Before I reveal the secret to the most productive and successful business owners in the world let me first give you something to mull over.

Did you know that only 1.3% of the movies released in Hollywood in a single year account for over 80% of the profits?

Out of approximately 300 major movies released, only 4 resulted in most of the growth. That means 98.7% of the movies of the movies only resulted in under 20% of the profits.

CSO reports show that 13% of salespeople produce 87% of corporate revenue. That means 87% of the salespeople you have employed are eating up your profits; do you know which ones?

It all has something to do with the Pareto Principle and it is the secret to your future success and exponential growth.

 

Your new weapon

The Pareto Principle or more commonly known as the “80/20 observation” or “the law of vital few” is one of the most integral concepts in life and in business. Despite its importance it has not become instinctual to many companies.

It is a principle originated by Italian Economist Vilfredo Pareto in the 1900s when he discovered that 80% of the wealth in Italy was found in only 20% of the people. Pareto tested the concept in other areas of life and realized that the principle applied to all other areas of business or activity.

Joseph M. Juran one of the great pioneers of quality-control management also saw the power of this. Whilst working for General Motors, he discovered that a majority of the defects in their cars came from only a handful of production flaws. The idea of ‘the vital few and the trivial many’ was incubating in his mind when It was clear that fixing these flaws should be their highest priority. While Pareto was one of the first to speak about this observation, Juran was the first to dub it the “Pareto principle”.

With its incredible widespread implications, Juran spread the message into the common principle we know today.

The 50/50 fallacy is one of the most inaccurate and harmful beliefs there is, especially in business; 50% of the inputs DO NOT result in 50% of the output.

What economists as well as natural human observation proves is that at least 80% of the results will come from 20% of the inputs; and this can be seen in business, life and Mother Nature.

  • 20% of the workers in your company produce 80% of the result
  • 20% of the people you associate with produce 80% of your happiness
  • 20% of clients create 80% of the revenue
  • 20% of the features cause 80% of the usage
  • 20% of diseases uses 80% of health care resources
  • 20% of the seeds cause 80% of the harvest

 

The 80/20 principle applied to business has one key theme to generate the most money with the least expenditure of assets and effort – Richard Koch

In the business ecosystem the numbers of 80/20 are not even close and is skewed far more heavily. I have consulted for high tech, low tech, new, old, mature, small and large companies and I rarely ever see the numbers of 80/20. The numbers I usually find is around the 95/5 or 99/1. Where 99% of the result comes from 1% of the input.

Time after time I see companies and people not adhering to the Pareto principle; I see a 100 person sales team where one person is out pulling the other 99 combined; I see four different product lines resulting in $40 million in revenue and one of the lines is producing $38 million of it.

It is vain to do with more what can be done with less. – William of Occam, originator of “Occam’s Razor”

It shocks me that companies do not analyze themselves in this way; imagine if you found the vital few that produced the most results and replicated them.

This is exactly what Jack Welch did when he first came into power. He analyzed the divisions that produced the highest results and sold everything else. He then re-invested the new resources from selling the underperforming divisions into the high performing divisions to create unparalleled growth.

How much impact do you think it will make if you took a Jack Welch type approach to the 100 person sales team where 99 team members do virtually nothing? Imagine if you studied that one high performer and trained the rest in what exactly they did. What would happen if discontinued those three unprofitable product lines and used more energy on your highest growth areas? Imagine the wasted money you are spending on costly overheads and expenses that are producing marginal results.

In the example of the 100 person sales team; the company I was advising didn’t have to fire the entire sales team. We identified the one super star and cloned him. We analyzed everything he did and taught that to the rest of the team members. What resulted was 450% increase in sales within 30 days.

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Can you see the power of this?

This concept cannot just be information in your head it must seep into being instinct.

80% of the time you spend only results in 20% of your results. Imagine if you started focusing more on the activities that resulted in the most gain.

  • 20% of products = 80% of sales
  • 20% of your clothes will be worn 80% of the time.
  • 20% of your time will be linked to 80% of your achievements
  • 20% of criminals = 80% of the value of all crime
  • 20% of drivers cause 80% of all accidents
  • 20% of people who get married account for 80% of all divorces
  • 20% of your carpets will get 80% of the wear (That’s why many office places have modular carpets, because they knew this principle and now only have to replace those worn bits!)
  • 20% of diseases account for 80% of health care resources
  • 20% of clients = 80% of revenue

In every market there will be some businesses that are much better at satisfying client needs.

In every market there will be some businesses that are better at minimizing costs relative to revenue .

In every market there will be some businesses that generate much higher profits than others.

