The 80/20 Principle

The 80/20 Principle by Richard Koch is about focussing on what brings the most value to us in all aspects of life. He addresses the corporate world, our jobs, and many facets of our personal lives. Koch has applied The Principle to his life and swears by it and believes it is the reason for his success. It’s tricky to change the way we think about and approach things, and so I found it tough to apply these principles. You have to constantly be aware of it to get used to it, hopefully turning it into the natural way we approach life. He provides many real-world examples to make his case, but it doesn’t change the fact that it’s hard to change the way we think about everything we do. Here are a few ways to apply the principle to your own life.

Koch discovered the Pareto principle which is used in economics and decided to apply it to his life. Koch got his degree at Oxford by studying the 20 percent of the syllabus that came up in 80 percent of the past exams. It’s basically about achieving more with less effort.  In economics, the 80/20 principle appears repeatedly, and Koch shows this by looking at companies’ sales and production. When looking at the companies’ records it is usually discovered that 20 percent of their inputs lead to 80 percent of the outputs.  Here are some real-world examples:

·        20 percent of criminals account for 80 percent of crime.

·        20 percent of customers or products account for 80 percent of profits.

·        20 percent of clothes will be worn 80 percent of the time.

This pattern or principle seems to appear in all aspects of our lives. Koch’s focus is to double down on that 20 percent that is giving us 80 percent of output to exponentially improve whatever we’re trying to achieve.

The easiest application of the 80/20 Principle to understand is in business. All companies are required to keep records of their inputs and outputs making it easy to look back and apply The Principle. Koch shows the inefficiencies in many different aspects of the businesses and uses visual representation to help you understand. The main point is that managers and people starting companies want to do it all. Spreading yourself too thin leads to a lack of optimization and forgone profits. It’s simple to see this when looking at a company’s records. Maybe a few clients (+/- 20%) bring in most of the revenue (+/-80%) or a few products make most of the revenue. His point is to notice this pattern and double down on the 20% that is bringing in most of the revenue. This may mean spending less time on other clients or discontinuing a product. This could even be applied to the number of employees or inventory management; the key is to look for inefficiencies. Looking busy or overworked doesn’t mean you’re optimizing your output. Slow down and evaluate what few aspects should be focused on.

Koch believes that applying The Principle to our everyday lives can lead to us working less, earning more and enjoying life more. In order to achieve this, we need to think about our lives on a deeper level. Put time aside and think about where we want to go and how we want to get there. We then need to transform how we spend our time. Notice that this is different from time management. We need to do this in a number of steps:

1.      Make the difficult mental leap of dissociating effort and reward – there are smarter and more efficient ways to get tasks done, time spent on a task shouldn’t be the key indicator.

2.      Give up guilt – don’t feel guilty when doing the things you enjoy as well as not working on the things you have to complete.

3.      Free yourself from obligations imposed by others – select your partners and obligations with great care.

4.      Be unconventional and eccentric in your use of time – try to deviate from the normal way you spend your time.

5.      Identify the 20 percent that gives 80 percent. Do this by making 3 lists consisting of: times you felt truly happy, times you felt truly unhappy, and times you felt you achieved the most. Find the correlation between the times you were happy and the times you felt the most accomplished and focus on those things.

6.      Multiply the 20 percent of your time that gives you 80 percent – ideally you want to be turning that 20 percent into 100 percent of your time.

7.      Eliminate or reduce the low-value activities – sometimes these may be difficult decisions, but necessary if ultimate happiness is to be attained.

You can always get what you want if you focus on the things that you find easy. When thinking about our lifestyle, we can ask questions like, “Am I living in the right place?”, “Do I have the right work/life balance that fits my lifestyle?”, or “Do I feel in control?” There are so many questions like these that we can ask ourselves to figure out whether we are really in a happy place or just going through the motions. Once you have answers to these questions and the many others mentioned in the book, you know what to do to move forward. When it comes to money, saying you don’t have enough is different to saving up what you can and investing it into the stock market. The amount doesn’t matter. Rather, forming the habit and taking control of multiplying your money does. Work shouldn’t be in a separate box either. It should be part of your lifestyle and enjoying what you do is key to happiness.

Koch goes on to apply the principle to our relationships with friends and loved ones. By being more conscious of our close relationships and strategic in our professional ones, we can create an environment for ourselves that promotes our own growth and learning. He also helps you create a framework to make decisions. He advocates for working intelligently and lazily, by applying these systems we can achieve a lot more with less effort.  

There is so much value in this book and I didn’t even get around to the chapters on money, the seven habits of happiness and our subconscious. I found that The Principle seemed easier to apply to numerical data, like a business’s balance sheet, than the different aspects of our personal lives. To make changes to your life, you have to make a concerted effort. It’s one thing to want to make a change and another to actually do something about it. I found that applying The Principle to my life was tricky and I still haven’t fully got the hang of it. Writing this reminded me of certain aspects that I need to pay more attention to. If you want to work smarter, not harder then give The 80/20 Principle a read.