5-takeaways: The 80/20 Principle, Richard Koch

First 5TA for the year! I will be covering this gem that has been staring at me from my bookshelf since I got it almost a year ago. The 80/20 Principle is a book that is based on the Pareto Law, first discovered by Vilfredo Pareto, an Italian economist. Who noticed patterns on wealth and income distributions in nineteenth-century England. Where on average the mathematical relationship between the total population and the total wealth was about 20% of the population held about 80% of the wealth. Pareto’s other finding was that the pattern of 80/20 repeated itself whenever he looked at data referring to a different time or a different country. However, He never fully realized that the principle could be applied to a lot more than just wealth and income distribution. A number of other great thinkers throughout the remaining and next centuries rediscovered and advanced the principle. Richard Koch, a former management consultant, and entrepreneur, just so happens to be the writer that brings the principle to the masses. The book is an easy read and Koch explains the principle well, using relevant examples and giving different ways to utilize the 20% of the effort that translates into 80% of the results in other aspects of business and life. The book is a great read and I hope I can provide a little insight into the principle and how you can utilize it.

  1. 20% causes provide 80% results.

A classic use of the 80/20 principle, is on business clients, 20% of whom provide 80% of the revenue. Most businesses could determine these numbers quite easily. Where are their efforts wasted or not well used on lesser clients that don’t provide enough compensation, let’s say like in terms of they have larger projects in the pipeline. So, in practice out of the remaining 80% of clients that only provide 20% of revenue, and if only half have notable future projects, you could remove 40% of total clientele and then the business would be able to free up time for new clients or double-down on current ones. This also translates into products produced or services provided. 20% of products or services generate 80% of revenue. This is very counterintuitive, you would think that having a variety of products, you would see a relative relationship directly proportional to the amount of items provided.

“The 80/20 Principle states that there is an inbuilt imbalance between causes and results, inputs and outputs, and effort and reward. Typically, causes, inputs or effort divide into two categories:

  • The majority, that have little impact.
  • A small minority, that have a major, dominant impact.”

Of course, this rule of 80/20 doesn’t just apply to business, as I will relate in other takeaways.

  1. 80/20 doesn’t have to equal 100 or is strictly 80/20

This was one of my misguided interpretations when I initially came across the principle. I thought that: a) the sets of data had to equal 100% and b) that the relationship was fixed at 80% to 20%. Koch notes that both of these aren’t integral parts of the principle. 80/20 is just an easy way to name the disproportionate relationship between the causes and the results, the relationship could be 65/35 or 90/1. One such example from the book below.

“One of the most dramatic examples of the 80/20 Principle at work is with movies. Two economists made a study of the revenues ad lifespans of 300 movies released over an 18-month period. They found that four movies – just 1.3 percent of the total – earned 80 percent of box office revenues.”

Koch notes that one limitation of the 80/20 Principle is that it is only a snapshot of the time when the data was collected. However, Koch does relate the 80/20 Principle to Chaos Theory, which states that outcomes are based on ’sensitive dependence on initial conditions’. So the chance that the first company to the market is going to be the biggest at a later date is massive compared to a new-comer. Not only will larger companies hold most of the market value, but they will also gain more and more of the market. A great example is Coca-Cola, one of the first to the market, and now holds 48.6% of the market share, imagine that one company owns almost half of the market. Let’s say that there are 100 cola companies total, that’s a 49/1, this stat is neither is 80/20, nor does it equal 100%, yet it is significantly skewed.

  1. 80/20 your Money.

Typically, 80% of your wealth will come from a small percentage of your activities. For myself, 100% of my money comes from one activity, my job. Similarly, if you look at someone like Warrant Buffett, most of his wealth comes from a small part of his investments, I would hazard a guess that’s its stocks. Speaking of stocks, we can use our new-found knowledge on it. Koch has some wise words on wealth, “You are more likely to become wealthy, or to obtain the greatest increase in wealth, from investment income rather than from employment income.” So, what should you do with most of your money? Around 20% of your money (of course this can be more or less depending on your personal & financial situations)? Save and invest.  And of that 20%, most of it should be put into long term investments, otherwise known as blue-chip shares, a good place to park the money is in an index fund. Koch describes what compound interest is, how it works and why you should use it to your advantage. I won’t go into it as it needs another post of its own, I can suggest looking it up, or playing around with some values on a compound interest calculator(which can be found here.

