August 30

80-20 Rule or Pareto Principle & Your Business


80-20 Rule or Pareto Principle & Your Business

By Deborah Johnson

August 30, 2021

80-20 rule, Houz, Pareto principle, podcast, reevaluate, return on investment, ROI, simplify

Pareto Principle

I’m assuming most of you are familiar with the Pareto principle, or 80-20 rule. The Pareto principle states that for many results, approximately 80% of the outcomes come from 20% of the origin or project. Romanian born American engineer Joseph Juran (1904-2008) developed the concept and named it after the Italian economist Vilfredo Pareto(1848-1923). Pareto had noticed that 80% of the wealth in Italy belonged to about 20% of the population. We can see the same financial distribution in the U.S. Many will try to manipulate numbers and equality of wealth with equal distribution, but  history has proven the 20% still floats to the top, whether in wealth or other areas.

There are many articles online about how to either embrace the Pareto principle, or how to work around it. Organizations and businesses find the principle very relevant and helpful in evaluating how many will volunteer time or give to worthy causes. Here, I’m going to focus on five areas that will help you use the Pareto principle more effectively in relation your business plan and life. Hopefully it will enhance the results of your plans and goals as you understand how the principle can work for you.

Women at Halftime by Deborah Johnson 80-20 Rule or Pareto Principle and Your Business 8-31-21
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One: Identify all Areas of Your Business

Today, there is much talk about creating multiple streams of income. The importance of this was amplified with a huge shutdown that stopped travel and much of the world’s work.  To identify your areas, there are several free downloads in the article: A Hybrid World-Diversify Your Income.

Take time to identify all areas of your business. You may have a side business you have termed as more of a hobby. It’s fine and healthy to include that side business in the mix, especially if it generates any income at all. It’s most important to be realistic with any area that is taking up your time, even though it may be small. Many successful businesses started as small side businesses and entire podcasts, books and shows are built around interviews that document those journeys. (download: Free Side Business Template)

The popular home improvement hub Houzz home design and home improvement business was founded in 2009 by a husband and wife team struggling with their own home improvement project. The small website they created to solicit input and contractors turned into an international presence. They found that pictures sell, similar to the story of Instagram, which started as an app called Foursquare. But it didn’t go anywhere until the founders changed the name. A huge key to the growth came from the focus on mobile photography--a fact that was able to help many as they saw the potential of what they could create. The photographs helped us with our own home design dilemma. Our custom home was built in the 1950’s, with many varying angles of design in our living area. It was a huge puzzle until we saw a photo on Houzz that helped us craft new tile flooring in a herringbone pattern. Seeing the photos made all the difference in successfully finishing our room, though still spending a good amount of time laying the pattern out a number of ways with large pieces of tile before permanently connecting all the pieces. The photography element, which at first had played a small part of their business, ultimately helped to generate billions in income for Houzz.

Two: Evaluate Each Area

Evaluate each area you’ve identified with the percentage of income generated but also the percentage of time it takes to generate that income. Doing both will help you be realistic with where most of the income is coming in as well as how you are spending your time. This applies to a solopreneur or to a small business. It is easy to spend extra time on areas you want to pump-up. However, now is the time to evaluate. What is generating the most income, traffic or other business? Be realistic!

Also, evaluate what is bringing you the most enjoyment. We are humans and gravitate toward what is not only the fun, but the easy. The book Tiny Habits is a great resource for research on this principle. If we want to change a habit or add a healthy routine, the author encourages us to attach it to what you are already doing. But also, to evaluate the enjoyment and ease of the new routine you are creating. In my business the Women at Halftime Podcast brings me a great amount of enjoyment. I love producing it, writing articles for it and booking in guests so I have started devoting more time to adding video and other elements for others to quickly access.

I believe halftime, mid-career or the second half of life, should be filled with times of great enjoyment. Most will continue to work, either because they need to generate income, or because they feel called to a specific mission or purpose. This is the reason I’ve included the enjoyment aspect in the Core Common Denominator principle, aimed toward those at mid-career or the halftime of life, that is covered more thoroughly in Women at Halftime book. (see free download) If you enjoy what you are doing, this can negate some of the hit of what is less profitable. There will be certain products that will provide more help for people, though they may not be as profitable as other areas in your business at this point. But if you are committed to providing significance and not just success, profitability is not always the endgame. A strong mission and purpose becomes most important.

