If you’re an entrepreneur, the Pareto principle or 80/20 rule is a simple concept that can help you manage your business better. Here’s how.
What is 80/20?
The Pareto Principle was created by economist and philosopher, Vilfredo Pareto. Why is it called the 80/20 rule? Apparently, one day Pareto noticed that only 20% of the pea plants in his garden generated 80% of the healthy peapods. He then applied this to wealth and income, and discovered that 80% of the land in Italy was owned by only 20% of the population.
When it comes to the 80/20 rule in entrepreneurship, we’re talking about 80% of the effects in your business coming from only 20% of the causes. By learning how to apply this ratio to your everyday tasks, you can start focusing your time, money and efforts on the tasks that matter.
80/20 rule for time
The 80/20 rule helps you become as efficient as possible with your time. You can use the 80/20 rule to evaluate which tasks you’re focusing on, versus what’s bringing in the most benefits for your business. Working tirelessly won’t bring any results if that work isn’t focused in the right place.
Many start-ups think they need to focus on certain tasks, only to discover months (or years) later that they should’ve spent their time on other things instead. Young entrepreneurs can overestimate the importance of certain tasks. For example, having a business plan is great, but spending too much time on non-significant details won’t really help you attract investors. When in doubt, ask yourself “will this help me achieve my objectives?” If the answer is no, then don’t allocate time to it.
80/20 rule for relationships
The 80/20 rule can also be used when it comes to people who impact your business. Be mindful of which professional relationships are helping you grow, and which ones are distracting or even hindering your progress.
80/20 is also useful when looking at your marketing efforts, both online as well as offline. Attracting loyal clients takes time, and sometimes it’s better to nurture the client relationships that show promise, rather than trying to attract as many people as possible. This is where things such as knowing your target audience and targeting your advertising come in.
The 80/20 rule isn’t set in stone
It’s important to be adaptable and adjust your focus based on the current situation. For example, if you’re focusing 80% of your attention on finding an office space during COVID-19, chances are you’re not allocating your time correctly. Since it’s a pandemic, 80% of your focus should be on how to stay afloat and work from home during this time. An office space may have been a high priority before, but the current situation requires you to change course quickly so that you can save money and more importantly, time.
Now that you’ve got some ideas for how the 80/20 rule can make you a better business owner, go ahead and evaluate how you’re spending your time. Remember to work smarter, not harder. Good luck!