Originally posted on Compass Consulting & Solutions – Paul Nottingham
Now that Tax season is over (at least for a while for most of us), we can all get back to the mission at hand which is running your business, efficiently, effectively and with clearly defined goals and objectives. But the question I ask many folks when learning more about their business’ is this: what are the VITAL FEW actions, steps, procedures, products, marketing tools, etc. etc., that generate the most growth and profitability in your business?? As one would imagine I typically get the deer in the headlight look and more often than not a response similar to this: “I am not sure what you’re asking me”.
There was an Italian Economist named Pareto that discovered that that 80% of Italy’s wealth belonged to only 20% of the population.
More generally, the Pareto Principle is the observation (not law) that most things in life are not distributed evenly. It can mean all of the following things:
- 20% of the input creates 80% of the result
- 20% of the workers produce 80% of the result
- 20% of the customers create 80% of the revenue
- 20% of the bugs cause 80% of the crashes
- 20% of the features cause 80% of the usage
The numbers are written in stone, because if they were then all things would add up to 100%. But if 20% of your workforce does 100% of the work and the other 80% of the workforce slacks off then 20% of your workforce is responsible for 100% of the growth and profitability and that would not be a winning business model. These are a Business guideline and axiom.
In business, there exists just like in our personal lives many orders of operation to achieve success. Take for example the student. He gets up on time every morning, eats breakfast, gets to school early, takes his books for today’s classes, and notebooks, and pens etc. all things needed to pass the class for certain, but if he does not listen attentively and take good notes and Study away from school, he may not receive a passing grade or at least an above average grade. Preparing for class, studying in class and away from class, are Vital to achieving a good grade. The other things while important are not vital. He can skip breakfast, he can oversleep, he can forget the text book…etc. etc. you get the picture. All are important, a few are vital.
Same in your business. Identifying the Vital few things in each department and then working to make those things more effective, efficient, and prominent in your strategy will help you to determine whether you increase growth and profitability or settle for the “C”.