How to Think 80/20

In Essays, Productivity, Self Improvement

The Big Question

“How can I apply the 80/20 rule to my own life?”

We are actually going to deal with this question in another essay, but before you can even consider answering this question, you really need to learn how to “think” in the 80/20 way. You also need to know what you want from life. Imagine if you had no constraints. Unlimited amounts of money, free time, etc. Absolutely no restrictions. What would you do?

What would you do?

Surprisingly you might need to actually spend a fair bit of time doing some serious thinking before you can answer this question. Hell, I’ve been thinking about it all summer and I am still not 100% sure!

Anyway, once you have answered this question you need to make your life match this hypothetical reality as closely as possible. This may well require some radical changes in the way you think and in the way you do things.

So, how can you apply the 80/20 rule to your own life? The way to answer this question is to ask yourself two simple questions, and then see how you can apply them to the various aspects of your life. This will make you think about how you can change your life for the better.

But before you can do that, you have to realize that at least 80% of things in life are completely out of your control. There is no point getting angry and frustrated about what you cannot control.

Focus on the 20% that you can control, such as your thoughts and your reactions to external events. This is a cornerstone of the stoic philosophy and perhaps one the best pieces of advice that I’ve ever read. Take time to think about it. I elaborated on this point in my essay How to be Content.

“A moment’s insight is sometimes worth a life’s experience.”

~ Oliver Wendel Holmes, Jr.

So, to apply the 80/20 rule to your life you need to ask yourself these two simple questions:

  1. Which 20% of my work is giving me the majority of the results?
  2. Am I able to move resources away from my other work to concentrate on the work I identified in question 1?

The real trick is to stop wasting your 80% of your time on the things that produce little to no positive results in your life. Your life will be simpler, more productive and you will actually have more time and less stress. After all, the rewards in life are not given to those who work the hardest, but to those who simply do the best job regardless of the effort they put in.

Work smart, not hard.

That’s it! It’s quite simple really. In the rest of this article, I will explore the different ways that one can apply the 80/20 mindset.

It’s really worth expanding on this concept. Let’s have a think:

If you accomplish 80% of your work in 20% of your time, the ratio of work to time is 4:1. We can express this as a productivity level of 4 (we get this by dividing 4 by 1)

If you accomplish the remaining 20% of your work in 80% of your time, the ratio of work to time is obviously reversed and thus 1:4. We can express this as a productivity level of 0.25 (we get this by dividing 1 by 4).

So the productivity ratio between your productive work and unproductive work is:

4 to 0.25 which can also be read 16 to 1.

So you are over 16 times more productive when you apply the 80/20 rule and concentrate your energies on that productive 20%! This is secret to the ultra-achievers in life. After all, they don’t physically have more time than you have so how is it possible they get so much done?

The Winner Takes it ALL

It’s all about resource distribution and reallocation. Did you know that the word “Entrepreneur”, coined by French economist J.B Say around 1800, literally means:

“Someone who shifts economic resources out of an area of lower productivity into an area of higher productivity and yield.”

The world is becoming more and more non-linear. Amount of work = amount of reward does not exist. You are now rewarded for the way you think and the decision you make, not for how many hours of back-breaking labour you do in a week.

Wealth from investments dwarfs the amount of wealth you can create through actual work. The Capitalist system is actually designed to reward investments and punish the worker. Think about it, in America the person who goes to work in an office five days a week pays somewhere around 30% in tax to the government while the guy who lives a life of luxury and doesn’t actually have to go to work only pays 18% tax on his investments.

I know what you’re thinking, what about the people who have huge salaries? Well, that actually confirms the 80/20 rule. While there are actors and musicians who earn incredible sums, there are multitudes of other actors and musicians who barely make a living. The top few percent of wage-earners in those industries earn the lion’s share of the profits. While we are on the subject of actors, let’s talk about movies. Only a tiny fraction of movies, something in the region of 3%, in the last fifty years, have earned 90% of all the box-office income.

