Which box describes you best?
Type 3 individuals, highly motivated and ambitious, are the entrepreneurs of tomorrow.
Money! Most people have a strange idea about money. They give it much more importance than it actually has. But they believe that it is also difficult to obtain, which is not really the case. How do I get money? Do something you love. If you satisfy other people, they will generally pay you well in return.
Money is easy to multiply As soon as you have enough excess money, you can easily multiply it. Save and invest. Invest in the Stock Market, allowing yourself to be guided by the 80/20 Principle.
Money is overrated. Money can bring you happiness, but only in the measure whereby you use it to become what you were made to do. You could also get a lot of value and happiness from a simpler and less expensive lifestyle.
If you feel guilty when you fail and you want to achieve more, the 80/20 Principle will help you to overcome this affliction. Success should be easy, and not the result of “99% perspiration and 1% inspiration”. It is vital that you focus your attention on what comes easily to you. The 80/20 Principle is clear. Aim for the few things that you can do much better than others and that you enjoy doing most.
Chapter 12 – With a Little Help From Our Friends
“Relationships help us to define who we are and what we can become. Most of us can trace our successes to pivotal relationships.” Donald O. Clifton and Paula Nelson
Professional relationships and alliances
Individuals are capable of astonishing things, but they always need allies before they can provide exceptional performance. You cannot succeed on your own; you need others. It is up to you to choose the relationships and alliances that best serve your end purposes. Nothing is more important than your choice of alliances and the way that you forge them. You are nothing without them. With them, you can transform your life.
Alliances in success
If your is already launched, draw up a list of the people who helped you most so far and rank them from bottom to top in terms of their importance. In general, the people who helped you most in the past will also be the ones who can help you in the future. People help you because they have a solid relationship with you.
Solid relationships are built on 5 attributes:
- Mutual enjoyment
- Shared experience
In the case of personal relationships and in that of professional relationships, it is better to have a few that are very deep than to have a large number that are merely superficial. Relationships are not all equal.
Chapter 13 – Intelligent and Lazy
“There are only four types of officer. First, there are the lazy, stupid ones. Leave them alone, they do no harm[…] Second, there are the hardworking, intelligent ones. They make excellent staff officers, ensuring that every detail is properly considered. Third, there are the hardworking stupid ones. These people are a menace and must be fired at once. They create irrelevant work for everybody. Finally, there are the intelligent lazy ones. They are suited for the highest office.” General von Manstein
Even if you are a workhorse, you can learn to become lazy. And even if you or others believe that you are stupid, you are intelligent in certain ways. The secret to becoming a star is to simulate, manufacture and deploy lazy intelligence.
What does all this mean to an ambitious person?
In a world in which the probability of extraordinary achievement is so reduced; you could give up and refuse to compete. In that case, you have come to the wrong conclusion. There are 10 golden rules for successful careers in an increasingly 80/20 world.
The 10 golden rules for a successful career
- Specialize in a very small niche
- Choose a niche that you enjoy, where you can excel
- Realize that knowledge is power
- Identify your market and your core customers and serve them best
- Identify where 20% of effort gives 80% of rewards
- Learn from the best
- Become self-employed early in your career
- Use outside contractors for everything but your core skill
- Employ as many net value creators as possible
- Exploit capital leverage
Chapter 14 – Money, Money, Money
This chapter is intended for people who have some money and want to know how to multiply it. Put it in the right place and then leave it there!
80/20 insights into making money
You are more likely to become wealthy or to obtain the greatest increase in wealth from investment income rather than from employment income.
Accumulating your entrance stake for the investment world usually requires hard work and low spending over time. How can we obtain 80% of returns on investment with just 20% of the money? The answer: obey Koch’s 10 commandments of investment.
Koch’s 10 commandments of investment
- Make your investment philosophy reflect your personality
- Be proactive and unbalanced
- Invest mainly in the stock market
- Invest for the long term
- And invest most when the market is low
- If you can’t beat the market, track it
- Build your investments on your expertise
- Consider the merits of emerging markets
- Cull your loss-makers
- Run your gains
Chapter 15 – The Seven Habits of Happiness
“The goal of all human activity should be happiness.” Aristotle.
According to the 80/20 hypothesis, 80% of happiness is enjoyed during 20% of our lives. This implies that the 80/20 Principle could help us to become happier.
Two ways to be happier
- Identify the times when you are most happy, and expand them.
- Identify the times when you are least happy, and reduce them.
Are people really powerless to deal with unhappiness?
Luckily enough, common sense, the spirit of observation, and the most recent scientific research indicate that, while the gift of happiness is different for each one of us, we have countless tools at our disposal to play our hand better and improve our position in the great game of life.
“We have reason to believe that a delicate balance exists between what we think and experience every day and our physical and mental health.” Peter Fenwick
When happiness tries to get away from us, we can be aware of it and refuse to let it go. We are free to change the way we think and act.
Making ourselves happy by strengthening our emotional intelligence
Emotional intelligence is more essential to happiness than intellectual intelligence. Luckily, emotional intelligence can be acquired and cultivated.
“Moods like anxiety, sadness, and anger do not fall upon a person like a powerless victim… You can change what you are feeling by changing what you are thinking.” Martin Seligman
Identify the personal levers that you can use to increase positive thoughts and chase away negative ones. What are the circumstances in which you are most positive? And most negative? Where do you find yourself then? With whom? What are you doing?
