I picked up Richard Koch’s: The 80/20 Principle: The Secret to Achieving More with Less upon recommendation from the Tim Ferriss Podcast (see my review of the Tim Ferriss Podcast here). I can see why a tinkerer like Tim might gravitate towards this book and its contrarian logic. The substance of the book is: defining the concept, its application within the business world and its application to one’s personal life. Right off the bat, he states his motivation:
“This book is written from a burning conviction validated in personal and business experience, that this principle is one of the best ways of dealing with and transcending the pressures of modern life.”
Awesome. They say to write about what you know and are passionate about, right?!
Koch introduces the late 19th century Italian economist Vilfredo Pareto who is credited with the 80/20 rule, a.k.a. Pareto’s Law, which states that roughly 80% of effects can be attributed to 20% of causes (and implicitly vice versa). In studying income and wealth data of different populations, Pareto found “…a consistent mathematical relationship between the proportion of people (as a percentage of the total relevant population) and the amount of income or wealth that this group enjoyed… The key point is not the percentages, but the fact that the distribution of wealth across the population was predictably unbalanced.” In other words, these data were not normal “bell curve” distributions, evenly distributed about the mean, but were heavily skewed instead. Essentially, inputs generate varying degrees of results. He implores the reader to not only be cognizant of this, but to structure one’s approach towards business and life with this key understanding at the forefront, guiding our decision-making process.
The principle may fly in the face of convention. It certainly goes against a politically correct, “democratic” approach to allocating finite resources, time, money, etc. Most importantly, it doesn’t jive with the status quo, nor a go-with-the-herd mentality (which I find appealing). He advocates for the adoption of 80/20 thinking, seeking to identify which inputs are amongst the 20 and which are the 80. Koch elaborates: “At the heart of this progress is a process of substitution. Resources that have weak effects in any particular use are not used, or are used sparingly. Resources that have powerful effects are used as much as possible… Conventional Wisdom is not to put all your eggs in one basket. 80/20 wisdom is to choose a basket carefully, load all our eggs into it, and then watch it like a hawk.” On its face, the 80/20 rule makes sense, and given an example or two, maybe even compelling . To rewire our brains to view the world through an 80/20 lens is an entirely separate proposition however. How does one identify the “vital few,” while minimizing the “trivial many?” How does one dedicate and specialize to the extreme, abandoning that risk-averse internal second guesser? What if you’re wrong and what you thought was a component of the significant 20% is in fact the insignificant 80%? These second order realities of the principal are not as easy to unpack.
Towards the end of the book (an add-on with a later edition, perhaps?), Koch pivots into the realm of network theory. “…all the business and social organizations of the previous three centuries – depends on initiative from the top of these organizations… But networks are different. Their growth comes not from inside the organization (if there is one) which owns or sponsors the network, but from outside. It is the network itself that grows, as a result of actions by the network members themselves… The network grows because of its own internal dynamics and because it is in the interests of the network members that it should grow… The second cardinal aspect of a network – a network becomes more valuable as it grows in size. Not only that. The growth in value – to its members, and if there are any to the network owners – is geometric rather than linear.” My takeaways from this discussion of network theory are twofold. I appreciate his analysis in the context of emergent technology platforms, such as the various social media and share-economy platforms, in that they represent a true paradigm shift. Look no further than the 14-year-old gamer who has millions of followers all eager to learn about how to master XYZ shoot ‘em up game. In a less frivolous example, how about the family that raises X thousands of dollars via crowd funding to help pay for the medical expenses of a sick child? Other examples are likely popping into your head, supporting the power of networks (for good or ill). The second implication regarding network theory lies in the geometric versus linear nature of growth. Koch suggests that networks augment the 80/20 principle, effectively adding gasoline to the fire and pushing 80/20 relationships to their extremes, eventually (and inevitably?) becoming 99/1 relationships. This statement seems logical. Mentally, I immediately go back to the example wealth inequality but in today’s age, with the recent memory of the Occupy Wall Street movement of 2011. It maybe suggests a darker side to the principle within the context of networks, one that further divides populations and increases inequalities amongst society.
Overall, I enjoyed The 80/20 Principle. Criticisms that it is simply a repackaging of simple contrarianism might have legs, but hey, that’s pretty aw-right with me. If nothing more, it may provide the motivation, the reassurance that being different and pursuing something that might be totally nuts to most everyone around you is not only OK, but the only way to make your mark on the world. I’ll leave you with my favorite passage:
“… don’t ask the industry Establishment what the answer is, don’t do a survey of your colleagues, and don’t try to find the answer in print. All you will find is the conventional wisdom, repeated a zillion ways. The answer will lie with the industry heretics, the professional mavericks, and the eccentric individuals.”