Peach Tree-1-Pareto Principle

Three: Simplify by Cutting Back

Cutting back is hard. The fruit trees on our property are a good reminder of how important it is to cut back. If you let too many sucker branches and small shoots grow on a tree, the tree doesn’t have room to grow correctly. Another problem is the smaller and weaker branches experience difficulty in holding the fruit on the branch, especially if the fruit is large.

Your business works the same way. If you try to load up too many orders on a system that is not able to handle the orders, you will have dissatisfied customers and most likely no repeat business from them. The same principle happens with the non-essential tasks that are time-suckers. Checking emails multiple times every day or scrolling and reading social media posts will distract and take you away from what is most important.

This is not to say that you eliminate a side business or project you enjoy, but to give focus on the most important aspects that will generate growth. This past season, we trimmed back peach trees on our property, but not enough. When the fruit came in, some of the branches needed to be propped up. Without help, the fruit could rot on the ground, or the whole branch could even break off. Next year will take more aggressive pruning, even though it feels harsh!

Four: Focus on What's Working

If you take a realistic look at what’s working the best for you, a smart move is to pour more energy, resources and time into that area. This doesn’t necessarily mean to eliminate another area, but it’s an allocation of time and energy for what’s already working. The temptation, especially for artist types, is to pour extra time and resources on projects or areas that have very little chance of generating a return on investment or impact. These projects can easily become a bottomless pit that take up time and money, but difficult to let those projects go emotionally.

Peach Tree-2-Pareto Principle

Another principle you can apply to save time and energy is to streamline a process for those products or areas that won’t be generating as much ROI, at least right away. An example is to create email lists for updates on products, such as a new recording, book or video. Sending periodic messages to this list costs very little time and effort and it can be automated. You can also create a simple ad and test the outcome for very little risk.  

Your time is one of your most valuable assets. (see: Life Goals) Organizing how you spend it can free you up emotionally, financially and physically by creating space to spend more time with what’s important and necessary.

Pareto Principle Download-Deborah Johnson

Five: Re-evaluate Your Plan & Process

Just as writing is rewriting with creating a book, a song or most any project, you should take the time to re-evaluate your plan and process. This was especially true when writing the book The Summit, as I worked through many re-writes and a couple editors. There are times you just want to be done! A project well-done takes focus, time and evaluation. (Pareto Principle Free Download)

We live in a world that wants most projects and jobs done by yesterday. Ongoing evaluation continues through times you gain sales personnel, land a booking agent or take on a partner. The commitment to consistent evaluation is part of good management and is especially relevant when taking on virtual assistants. I hear of many who want and need the help but may not realize how much time a V.A. takes to manage. I have held off hiring at times because of this. It takes time to manage well. As you re-evaluate your life and business, you will notice areas that need tweaked and if you take care of it bit by bit, it won’t be overwhelming.

Find the top 20% in your life whether it’s profitability in your business, for what you enjoy, or even the greatest impact. You may be pleasantly surprised at what you find. It may help you trim off some of those weighty branches so next year, you can even experience more fruit!

Look for the top 20%. You may be pleasantly surprised.

deborah johnson

Thought Leader, Keynote Speaker, Author

If you are interested in growing and learning, check out our online courses here: Online Learning

1,630 words

Deborah Johnson

About the author

DEBORAH JOHNSON, M.A., creator of Hero Mountain® and former president of Los Angeles National Speakers Association, is an international award-winning music artist, author, speaker and National Media Commentator. She also hosts the popular podcast "Women at Halftime." Deborah provides tools to create your ideal lifestyle and work at mid-career or during the halftime of life, getting unstuck. You can live your second half fulfilled, focused and free! Up for multiple GRAMMY Awards and spending over 20 years in the entertainment industry, she's an expert on how to constantly reinvent yourself in a gig-economy. She is also the recipient of the Women's Economic Forum Exceptional Women of Excellence Award. Deborah is the author of multiple books, over twenty albums and musicals and speaks and performs in both live and virtual events.

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