If you have already heard of the 80/20 rule, this article is not for you. But if you have not heard of it, this Pareto Principle is important for you to know.
In business and life, the 80/20 rule applies to everything. This is known as the ‘Pareto Principle’. What is it? It states that “80% of the effect come from 20% of the causes“. For example, “80% of your sales come from 20% of your clients.”
Also known as the power law, this Pareto Principle is followed in almost every aspect of life. Often you’ll see “80% of the returns come from 20% of the investments made” or that “20% of your employees do 80% of the tasks.”
Why is it important to understand the Pareto principle?
Peter Thiel talks greatly about the importance of the Power Law in his book Zero to One. He stated that it is applied in every individual’s life. This tells you to invest your money in a diversified way and also not in too many sectors. It opens up a new window for you to see the world differently. It tells you to shift your focus to the 20% clients who are paying you more than the rest. The Power Law helps you focus more on that 20 % of the employees who produce more work. It also tells you that 20% of your work produces 80% of the results you expect.
So, what are your views on the Power Law or the Pareto Principle? Tweet me now.