Over time, 80% of the market will be supplied by 20% or less of the businesses. It is the aim of this book for you to be in the few percentage of businesses that matter.

The principles of unequal effort and return therefore operate at all levels of business: broad markets, niches, products, clients, team members and outsourcers.

“Half a loaf of bread is half a loaf of bread. Half a baby is a dead baby.” – Peter Drucker

In every area of your business and life there will be factors that don’t matter and yet you spend equal amount of time on them. There will be factors that have the greatest yield and you must focus your attention on them. Find the baby in all the areas and ignore the loaf of bread.

I implore you to look into your venture and life and see if this is the case. If you do not find this type of disparity between input and output, it means there is something fundamentally wrong within your business. For example, if you find 20% of your client base do not equal 80% of your revenue then this is one area you must rectify as soon as possible. This means you have not developed an optimized back-end. Don’t worry in the latter chapters about growing your business we will dive into the specifics on how this is done.

Doing the right thing is more important than doing things right – Peter Drucker

 

What are the implications?

The most successful companies operate in a way where it is possible for them to generate the highest revenues with the least effort. Your job is to identify these inefficiencies in every area of your business and life and exploit them to its maximum.

Every company can increase profits by reducing the inequality of output and reward. By identifying the parts of your company that generate the highest profits and focusing more time, energy, and effort on those – while identifying the resources generating marginal returns and either dramatically improving or eliminating them you can see exponential results.

When Peter Drucker mentored Jack Welch he was an incredible champion of Pareto’s law. When Welch first became CEO one of his first moves was to reduce over 300 product divisions to a mere handful.

He analyzed the company and only retained the vital few that yielded the best results. As he sold the other divisions he then used the abundance of new resources available to focus on the highest leverage areas.

He even made slight change to its application when it came to team members.  He used a system on grading his staff called the “20-70-10” system. He would deem the top 20% of the workforce most productive, 70% were adequate enough to retain positions while the bottom 10% were deemed none producers and should be fired.

Here are some words from Jack Welch.

“You embrace the top 20, deal with the middle 70, and you face into the bottom 10, and you do what’s right for them and for you.

“Your job is take the A’s (20%) at any moment in time [and] reward them in the pocketbook with lots of money, with promotions, with opportunities, with a vision of where they can go. You never want your A’s to think ‘Oh geeze I’ve done all this, but I’m getting the same as this person over here – it’s terrible.’ You want them saying ‘I got recognized, the company is taking care of me, they’re pushing me up.’”

For the 70%:

“You want to send them to training, you want to give them stock options or ways to grow, you want to give them all that. But you [also] want to give them a path to becoming A’s.”

On treating the 10%:

“You want to tell them ‘This is not the place for you. This is the time for you to go over and work [for another company]. Take some time, take several months, we’re not firing you today, we’re not stamping you out. We’re telling you you’re not going to get a raise, you’re not going to get a promotion, your days here are numbered, move on.’ And do it before they’re 30 years old. That’s what we like to do….

This simple system netted a 28-fold increase in earnings for General Electric between 1981 and 2001.

“Concentration is the key to economic results. Economic results require that managers concentrate their efforts on the smallest number of activities that will produce the largest amount of revenue… no other principle is violated as constantly today as the basic principle of
concentration….our motto seems to be; let’s do a little of everything.” – Peter Drucker

 

Conclusion

It’s easy to get caught up in the minutia of our various tasks and lose sight of what really matters. Likewise, it’s easy to treat all the tasks on your list as having equal importance. Don’t fall for the hard work paradox. Instead, take a critical look at what you’re doing and focus relentlessly on those few things that really matter. Do this and you’ll super-charge your productivity.

(NOTE: Uncover how the leading small businesses in the world Double Revenue & 10X Profit in six steps WITHOUT spending another dollar on advertising. There IS a Formula for Business growth that no one talks about and you’re about to discover it…for free! Access This FREE limited time training before it is taken down)

 

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Who is Louis Dharma?

Advisor, Investor and Best Selling Author. Louis Dharma has been the secret weapon working behind the scenes engineering business growth to Fortune 500 companies like Berkshire Hathaway and GE to start-ups and hundreds of small businesses around the world.

Today Louis uses his time to focus on his private investments as well as helping a select number of business owners expand and scale their business from 7 to 8 & 9 figures while being able to work less than they are now. His mission is to create $1-Billion worth of Business Growth by 2021.

To help as many businesses grow Louis has created a FREE limited time training called “How the leading small businesses in the world Double Revenue & 10X Profit in six steps WITHOUT spending another dollar on advertising”. Take your business to the next level by clicking on this link.