Another, less obvious way the world is non-linear is how small differences can grow over time and become huge gaps. It’s a bit like a spaceship that cannot correct it course. If you point it towards Mars and you are even a fraction of a degree out, the spaceship will miss Mars by hundreds of thousands of kilometers. Another example of this is the process of evolution. If one species is slightly stronger or faster, it can use that advantage over time to become the dominant species in that habitat.

So sometimes all it requires is being first, or having a slightly greater share in the beginning, and then you can use that small advantage (your 20%) to create a huge gap later.

Apple is a great example of this. They released the iPhone only a year before other decent smartphones became available. That small lead helped them become one of the world’s largest companies in terms of stock value. Looking at the iPhone’s market share today in terms of units sold, it doesn’t seem that impressive. They don’t even have 50% of the market. What Apple do have is the lion’s share of the profits. Roughly 70% of the profits in the smartphone industry are Apple’s. That’s impressive.

Modern historians and scientists know about this non-linearity, it’s about time the general public caught on too. Let’s now learn two ways of thinking that can help us see the world as it really is.

A New Mindset.

So why care about the 80/20 Rule? Can one not just carry living life and ignoring it? Of course you can but you will be working harder for less money, less happiness and with less time to do the things you actually want to do.

The 80/20 Rule is how the world works. It doesn’t care what religion, colour, sexuality or country you are from. Things work this way. It’s extremely valuable to be able to think with an 80/20 mindset. It’s very different from conventional thinking, but that’s the whole point! It’s supposed to be counterintuitive!

Don’t think for one moment that you can read this article and come away as a new-found 80/20 man or woman. Unfortunately, change doesn’t happen quite so fast. What you require is a new mindset. A new way to think and a new way to analyze situations.

Firstly, get rid of what I call the 50/50 fallacy. We have been mistakenly brought up to think that the world is a fair place and that hard work is rewarded. Perhaps this is due to the fact that in the West we are subjected to a democratic regime and so we obviously see the world through that prism. That’s just not the case. Smart work is rewarded. Sometimes working smart means working hard, but nobody cares how long you spend doing something, they just want it done well. If you can take a shortcut and get the same result in half of the time, why not?!

Remember: One unit of work does not equal one unit of reward.

You also need to learn to stop thinking in the traditional manner. This is normally very action oriented and grounded in the present or immediate future. This short-term thinking will lead you nowhere.

So, how do we avoid conventional thinking, and what exactly is 80/20 thinking?

Just to recap, let’s bring the definition of the 80/20 rule up again.

“80% of the effects come from 20% of the causes.”

Let’s break it down. Causes/work/effort can be divided into two distinct categories: The Majority and the Minority.

  • The Majority has little impact
  • The Minority has a large impact.

That’s pretty damn obvious. No surprises there. What is often surprising is how concentrated the impact is. Let me give you an example:

Imagine a company has 100 products. As you might expect, 20 of these products account for 80% of the profit.

What is surprising is that the most profitable product accounts for 50% of profits. The top two most profitable products account for 70% of the profits, and then the remaining 18 most profitable products in the top twenty fill up the remaining 10% to give us 80% of the total profits.

This is often how things play out. So the surprising thing is that in the real world, the 80/20 rule will often be the far more non-linear than we would ever expect.

The 80/20 Rule is just a good benchmark, that’s all. It’s a convenient metaphor and a useful hypothesis. You still need to use your head creatively and work out which 20%, which 80%.

Earlier I explained that if you want to 80/20 your life, you need to ask yourself two basic questions:

  1. Which 20% of my work is giving me the majority of the results?
  2. Am I able to move resources away from my other work to concentrate on the work I identified in question 1?

What I didn’t mention, is that there is an alternative. You could attempt to raise the average level of the unproductive 80%. This is generally not as profitable or productive. Please note that when I say “profitable” I’m not necessarily talking about money.

