Understanding the 80/20 Principle
Understanding the 80/20 Principle
September 20th, 2006 | Personal
Take a look at some facts below:
- Back to 1985, in Indonesia, Chinese residents comprised less than 3% of the population, but owned 70% of the wealth. Similarly, in Malaysia, the Chinese own 95% of total wealth.
- In any large retail store, approximately 20% of the sales staff will make more than 80% of the dollar value of sales.
- Of investments made by a successful venture capitalist, 5% of them
provide 55% of cash, 10% produce 73%, and 15% yield a total of 82%. - More than 80% of books sold come from 20% of authors, and fewer than 20% of media stars hog more than 80% of the limelight.
- Fewer than 20% of inventions have more than 80% of impact on our
lives. Nuclear power and computer had greater influence than hundreds
of thousands of other inventions. - More than 80% of scientific breakthroughs come from fewer than 20% of scientists.
- Crime statistics repeatedly show that about 20% of thieves make off with 80% of the loot.
- Far fewer than 20% of wars produce more than 80% of casualties.
- More than 80% of food comes from far less than 20% of land. Fruit
typically accounts for much less than 20% of the mass or weight of a
tree or vine. - Wherever you go, fewer than 20% of clouds will produce 80% of rain.
- Fewer than 20% of species cause more than 80% of ecological
degradation. It’s estimated that just one species, out of the 30
million on earth causes 40% of the harm. Guess what? us.
What is the 80/20 Principle?
Over 100 years ago, a shaggy-haired Italian economist got a real shock. Professor Vilfredo Pareto of Lausanne University was investigating wealth in Britain. He found a curiously lopsided picture: a few people had most of the money.
Then he looked at statistics on British wealth in earlier centuries.
Every time, he got an almost identical picture. Pareto then compared
wealth in America, in Italy, in France, in Switzerland, and elsewhere.
For every country with statistics, he came with the same result. A law
of money operated everywhere, any time.
Pareto explained his law badly, until 1950 did Joseph Juran
rename it the 80/20 principle: 20% of people enjoyed 80% of money. In
Pareto’s time, taxes were very low. In the last century, governments
around the world taxed the rich to give to the poor.
Yet Pareto’s picture hasn’t budged. The wealthiest 20% of Americans
own 84% of money. The planet’s top 20% corner 85% of money. These
numbers are shocking. Money -and the 80/20 principle- are more powerful
than governments.
We find that the top 20% of people, natural forces, economic inputs,
or any other causes we can measure typically lead to about 80% of
results, outputs, or effects.
The 80/20 principle works everywhere in life. It’s surprising and amazing.
How Come the 20% Own 80%?
Money, by it’s nature, is a force. Money dislikes being equally
distributed. Money clones money. “The greatest force in the world?” as
Albert Einstein said, “Compound interest.” Money obeys the 80/20
principle because of compound interest.
People with the most money have typically saved and invested it for
many years. Compound interest multiplies savings in a breathtaking way.
Try to start with a small amount of money, save and invest it, then
compound interest will do the rest.
For example, in 1946 Anne Scheiber,
who knew little about money, put $5,000 into the stock market. She
locked away the share certificates and stopped worrying. By 1995 her
modest nest egg had transmogrified into $22,000,000 -up 440,000%!
Now, let’s assume that you are 18 years old by now. You have an
annual income $16,000 a year. If you could save $1,600 a year, which is
only 10% of your earning, your nest egg would become $1.5 million when
you were 65.
Because of compound interest, money becomes concentrated in few
hands. There is therefore one, and only one, infallible 80/20 route to
enough money -to save and invest in the easiest possible way.
If we never save money, we will always be poor, no matter how much money we earn.
Why do a Few People Have Most Money?
Modern life is a mistake. Instead of working to live, we live to
work. We have never been so free, yet failed to realize the extent of
our freedom. We have never had so much time, yet felt we had so little.
Modern life bullies us to speed up our lives. We use technology to
do everything faster. But in racing against the clock, all we do is
stress ourselves out. Going faster doesn’t give us more time. It makes
us feel that we’re always behind. We battle against time, our imagined
enemy. We perceive time as accelerating, draining out from our lives.
In the 19th century, John Stuart Mill gave one excellent reason for this being true:
We don’t want to be rich, we just want to be richer than
other people. When our living standard improves but everyone else’s
does too, we don’t feel better off. We forget that our cars and houses
are better than before, because our friends all drive similar cars and
have just as pleasant homes.
On April 8, 1991, Time magazine’s highlighted the price paid for
successful careers. 61% of 500 professionals said that “earning a
living today requires so much effort that it’s difficult to find time
to enjoy life.” 38% said that they were cutting back on sleep to earn
more money. 69% said they’d like to “slow down and live a more relaxed
life”; only 19% wanted “a more exciting, faster paced life.” 56% wanted
to find more time for personal interests and hobbies, and 89% said it
was important to them to spend more time with their families, something
that their careers made difficult.
