One chapter of this book, “Pareto and His Garden: 80/20 and Freedom from Futility” is probably the thing that has changed my business and my life the most. Before it clicked with me, I would spend hours of unbillable time trying to please clients that would argue with me over every bill I sent them. After I read this chapter, I crunched the numbers and my most annoying and time consuming clients were the ones making me the least money. What to do?
“Pareto’s Law” or the “Pareto Distribution,” or what is called today the”80/20 Principle” is mathematical formula written by Vifredo Pareto, a controversial economist who died in 1929, which he used to demonstrate a grossly uneven but predictable distribution of wealth in society—80% of the wealth and income was produced and possessed by 20% of the population also can be applied outside of economics. Eighty percent of Pareto’s garden peas were produced by 20% of the peapods he had planted, for example.
Here are some experts from this chapter from Timothy Ferriss’ book:
“… 80% of the consequences flow from 20% of the causes.
80% of the results come from 20% of the effort and time.
80% of company profits come from 20% of the products and customers.
80% of all stock market gains are realized by 20% of the investors and 20% of an individual portfolio.”
“… I began a dissection of my business and personal life through the lenses of two questions:
1. Which 20% of sources are causing 80% of my problems and unhappiness?
2. Which 20% of sources are resulting in 80% of my desired outcomes and happiness?”
“All, and I mean 100%, of my problems and complaints came from this unproductive majority, with the exception of two large customers who were simply world-class experts of the “here is the fire I started, now you put it out” approach to business. I put all of these unproductive customers on passive mode: If they ordered, great—let them fax in the order. If not, I would do absolutely no chasing: no phone calls, no e-mail, nothing. That left the two larger customers to deal with, who were professional ball breakers but contributed about 10% to the bottom line at the time….”
“… So what happened?
I lost one customer, but the other corrected course and simply faxed orders, again and again and again. Problem solved, minimum revenue lost. I was immediately 10 times happier.
I then identified the common characteristics of my top-five customers and secured three or so similarly profiled buyers in the following week. Remember, more customers is not automatically more income. More customers is not the goal and often translates into 90% more housekeeping and a paltry 1-3% increase in income. Make no mistake, maximum income from minimal necessary effort (including minimum number of customers) is the primary goal.”
“… The end result? I went from chasing and appeasing 120 customers to simply receiving large orders from 8, with absolutely no pleading phone calls or e-mail haranguing. My monthly income increased from $3oK to $6oK in four weeks and my weekly hours immediately dropped from over 80 to approximately 15. Most important, I was happy with myself and felt both optimistic and liberated for the first time in over two years.”
This is as far as the book goes. Me? I have eliminated over 80% of my customers, and I am now working less, making more money and I actually enjoy what I do again.