Making ourselves happy by changing the way we think about ourselves
Do you think of yourself as successful or unsuccessful? If you choose unsuccessfully, you can be sure that there are many people who have achieved less than you have.
Decide that you want to be happy. You owe it to yourself and you owe it to others. Use all your willpower to make yourself happy. Construct the right stories about yourself – and believe them!
Daily happiness habits
Medium-term strategies for happiness
Happiness is a duty. We should choose to be happy and work at happiness.
Chapter 16 – Your Hidden Friend
Our hidden friend is our mind, more especially our subconscious mind. Learn to appreciate it and program it properly, and you will get so much out of it!
What is the subconscious?
Our conscious mind is attached to the very human faculties of thought and reason, while our subconscious is composed of a reptilian brain harnessed to the physiological functions that ensure our survival and a mammalian brain that regulates our memories and emotions.
The subconscious is very 80/20
The subconscious produces tremendous results with no conscious effort. It keeps us healthy and it supplies the memories and emotions we need to be creative and transform the world.
How to use your subconscious
- Formulation of intent
- Transmission to the subconscious
Part Four – The 80/20 Future
Chapter 17 – Success Through 80/20 Networks
“Network society represents a qualitative change in the human experience.” Manuel Castells
Networks base their size and behavior on the 80/20 model in their extremely unequal share of results, and that is why the 80/20 Principle applies today to such a broad swathe of society. No organization or experience is more characteristic of 80/20 than networks.
What is a network?
Facebook and Twitter are networks. Terrorist organizations, criminal gangs, political groups, football teams, the Internet, the United Nations, cities, your circle of friends, and the world financial system are also networks. Almost all organizations that have experienced incredible success with a website or application – Google, Apple, eBay, Uber, Amazon, Netflix, and Airbnb – are networks or have a network at the heart of their ecosystem.
The more powerful a network becomes, the more its proportions are aligned to the 80/20 Principle.
Chapter 18 – When 80/20 Becomes 90/10
“The future is already here – it’s just not equally distributed.” William Gibson
In the first years of this century, mobile phone manufacturers did not seem in a hurry to innovate. Their monopoly, which had captured 90% of worldwide profits, seemed set to continue, but the situation is very different today. A new competitor took the market by storm in 2007 and changed everything. It was of course Apple, arriving like a new Messiah and introducing its first version of the now legendary iPhone.
Not only did the identity of the leaders change, the way in which profits were made changed too. The business model that held sway until recently was that of the “value chain” which was defined by a succession of stages moving from design to market entry. In the examples given of iPhone and Betfair, network effects also intervened to develop the market and send revenues through the roof.
How to prosper in the new world
The best advice is to work on identifying the network companies that are in the embryonic stage at the moment, but that has huge potential for growth. The first 20 people who joined Microsoft, Amazon, or Google at the beginning are almost all multimillionaires today. Some of them are billionaires. Now that you know what to do, are you ready to get started? That’s the recommendation!
Chapter 19 – Your Place in the 80/20 Future
The 80/20 future will be very exciting for those who understand what is happening. Here is some advice:
- Only work in networks
- Small size, very high growth
- Only work for an 80/20 boss
- Find your 80/20 idea
- Become joyful
Creating a lot with a little, making full use of your mental and intellectual capacities, is an incredibly worthwhile process. The primary mission of someone who is adept at 80/20 should be to rely on his or her intuition and personal knowledge to achieve as much as possible with minimum effort, all the while working in joy. People who contribute to the creation of this bright future combine, in perfect balance, individualism and sociability. May you be one of them!
Part Five – The Principle Revisited
Chapter 20 – The Two Dimensions of the Principle
The Pareto principle contains two very separate – even opposing – dimensions. On one hand, there is the dimension of efficiency. On the other hand, there is the life-enhancing dimension. The efficiency dimension requires a 20% approach. When we take about the life-enhancing dimension, we need to encourage a 200%, 2000%, or 2 million% approach.
Leave your skepticism and your pessimism aside. These character traits make what we fear the most come true. Rediscover your faith in progress.
Book critique of “The 80/20 Principle”:
I decided to write this article about the 80/20 Principle because it genuinely changed my life. I discovered this book in 2015. After first reading it, I applied myself to “thinking and acting 80/20”, which led to a number of changes in my approach to life. In 2017, I read the book again to understand some of the concepts in more detail.
In order to write this chronicle, I read the book for the third time (and I must admit that I have not read many books more than once). Anyway, as you can imagine, I am a big fan of “The 80/20 Principle”.
Like many counter-intuitive concepts related to personal development, this book divides opinion: either you are one of the people who get hooked and apply it, or you don’t get hooked and you do not take advantage of the various suggestions that could improve your life.
If you decide to adopt the 80/20 Principle, you are going to revolutionize your life. It is not easy and it is not instant. I advise you to begin by reflecting on the 80% of things you do that are a waste of your time and then reduce or eliminate them. That way, you will begin your time revolution and you can focus on yourself and your future happiness.
Whatever the case, writing this article was a nice 80/20 exercise and I hope that I managed to capture in this summary (which represents less than 10% of the whole book) the key 80% of its content.
Strong Points of The 80/20 Principle:
- A clear, efficient, and easy-to-implement way of thinking
- An approach based on numerous references and examples
- A multitude of questions that make the reader stop and think
Weak Point of The 80/20 Principle:
- A book on transformation/initiation that is not sufficient in itself, but should be added to by reading complementary books such as “First Things First”, “Rich Dad Poor Dad” and “The 4 Hour Workweek”.
My rating :
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