More money can be a trap, leading to more spending, more
commitments, more worry, more complexity, more time on administering
money, more desires, more time at work, less choice about how we spend
our time, and degradation of our independence and life energy. Our
lifestyle locks us into our “workstyle”.
In earning money, we sell our time, which is really our “life
energy.” The effort to make a living consumes our life. We
underestimate how much life energy is being consumed by our work. We
overestimate what we are getting in return.
When you break the link between work and money, you give yourself
the opportunity to discover what your true work is -it may turn out to
be totally unrelated to what you are currently doing for money.
This is why a few people have most money and most people have very little.
How to Apply 80/20 Principle into Our Lives?
It’s all about mental mindset. In reality, the best
way to achieve more is to do less. Less is more when we concentrate on
the few things that are truly important, not the least of which is
happiness for ourselves and our loved ones.
Writing down your ideal destination works wonders.
Of Yale’s 1953 graduating class, only 3% set written financial goals
-similar to our 80/20 destination. Twenty years later, researchers
discovered that these 3% had more money than all the other 97%.
Use time and money intelligently. Make less go
further. The quality and value of time soar once we control them.
Instead of money ruling our lives, making work stressful or miserable,
we can use money to regain control of life. We can deploy energy where
we’re most carefree, creative, and content.
It’s time for time revolution. We have too much
time, not too little. Stop worrying. Do fewer things. Chuck your to do
list, make a not to do list. Act less, think more. Reflect on what
really matters to you. Stop doing anything that isn’t valuable, that
doesn’t make you happy. The modern world has accelerated out of
control. Technology was meant to add to our free time, but it’s done
the opposite. Be unconventional, even eccentric. Purge your diary. Dump
your cell phone. Stop going to meetings or events that bore you.
Reclaim time for yourself and the people you care about. I admire Warren Buffett
for his wildly unconventional way with time. He runs America’s biggest
conglomerate empire. But does he rush around? Absolutely not. Once
there, he “expects to lie on his back and paint the Sistine chapel
ceiling.” He makes very few decisions, only the extremely important
ones. By being relaxed and thoughtful, he usually gets them right.
Maximize your happiness times. If 80% of your time
leads to only 20% of your happiness, can you cut those activities,
freeing up time for things that make you happy? Luckily, there are
always many activities that give us a poor return on happiness for the
time spent. For example, if watching television makes you happy, do
more of it; but otherwise, stop. Spend more time on the things you
enjoy. Try out your new projects while you are still working at your
normal job. Experiment with different ideas until one clicks.
Focus on your best 20%. Focus is the secret of all
personal power, happiness, and success. Focus makes less more. Few
people focus, yet focus is easy. Focus expands individuality, the
essence of being human. Who are you? Who do you want to become? Life’s
greatest mystery is human character and uniqueness. We craft
individuality. Individuality implies differentiation. Becoming
different requires editing, subtraction, focus. By focusing on our
best, unique attributes, we become more individual, more human. We
focus our power, our singularity, and our ability to enjoy life
profoundly and uniquely.
Focus on your 80/20 destination. A destination is
where you want to arrive and where you want to be. “Destination” means
your goals, dreams, objectives throughout life -what you want to
achieve. The kind of place you want to be -the people you want to be
with, the kind of person you want to become, the experiences you want
to have, the quality of your life. Where you most care about arriving
-the life that suits and expresses you.
Find the 80/20 route. What’s the best and easiest
route to your 80/20 destination? There are always many possible routes
to any destination. There is always a route that provides an elegant
and relatively easy solution, a way to get much more of what we want
for much less energy, time, money, and bother. All we have to do is to
find it. By taking a little extra time to think, you’ve found a much
easier route that is also faster. Be clear, however, about your
objectives before deciding the route.
Draw your more-with-less chart. Take a look at the chart below. Imagine that I am wanting a date with Dian Sastro.
What am I supposed to do? I could draw attention to myself, maybe
becoming the best actor, selling platinum album, or winning the
president election. But Dian may not notice. This is a high-effort,
low-reward approach (1st quadrant). I could spend ages trying to win
over her parents or her grand mother, hoping that they’ll arrange me a
date. This may work, but only with extraordinary effort (2nd quadrant).
I also can dream on how nice the date would be, but do nothing. Easy
but useless (3rd quadrant). Otherwise, I could simply wear a nice suit,
go up of her, put on my best genuine smile, commit her a random act of
kindness, and ask for a date. It is easy and just as likely to work.
Apply more-with-less to our individual lives. Using
chart above, find super-returns on your energy. In every industry,
every profession, every organization, some people are getting ahead
much faster than others, without working harder. It is always possible
to improve anything in our lives by a large amount. The way to make the
improvement is to ask, “What will give me a much better result for much
less energy?” It’s not enough to seek improvement by means of greater
effort or the same effort as today. A much better outcome must be
sought alongside lower effort.