  1. 80/20 your Time and the rest.

Do you ever feel like you waste a lot of your day away? I know I do, whether I get sucked into social media browsing, or a youtube/Netflix binge, or doing things I don’t feel are productive or things that I don’t enjoy. Now, some things are very necessary, such as work and sleep, these will take up more of your time. But the rest of your time can be 80/20’ed. There are 168 hours in a week if we say that you work a 40hour week, and sleep for 8 hours a day, you are left with 72 hours, if you factor in travel to and from work and eating we’ll say that your left with 50 hours (being conservative). Of these 50 hours, you may only really enjoy doing 20% of the things that you do, or 20% of the people you see. So to get more out of your time break down what goals you want and, track your time and see where you are losing it. There are many ways to do this and find one that works for you, I often use a technique called time blocking, which I wrote about here. Once you’ve done that go out and achieve those goals. See more of the friends or family members you want to see, or you could optimize your time to learn a new skill, start a business or a blog, get to the gym more. Of course, all of these things will lean toward something that you enjoy. You could 80/20 your spare time for happiness if you so desire. You might even go so far as removing work altogether (not advised if you have another way to bring in money) or finding work that you enjoy (recommended).

  1. Change your mode of thinking.

Koch really does get into how effective the 80/20 principle is outside of finance and business, once the basics are understood and the reader can start thinking with the imbalanced required. This was maybe a bit easier for me as I had already been introduced to this mode of thinking by the likes of Tim Ferriss and Gary Keller. I had been meaning to get the knowledge from the source, and this is my biggest takeaway. The universe and the world is not fair and most likely never will be, things will always improve, but the balance of 80/20 will remain. Instead of worrying about how life isn’t fair and you feel downtrodden, try and make your own life 80/20, try and break out of the social norms that you have grown accustomed to. Instead of thinking about things in the standard direct cause and effect way, start to think 80/20, as Koch describes below:

“To engage in  80/20 thinking, we must constantly ask ourselves: what is the 20 percent that is leading to 80 percent? We must never assume that we automatically know what the answer is, but take some time to think creatively about it. What are the vital few inputs or causes, as opposed to the trivial many?”

Change is hard, going into the unknown is difficult, but with discipline, you can develop a habit, and with time the habit will become a lifestyle choice. I am trying to make 80/20 a lifestyle choice, I would love if you could join me.

Koch has produced a gem of a book, that has inspired many who use it for their own businesses and personal lives. The 80/20 principle teaches its readers that 50/50 is incredibly rare, often if you can figure out what the small minority that has a huge impact is, you will be able to maximize your time, money, and happiness towards achieving your goals and life visions. As usual, I will leave you with a powerful quote from the book.

“The greatest thing about the 80/20 principle is that you do not need to wait for everyone else. You can start to practice it in your professional and personal life. You can take your own small fragments of greatest achievement, happiness, and service to others and make them a much larger part of your life… You can become a better, more useful and happier human being. And you can help others to do the same.”

Thanks for reading.

See you on the mats.

-Carlos

5-takeaways:12 Rules For Life: An Antidote to Chaos, Dr. Jordan B. Peterson.

I’ll start by saying this, I do not agree with all of whatDr. Peterson says, however, A LOT, if not all, of what he has written in this book is very useful information and some of the rules are great guidelines to live by. One of the rules that makes this list is related to this topic of “because you may dislike someone’s viewpoints doesn’t mean that everything they say should now be dismissed.” (Rule 9: Assume that the person you are listening to might know something you don’t.) There are a lot of things he says that I disagree with, including his view of mother/father parenting being the best way to raise a child, I know a few who have been raised by single mothers, or a lesbian or gay couples who are fantastic people, and I know of horrible people who have been brought up in the more traditional mother/father parenting dynamic. Still though I like a lot of what he talks about. One of the main reasons that I was drawn to and am interested in what Dr. Peterson has to say is his point that before pointing blame others or a system that does not favor you, first focus on the things that are in your control. Don’t give something or someone else control over the outcome of your life, otherwise, you will forever be powerless in the face of any chaos. That helpless feeling can be a very taxing one, one that can be debilitating, even fatal. The following list is my 5-takeaways (or top 5 rules in this case)of 12 Rules for Life, hope you too can take something away.