This approach is fairly conventional and it’s nothing earth shattering. After all, if a company had 10 factories and 8 of them were unproductive, they would probably try and do this. Most managers seem to prefer to have a large company rather than a profitable one! It’s in their interests, after all, a small profitable company requires far less “suits” than a huge conglomerate.

How to go about working out which 20% of your work is giving you the majority of your results.

There are actually two ways to go about this. The first is more analytical and second more creative. Don’t feel that you can only use one way or the other depending on what type of person you are.

Different situations will require different methods. With our Amazon example earlier, one needed real analytical data: profits, number of books etc.

If you don’t own a business or have any investments, I urge you to put the 80/20 rule into effect and skip the “Analytical 80/20 Thinking” section and go straight to the “Creative 80/20 Thinking” section – A good example of using the 80/20 rule.

Analytical 80/20 Thinking

Sometimes you just need to do some number crunching. This is especially applicable if you are running a business or any other type of enterprise. Guesswork often won’t cut the mustard or you just need to be 100% sure before you pour all your resources forward. This is where analytical 80/20 thinking comes in. Of course, this isn’t just for business owners and managers, anyone can use analytical 80/20 thinking in their life, but it tends to be more applicable to people who run some kind of organisation.

Analytical 80/20 thinking is used for two reasons. You either want to change the 80/20 relationship or you want to make better use of it.

You start with a blank canvas. Make no assumptions, especially if it’s your business you are examining. Instead of immediately taking the first metric and trying to 80/20 it, create a list of all possible metrics that you are able to track. As this is all based on numbers, only include things you are actually able to track.

This is a non-exhaustive list to get you started:

  • Number of units sold
  • Overall profit
  • Profit per unit
  • Revenue
  • Overhead
  • Time
  • Cost
  • Manufacturing time/difficulty
  • Customers profitability
  • Customer problems
  • Time to deal with different customers
  • Staffing requirements

After you’ve done this, you need to create a hypothesis and test it out.

It’s normally not very obvious what you have to. This actually makes sense: if it was obvious, everyone would be doing it!

When you use analytical 80/20 thinking you are actually trying to examine the relationship between two sets of data. What you are trying to find is the imbalance.

  1. The first set of data always represents people (customers, staff, readers etc) or objects (generally products).
  2. The second set of data always represents a characteristic of the above. So if for your first set of data you choose customers, your second data set might be the dollar-value per customer. Alternatively, if you chose an object as your first data set (i.e. Beer), then your second data set could be something along the lines of “Brand”. This would be useful if you wanted to know which brands of beer in your country accounted for the majority of the sales.

As I said earlier, you need to think deeply, creatively and unconventionally.

It’s far better to spend an entire afternoon thinking and then take fast, decisive action than to jump straight in and then have a host of problems pop up later because you didn’t bother to take the time to think. Remember, you don’t get rewarded for the quantity of your work, but for the quality.

The same rules apply to studying. Your professors don’t care how many hours you pour over your textbooks. They want you to understand your subject and pass your exams. If you can absorb 80% of the value of a book by reading the introduction, the conclusion and a few key chapters then you are far better of doing that instead of painstakingly reading the entire thing and underlining each and every mildly significant sentence.

In this case, you could perhaps look at past exam papers on your subject and see the type of questions that come up most of the time and focus the majority of your efforts on that. While a very simple approach, this is a clear example of analytical 80/20 thinking. You’ve discovered the which 20% comes up 80% of the time and then you are increasing your efforts on that 20%.

Let me give you another example but this time it’s of an incorrect use of the 80/20 rule. This is what would happen if you used “traditional” thinking with this radical concept.

Let’s take Amazon’s original business: Books.

It’s true that they sell a lot of units of a small selection of books. These, unsurprisingly, are called bestsellers. Hardly rocket science. With conventional thinking, one would say: “Great! So let’s just get rid of the other 95% of books we sell and focus on the bestsellers!”.

This would be a huge mistake.

Due to a lack of a true analysis, Amazon would be figuratively cutting their own head off if they followed that business strategy.

