TWO roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;
Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,
And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.
The above is one of the most famous poems of all time by Robert Frost titled, “The Road Not Taken.” I love poetry because it pulls on the emotions of the reader while telling a profound story in the fewest amount of words as possible. It gets the most, from the least.
The same should apply to your business. If you dive into the numbers you’ll probably find 20% of your products or services account for 80% of the profits. Or conversely, 80% of your products or services account for 20% of your profits. This is referred to as The Pareto Principle or the 80/20 rule. Things in life are not 50/50, they are unbalanced. It doesn’t mean everything can be split by the 80/20 rule. It could mean 10% of the world is responsible for 87% of the world’s energy consumption. Or that 1% of the world’s population holds 99% of the world’s wealth. Again, the rule reflects the in-balance in the world.
To test this out – try flipping a coin 10 times. You have a 50/50 chance of it landing heads or tails, but when you test it you’ll find you may get heads 7/10 times or tails 4/10 times.
The 80/20 rule – apply it now
I first heard about the 80/20 rule as it related to stocks. Most financial advisor’s will tell you to diversify your portfolio. It’s a good strategy, but I wanted to test the 80/20 rule. I had one high performing fund compared to the others in my diversified portfolio. As a result, I figured I’d pump a bunch of money into the one high performing fund. Then, the 2013 market took off. The high performing fund turned into an extremely high performing fund. My return on investment…50%. The average ROI when you’re playing the market is 8%. In 2013 it was probably double that at 16-20%. My fund more than doubled the rate of return in 2013. I found what worked, pumped a bunch into it and reaped the rewards.
The 80/20 rule in your business
Many companies (big and small) usually sink a bunch of money into under performing products. Why is that? Well, maybe it’s ego driven or maybe those involved say, “We already threw this much money at it, so why note more…” Instead of looking at the weak link, why not take a look at the strong link (or as some call it the bright spot); the product or service that is really successful. Most likely, that product is responsible for a HUGE chunk of your profits. Find out what’s working with that particular product and beat it to death. Or simply scrap the under performing products or services and heavily invest in the products or services that are responsible for your highest margin of profits. Sounds simple, but soooo many companies waste countless resources a year sticking with a loser.
The 80/20 rule in your life
How much time do you waste in a day doing tasks you don’t want to do? Now there are some you probably should do, like cleaning and making meals for yourself, but what about the others. When I tracked how much time I spent watching TV in a week, it astounded me. And what was I getting out of it? I guess I enjoyed it…The light bulb turned on when I accounted for time spent watching sports. I love sports and I enjoyed watching the games, but I realized I enjoyed the outcome more than anything else. It wasn’t the getting there, it was the final score. I only cared about who won and how it happened. I could get both results in 5 minutes a night by checking the box scores on-line. BOOM! I just saved 2 – 3 hours a night. Now, I spend that time reading, learning and improving myself, so I can help others. And guess what…I really enjoy helping others.
Stop doing the things you don’t like. Instead focus on the things that make you smile. Stop wasting money on under performing products and services. Instead pour resources into the winners aka the items that are going to make you the most money. Sounds simple doesn’t it? Good luck.
For more on the 80/20 rule check out:
The 80/20 Principle: The Secret to Achieving More with Less