Use The Pareto Principle
I’ve decided to publish my first self-development book, Self-Made Success: Ivy League Shark Tank Entrepreneur Reveals 48 Secret Strategies To Live Happier, Healthier, and Wealthier. You can order it here. I release an excerpt from the book every Sunday as a series of blog posts called “Self-Made Sundays.” Below is the fifth blog post. Read the last one here.
Success Strategy: Use The Pareto Principle
The Pareto Principle states that 80% of all results is due to 20% of all causes. It is also known as the 80-20 principle. Take advantage of the Pareto Principle to succeed in all aspects of life.
In 1896, Italian economist Vilfredo Pareto found that 80% of the land in Italy was owned by 20% of the population. He also found that 80% of the peas in his garden came from 20% of the peapods. From these observations, he developed a mathematical Pareto distribution that shows the 80-20 principle to hold true across many disciplines — business, economics, science, software, healthcare, etc.
In business, 80% of revenue comes from 20% of a company’s products. For example, at Prep Expert, we have 5 major product offerings: SAT Prep Courses, ACT Prep Courses, Private Tutoring, Weekend Camps, and College Admissions Consulting. However, sales are not split evenly among the five product categories above. Due to the Pareto Principle, 80% of our revenue comes from SAT Prep Courses, which makes up 20% of our product offerings.
The most important takeaway from the Pareto Principle is to realize that not all effort is rewarded equally. Once you realize this misdistribution of effort and reward, you need to figure out how to best allocate the limited resources you have (primarily time and effort) to yield maximum results.
The Pareto Principle actually manifested itself on national TV for me. On ABC’s Shark Tank, I initially asked for $250,000 in exchange for 10% equity of Prep Expert. Mark Cuban gave me a counter-offer of $250,000 in exchange for 20% equity of my company. After some weak negotiating on my part, Mark Cuban would not budge from the 80/20 split. He also suggested an 80/20 split for all of my future companies.
Given that I knew going into the tank that the maximum equity I would be willing to give up on was 20%, I had no problem accepting his offer. I look at it is in terms of total value. Is a company more valuable if I own 100% of it on my own or is it more valuable if I own 80% of a company with Mark Cuban? I think it’s the latter.
I believe that the 20% Mark Cuban and Shark Tank bring to my company will generate 80% of all future revenue. Mark Cuban’s brand, network, experience, and team bring a tremendous amount of value to Prep Expert. In addition, the publicity from yearly Shark Tank updates because we are a Mark Cuban Company is an added bonus. There is no doubt in my mind, that 80% of my company’s revenue are due to Mark Cuban and Shark Tank — the Pareto Principle is in full effect.
For business owners, let’s examine your revenue and products. Analyze your accounting books to determine which 20% of your offerings are generating 80% of your revenue. Now, maximize those products. Determine if there are opportunities to sell more of the thing you sell best. If you don’t already, can you offer your product online? Can you make it easier to purchase for customers? Can you lower the price slightly to sell a greater volume? Can you bundle other products with your main product as an add-on? Figuring out how to sell more of your bestseller can dramatically increase your business.
For non-business owners, let’s examine your paycheck and workload. List the 5 tasks that you do most at your job. Determine which one of these five tasks generates 80% of your value to the company and 80% of your recognition by superiors. Now, optimize this task. Can you do this task better? Can you do this task faster? Are there web tools available to help you automate this task? Can you dedicate less effort to tasks that don’t matter as much? Increasing your efficiency in the workplace using the Pareto Principle can have significant benefits for your career.
For students, let’s examine your grade and effort. List the 5 tasks that you do most in a particular class. Determine which one of these five tasks generates 80% of your grade. Even if your the class syllabus says that the grade will be based 25% on participation, 25% on homework, 25% on tests, and 25% on a final presentation, you should not spread your effort evenly across these four categories. Instead, you should figure out which categories will require the most and least effort to score well and spread your effort out accordingly. The trouble so many students have with academics is not knowing how to allocate their effort. If you work hard on everything, especially on assignments that don’t mean much to your grade, you can quickly burnout. Use the Pareto Principle to become an efficient student.
Which Success Strategy did you notice while I was discussing this one? Actually, it would be impossible for you to notice. But this book itself is actually a manifestation of the Pareto Principle.
Self-Made Success will take me approximately 10 weeks total to write. However, I am writing the bulk of it in 2 weeks. Essentially, 20% of the time that I have allotted to writing Self-Made Success will produce 80% of the content in the book.
I had to write most of this book in 2 weeks not by choice, but out of necessity. I originally thought that I could write chapters of Self-Made Success regularly over 10 weeks while I was completing my last semester of business school at Yale. But it turns out that it’s rather difficult to write a book while being in graduate school and running a growing company.
So I dedicated my entire 2-week Spring Break to writing Self-Made Success. Writing for 8 hours a day for 14 days straight is probably not what most people think of when they envision Spring Break. But I’m willing to bet that 20% of Self-Made Success readers would be willing to sacrifice their Spring Break to work on a project they’re passionate about!
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