1. Rule 6: Set your house in perfect order before you criticize the world.

Peterson uses many religious stories throughout the book, she has studied the psychology of the many archetypical stories found throughout the Bible and a few other religious texts. He also touches on a variety of literature and movies, including Disney classics and works from notable thinkers like Nietzsche, Solzhenitsyn, and Descartes. One such reference that stood out was T. S. Eliot’s explanation of a character in his play The CocktailParty, who “is not having a good time of it.” And Peterson’s take on it, as follows:

                “She speaks of her profound unhappiness to a psychiatrist. She says she hopes that all her suffering is her own fault. The psychiatrist is taken aback. He asks why. She has thought long and hard about this, she says, and has come to the following conclusion: if it’s her fault, she might be able to do something about it. If it’s God fault, however – if reality itself is flawed, hell-bent on ensuring her misery – then she is doomed. She couldn’t change the structure of reality itself. But maybe she could change her own life.”

As a human being, you have sole responsibility of your attitude towards life, and if you can take on the burden of knowing that your outcome is dictated by your actions then you can make a start of improving, not only your life but the lives of those around you. Peterson is famous for saying “clean up your room,” in his Alberta-Canadian accent. This is not meant in a “do as your told,” way, it is meant as a, “start with something small that is easily available and achievable” way. Then once you have cleaned up your room, move on to the rest of the house, and bit by bit, if you keep putting one foot in front of the other, even in the face of setbacks, slowly your life will be more in order. Leading on to the next rule.

2. Rule 4: Compare yourself to who you were yesterday, not to who someone else is today.

This is something that I constantly struggle with, I wish that I could be traveling more, or I could own a few houses already, or be a business owner. Whatever it is I forget that the person that I desperately want to be worked hard to get to where they are now. That for my own self-esteem, the comparison does not have the desired effect. When I get reminded that I am on my own path and that I should use the person’s success as motivation for what I could become, that’s when I focus on being better than the me of yesterday, it might be in the gym, or learning something new, sorting out my life in some fashion. That is when I move forward, one step at a time. Knowing full well that I need to put in the work and have the dedication to persist in the task.

“You are discovering who you are, and what you want, and what you are willing to do. You are finding that the solutions to your particular problems have to be tailored to you, personally and precisely. You are less concerned with the actions of other people because you have plenty to do yourself.”

Of course, to improve you must see the faults that you need to work on. To not see your flaws means that you are the perfect human and that you have nothing to work on. Which would be a lie, not only do you have to make constant adjustments in yourself for your well-being but for the well-being of those around you. Of course, you can lie to yourself and those around you that everything is fine, however, your internal voice/subconscious will become louder as you keep lying, and deeper you will fall into a pit that only you will be able to drag yourself out of.

3. Rule 2: Treat yourself like someone you are responsible for helping.

If I could write out most of this chapter I would, but then I might be up for plagiarism. Peterson uses a lot of religious and personal anecdotes of patients or clients that have come to his practice. However, if you only take one thing from this it would be the paragraph below:

“As God himself claims(so goes the story), “Vengeance is mine; I will repay, saith the Lord.”According to this philosophy, you do not simply belong to yourself. You are not simply your own possession to torture and mistreat. This is partly because your being is inexorably tied up with that of others, and your mistreatment of yourself can have catastrophic consequences for others. This is most clearly evident, perhaps, in the aftermath of suicide, when those left behind are often both bereft and traumatized. But, metaphorically speaking there is also this: you have a spark of the divine in you, which belongs not to you, but to God. Weare after all – according to Genesis – made in His image. We have the these-divine capacity for consciousness. Our consciousness participates in the speaking forth of Being. We are low-resolution (“kenotic”) versions of God. We can make order from chaos – and vice versa – in our way, with our words. So, we may not exactly be God, But we’re exactly nothing, either.”