Take 80/20 action. 80/20 action is dictated by your
unique 80/20 destination and 80/20 route. 80/20 action focuses on the
very few actions that are proven to give you the great majority of your
happiness and fulfillment: less is more. 80/20 action involves less
total action and greater total results -more with less. It’s time where
we apply less is more and more with less to five key areas of life:
- your self
- work and success
- money
- relationships
- the simple, good life
Be “lazy” and relaxed. There are “lazy” people,
like Ronald Reagan, who achieved a great deal just by being focused on
one or two objectives. And there are super-hard workers, like Jimmy
Carter, who had too many objectives and failed frenetically. A
hard-working person is often too busy to spot what’s really
significant. A “lazy” person wants to do as little as possible and so
concentrates only on the essentials. What’s really productive is a
“lazy” person who thinks new thoughts and is focused on making them
happen. Thinking is often disturbing, sometimes even frightening. For
most of us, the only way to create something new and valuable is to
slow down, do fewer things, chill out. If you really love what you’re
doing, you don’t need to be lazy. If you’re doing lots of things you
don’t enjoy, cut them, keeping just the valuable and enjoyable things.
Friendship Pleasure. Work out how much time you
spend with your key friends and with other friends. You may be
surprised. You’re more likely to spend time with neighbors whom you
like moderately than with your best friends. Try to live near your best
friends. In any case, see them frequently.
Find someone to love. Finding the right partner is
a ticket to happiness. Love at first sight usually doesn’t work.
Committing to a life partner based largely on performance in bed is a
poor bet. True love can move mountains but romantic love may not last.
To be happy over the long haul, consider being able to get close to
other people, depend on them, and have them depend on you. If you are
not secure yourself, you must select a secure partner. Choose an
optimistic partner, or one willing to learn optimism. Select someone
who has the same basic values on fundamental issues, such as honesty,
money, or kindness. Focusing on the few things that matter makes all
the difference between success and failure in relationships.
Maintain a happy family. Close bonding between
parent and child creates security and happiness throughout life.
Children don’t understand the concept of “quality time,” they want
attention all the time. The 80/20 Principle is to give more care and
love to fewer people, the people we care most about. All time spent
with one of your children is time well spent, with an enormous payoff
for the child, for the rest of the family, and for society. Parents
need to show that they love one another, even when they are annoyed.
The payoff is that forcing love to win over grumpiness will make you
happier too. Happy families can cope with disaster or difficult
children.
Last but not least, stop comparing ourselves to others.
Be content with being happy. Be happy with what we have. Stop striving
after things that make us restless and unhappy. Why bother? Less is
more -dump the stressful and unrewarding parts of our lives.
Why Does This Seem So Difficult?
Our desires are infinite and contradictory. We are restless,
ambitious, and conditioned to think that more is better. We compare
ourselves to other people. As some friends become richer, we don’t want
to fall behind. If the neighbors have a new car, I want one too, even
though I’m perfectly happy with the old one. Even if I’m lucky enough
to own a yacht, I’ll notice that the owner of the next berth has just
bought a bigger one with more powerful radar.
Many of us believe that ambition, effort, and striving are good,
that we must develop our abilities and reach for the stars. We feel
guilty if we are not competing, struggling to go further.
To expect more with less may seem unreasonable, but this is
precisely the reason that amazing improvement is possible. The trap in
making more effort to improve things is that we continue making the
same kind of effort. We may improve things, but it will be a minor
improvement and sooner or later we’ll exhaust ourselves in the process.
Instead, it should be plain that in making the startling demand for
more with less, we are going to have to dream up a great breakthrough.
By deliberately cutting back on what we put into the task and yet
asking for much more, we force ourselves to think hard and do something
different. This is the root of all progress.
Conclusion
The 80/20 Principle makes everything as easy as possible, but not easier. It is harder to start.
Ultimately, to make a life requires some new and different effort.
Nevertheless, effort is effortless when driven by desire and love. Too
often we’re driven by the dead hand of guilt, worry, or duty. Duty
wastes life energy.
Our lives are most enjoyable and valuable when we are driven by the few things that excite us.
If we are not excited, nothing is of any use. If we are not ourselves,
little will come of our lives. If we are excited and ourselves,
however, there is no limit to our happiness or achievement.
Yes, it takes a little effort to get on the 80/20 Principle. It
requires a different attitude. You must stand out from the crowd. You
must cast off the sticky chains of modern convention. It takes action.
But you can do it. Decide now that you will. To multiply happiness,
start those few actions right away. Once you get the hang of it, it
will seem the easiest way of all.
August 5th, 2007 at 6:56 am
Wow. I mean literally. You got skills.