In fact, there are quite a few different ways to look at how the 80/20 rule plays out in Amazon’s business:

  • The number of each book sold (as we saw above)
  • The profit margin of each book.
  • What do the top 20% of customers want?
  • Why do 80% of customers visit Amazon?

In reality, Amazon makes far more money on unpopular books than on bestsellers. The reason for this is twofold:

  • Unpopular books outnumber best sellers by a huge amount. 99% of books are not popular! Bestsellers only account for roughly 5% of the sales.
  • The profit margins on unpopular books are often greater than on bestsellers.

This is often called the “long tail”.

This is just a quick example to show you how careful you need to be when applying the 80/20 rule. If you combine the 80/20 rule with conventional and obvious thinking it will need to disasters. Remember, the 80/20 Rule is unconventional and so it follows naturally that the conclusions you reach should be somewhat surprising and unconventional.

Creative 80/20 Thinking

For the individual, this is really where it’s all at. After all, who really has the time to go number crunching in everyday life? Everything would just stop. So we need shortcuts, we need ways to approximate the result of analytical 80/20 thinking but without the overheads that come with actually doing using analytical 80/20 thinking.

Often the most important decisions in life are not really decisions. They just happen, or at least we think they do. Life “happens” to us and then we wonder why we don’t feel in control. Sometimes there is no control.

Often a lot of the important decisions are made without analysis, things happen and then you estimate and act. There is no time for anything else. This can have positive as well as negative consequences.

A stark example of this is Japan towards the end of World War 2. When Japan went to war against the United States it was relying on the sneak attack at Pearl Harbour to be a decisive blow against the US Navy. Unfortunately (for them) this wasn’t the case and so the Japanese High Command decided that by stubbornly defending each and every peninsula in the Pacific they could force the United States into a peace treaty. They knew from that moment that they could not win a naval war against the United States. They also knew that the United States could not suffer the same kind of losses that the Japanese could suffer without serious repercussions on the home front. This plan was going quite well for the Japanese. Both sides were suffering heavy losses and the US Generals were very weary of trying to land troops in Japan itself. What the Japanese High Command did not foresee was that America was developing a weapon of virtually limitless potential. Within three days Japan had two of its cities, Hiroshima and Nagasaki, turned into ash. Six days later Japan surrendered to the Allies. There was no time for anything else. They had no need to estimate what would happen to their country if they did not surrender. The crucial decision to surrender ended up not being a decision at all. This goes to show that without proper planning you end up with little choice in any matter.

So how does this relate to you?

The very first thing that you need to do to start thinking creatively in terms of the 80/20 rule is this:

Be conscious that the 80/20 rule exists everywhere.

If you just ho-hum about your daily life without reminding yourself that you need to be actively searching for imbalances to exploit, you will just not do it! In the long run, it will become automatic but, for now, you will need to keep it at the forefront of your thoughts.

Question everything you do. Why are you doing it? If you think something is a waste of time, then it probably is. Think about it. I can’t give you a step by step approach for this.

You need to think about how to creatively apply the 80/20 to your own life. That’s the “creative” part of “Creative 80/20 Thinking”.

The second thing you need to do is exactly the same as what you need to do with Analytical 80/20 thinking:

Start with a hypothesis. Except that this time, instead of doing a huge analysis on the whole thing, you are simply going to guess. Well, I say guess, of course, I mean an intelligent estimate.

Remember that many things in life cannot be quantified and so creative 80/20 thinking is all you’ve got. After all, how do you actually measure happiness or job satisfaction?

As we saw earlier, the 80/20 ratio is mathematically a good place to start, but don’t be afraid to assume that the particular ratio you are looking at is even more skewed and extreme.

You need to be constantly asking yourself:

“What is the 20% that is leading the remaining 80%?”

While this may sound like a simple question, you need to be creative with it. Don’t just look at the obvious but try and find the oddities, the ironies in the way things are done.

Do not make assumptions.

In case it hasn’t hit home yet, the whole point of this new mindset is to stop thinking conventionally.