Here’s a concept from statistics to prompt thinking about your strategy in this time of extraordinary change. I just stumbled on the fact that The Long Tail is an illustration of Vilfredo Pareto’s 80/20 principle. Pareto has the long beard (as pictured); Chris Anderson has the tail.
Here’s what happened and why I believe the Pareto principle is useful for you to gain greater focus and invent your future during this time of turbulence and opportunity. The Pareto principle is useful for managing priorities in business and in one’s personal life.
Last week I was having lunch with a client who is also a personal friend and long term collaborator with our firm. He asked my view on whether a venture capital fund with which he is associated should invest in a particular proposed software business. While discussing his query he asked a broader question. His question was: “What’s useful for surfing this time of change?” I thought and then said: “The Pareto 80/20 principle, I’ve read a book on it and will send you my notes.”
The Pareto principle (also popularly known as the 80-20 rule) states that for many phenomena, 80% of the consequences stem from 20% of the causes. Many people have long considered it to be a useful rule-of-thumb in economics and business management. An early proponent was Joseph M. Juran who went to Japan and started courses there in 1954 on Quality Management. Juran is a towering figure in the pre-history of the Total Quality Management (TQM) movement which was a foundation for the rise of corporate Japan.
Today I found my notes, made after reading a book by Richard Koch years ago on the Pareto principle. Then I googled “Pareto” and fooled around with the search results until I landed at Wikipedia’s page on The Long Tail and Bingo here’s what I read:
- “The long tail is the colloquial name for a long-known feature of statistical distributions (Zipf, Power laws, Pareto distributions and/or general Lévy distributions ). The feature is also known as “heavy tails,” “power-law tails,” or “Pareto tails.” Such distributions resemble the accompanying graph.”
The Pareto principle is useful for quality management, strategy and time management in this era of change where focus is vital. At this time of astonishing change it is useful to use Pareto’s 80/20 principle as a muse. Here are extracts from my notes made years ago and now emailed to my friend:
- To think 20%, act 20%; mentally filter the 80%.
- In your business, who are the 20% of stars and the 80% underperformers?
- Put superior effort into a small number of important things and average effort into the large number of unimportant things.
- Note the doctrine of the vital few and the trivial many.
- Make selling to the top 20% of customers a firm obsession.
- Focus on selling the 20% of solutions generating 80% of sales.
- 80/20 thinking escapes cause-effect or linear logic traps. It delves into experience, introspection and imagination – look for the subterranean 20%.
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