I know it’s a lot to take in, however, the words have that kind of remembered-truth, “remembered” in the sense that deep down every human knows that they have the potential to be great or do great things. All anyone has to do is treat themselves with the respect that they would give to the person that they could become, not the person they were or are currently.

4. Rule 12: Pet a Cat When You Encounter one on the street.

Suffering is part and parcel of Being, Being in the sense of the state of existing or existence. At any point in life, either you yourself are struggling or a loved one is. Very rarely, and I would say that close to never has there been a point in my life when neither I nor a close friend or family member was dealing with some obstacle. I currently have no ailments; however, a close family friend is currently battling cancer for the third time. And yet, somehow, through all his and his families suffering, he still has the attitude he has always had, one of never giving up, one of child-like wonder and humor and a thorough love of life. He may not know it fully, but the impact that he has on many is almost as large as his personality. Peterson touches on his daughter’s life-long degenerative joint disease and how it has impacted him, how he could have cursed the world and human existence, yet faced with the limitation of being – suffering is the limitation placed on humans– Peterson understood that suffering is a part of living, much like Viktor Frankl in his classic, Man’s Search for meaning.

“If you are already everything, everywhere, always, there is nowhere to go and nothing to be. Everything that could happen already has. And it is for this reason, so the story goes, that God created man. No limitations, no story. No story, no Being.”

Make a story, despite your limitations. Always remember though, that when an opportunity arises, to pat a dog or cat, or do something to distract you from all the sorrow life has to offer, only for a little while.“Maybe you can steal ten or twenty minutes to do some little ridiculous thing that distracts you or reminds you that you can laugh at the absurdity of existence.”

5. Rule 9: Assume that the person you are listening to might know something you don’t.

If you remember this is the rule I mentioned in the intro, and this I reckon is one of the more important rules Peterson lays out in the book. I myself struggled with this one growing up, I still check myself sometimes especially when meeting someone new, or someone who I have heard about from friends or family. Which as awful as it sounds, a lot of people will unknowingly make biased assessments of people and will automatically either give their undivided attention or completely disregard everything they say. The chance that they know something you don’t is higher than you think. Obviously, this goes the other way too, so when mutual respect of the other person’s knowledge is achieved, the conversation can become a more productive one, the where common ground can be established.

The other point of this rule is to listen, not think about how you will retort and flatten their argument with something witty, but to actually listen. Listen with the intent of taking in what the other person is saying. Peterson includes a Carl Rodgers quote that I thought was an interesting take on this topic.

“The great majority of us cannot listen; we find ourselves compelled to evaluate, because listening is too dangerous. The first requirement is courage, and we do not always have it.”

I know what you’re thinking, how could listening be dangerous? Well, the danger hides in your own insecurities, maybe you’re not right, maybe you are completely wrong. The main danger, however, is not in being wrong, but having your outlook or views changed, and these may be views that you hold so dear and close that they hold up part of your personality. Continuing:

“some of you may be feeling that you listen well to people, and that you have never seen such results. The chances are that your listening has not been of the type I have described.”

Everyone thinks that they are good listeners, I know I did until I started really trying to pay attention when speaking to people. Oh how wrong I was, I always would try to come up with an “I’m-better-than-you” retort, or be extremely dismissive of what they had to say. Straw manning their point of view. Definitely not a great way to listen. Peterson notes that the form of listening that Rodgers suggest is one where you repeat the person’s argument back to them, at a standard that they see fit. This does two things, you listen, but you understand their point of view.

As I have said, Peterson is not everyone’s cup of tea, but he is very good at translating complex ideas for those of us who have no prior background in psychology or mythology. The life advice found throughout the book is amazing and the 12 rules can be used as great guidelines to navigate the chaos and suffering. If you have no idea who Jordan Peterson is and enjoyed this article I can definitely recommend looking him up, his lectures can bewatch on YouTube and on multiple podcasts, such as the Joe Rogan Experience and the Jocko Podcast. I hope you enjoyed my 5 takeaways of Peterson’s book, 12Rules for Life.

See ya on the mats.

~Carlos