The 80/20 Principle

 

This fascinating book could revolutionize your life. Koch writes about the well-documented but counterintuitive principle that 80 percent of effects or results come from only 20 percent of efforts. Most sales will come from only 20 percent of the product line. 20 percent of a carpet gets the majority of its wear and tear. And applied to personal life, 80 percent of happiness comes from less than 20 percent of your time.

While the specific ratios will vary, the principle aims to show us the fundamentally unbalanced way the world works. This is the first book exclusively on the 80/20 principle, and the first to apply it to personal life. Originally pointed out by the Italian economist Pareto (and also known as Pareto’s Law),the principle has been the mainstay of strategic management consultants and the secret of more successful companies. Its results may seem like magic for those not aware of it, because it defies conventional economic theory. Not surprisingly, it has also been termed the “Law of least effort.”

Yet the principle is not a theory but simply an observation of reality. Unlike the spiritual or philosophical laws of many of the self-help classics, the 80/20 principle, Koch says, works whether you believe in it or not.

 

At an intellectual level, a ratio of 50:50 makes sense in relation to effort put in and results gained. If you put in a “good” effort, you will get a “good” result. If you “work hard,” you can expect a certain level of reward. This is the mentality that has driven society for generations, and there is a certain merit in it in terms of maintaining societal coherence. A clear work–reward equation creates a stable society, within which mediocrity is accepted and conformity rewarded. Unfortunately, as Koch illustrates, this is no longer the world in which we live. The new world says that merely “keeping up” will no longer be enough, that mere competence at something can no longer be rewarded with success. You must do something that comes easily to you and that you love, so that you have a tremendous advantage over others and can rise to the top of your field.

Only this type of effort, which may not really seem like “work” compared to what others do, will bring big rewards. In the 80/20 world, unlike the old one, those who apply its logic can expect exponentially greater returns compared to input. However, that input must be of a uniquely high standard and reflect the uniqueness of the giver.

According to the 80/20 principle, it makes perfect sense that Michael Jordan could earn more than half a dozen basketball teams put together, because of the supreme skills displayed and the corresponding entertainment provided. Stars are earning much more now relative to the past (look at the top actors),but this is almost beside the point. Koch refers to them merely to demonstrate the applicability of his principle to all of us, that “only by fulfilling oneself is anything of extraordinary value created.”

 

Most of what we consider valuable comes from only a fraction of how we spend our time. In order greatly to increase our effectiveness, or our happiness, or what we earn, we must expand that fraction beyond 10 or 20 percent to a much greater share of our time. Koch says that our society’s appreciation of time is poor. “We don’t need time management,” he says, “we need a time revolution.”

Conventional time management is about increasing the efficiency of what we do and becoming better at prioritization. Koch believes that the failing of all types of time management is the assumption that we know what is and what isn’t a good use of our time in the first place. Its second fault is the assumption that time is short, that we have many important things to do and are constantly under pressure.

To get phenomenally better in our use of time, however, the 80/20 principle requires us to go back to our “priorities” and see if they really reflect the best use of our life in general. Koch is blunt about it: “Most people try too hard at the wrong things.” Since the principle reflects nature’s imbalance in the way things actually operate, there is no use thinking about time rationally. To seek improvements of 15–25 percent in our use of time (as time management organizers promise) constitutes “tinkering around the edges.” The unexpected and irrational reality is that there is an abundance of time once we start spending it on the 20 percent that matters. Instead of being always short of time, the author notes, the dangerous truth is that we are actually awash with it but “profligate in its abuse.”

 

Do you constantly strive while not really getting anywhere? Koch introduces us to the Von Manstein matrix. Von Manstein was a German general who concluded that the best officers, those who made the least mistakes and were the most far-sighted, were both intelligent and, by inclination, lazy. Koch applies the matrix to today’s economy, stating that the key to becoming a star is to “simulate, manufacture, and deploy lazy intelligence.” Instead of choosing the difficult, or a generic goal that we think will bring us respect, we should focus on what comes easily.

Amazingly, capitalism allows a person to become successful and rich just by being themselves: In fulfilling their highest expression, they automatically create a very small but highly valuable niche. This is in full accord with an information economy demanding ever-greater specialization, because no one does what we do, quite like we do. This applies even in markets where there appears to be endless supply and small demand, such as acting and sport. There are hundreds of professional tennis players, but only one is Andre Agassi, whose unique appearance and attitude win him many times the endorsements of players of similar rank. In all fields, the key to leadership is enthusiasm, inveterate curiosity, and continual learning. Yet these things are not work.

80/20 thinking is the combination of ambition with a relaxed and confident manner. It involves reflective thinking (allowing insights to come, rather than leaping into action),unconventional use of time, and a hedonistic philosophy. Koch believes that in our “work equals success” culture, hedonism has been smeared. Hedonism is not selfishness: The more we love doing something the better we will be at it, increasing the likelihood that it will benefit others.

 

The 80/20 Principle is a recipe book for getting out of the rat race and living up to one’s potential. It shows how trivia clogs up life and how protestations of “busyness” often hide the absence of purpose. These are familiar themes in self-help writing, but it is Koch’s application of one of the universe’s “power laws” that gives these insights special weight. Who could ignore a logic of action based on “working with the grain of the universe instead of against it”?

The book is particularly good for understanding the alchemy of success in today’s economic world, managing to be both business book and exciting life guide. Koch refers to Joseph Ford’s statement that while God may play dice with the universe, the dice are loaded. In showing us how the universe is “predictably unbalanced,” the 80/20 principle allows us to rig the odds naturally in our favor. Expressing and finessing our unique talents, rather than pursuing “excellence” in something we do not love, is the key point. The great rewards never go to the merely excellent, but to the outstanding.

 

Koch is both a successful entrepreneur and a bestselling author. His background is in management consulting (Bain & Co., Boston Consulting Group, co-founder of LEK Partnership) and he has advised many well-known corporations in Europe and the US. Business interests have included hotels, premium gin, restaurants, personal organizers, and most recently person-to-person betting through the Sporting Exchange. He continues to advise venture capital groups in the UK and South Africa.

Books include Managing Without Management, Smart Things to Know about Strategy, and The Third Revolution, on the relationship between capitalism and democracy. The 80/20 Principle has been a bestseller in the US, Asia, and Europe and translated into 18 languages. Sequels include The Power Laws: The Science of Success, which uses scientific laws to explain business success, and The 80/20 Revolution, a manual to help individuals create wealth and wellbeing. Koch has homes in London, Marbella, and Cape Town.