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Thursday, June 10, 2010

The 80/20 Principle and how it can help your business

Every so often I come across a book that completely changes the way I look at some aspect of life. This week, that book was The 80/20 Principle: The Secret to Achieving More with Less, by Richard Koch. This book addresses a concept that, if applied, can really change your life and have a significant impact on your business.

What is the 80/20 Principle

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The principle itself is pretty straightforward and goes like this – 80% of your productivity comes from 20% of what you do. The concept was first described by the Italian economist Vilfredo Pareto, who observed that 80% of the wealth of nineteenth-century England was enjoyed by 20% of the population.
The interesting part about it is that this 80-20 relationship can be seen in many other aspects of life. For example, in many businesses, 80% of the profits is made from 20% of the products, people wear 20% of their wardrobe 80% of the time and 80% of crime is committed by 20% of the criminals (sorry for the “bad” example).
Ok, I know what you are thinking. It can’t be exactly 80 – 20 all the time, and you are correct. It isn’t intended to be a hard and fast mathematical rule. The main point is that everything you do doesn’t lead to an equal output for the amount of time you spend on that tasks. There are some tasks that I would refer to as high value and others that are a waste of time.
In your business (and in your life), there are some things that you do that have a huge impact and others that don’t – even some that have a negative impact. The interesting thing is that we often times find ourselves working our behinds off doing tasks that aren’t extremely valuable. Lets give some examples that I’m sure you can relate to.

80/20 Tasks in online business

Content Generation: In the world of the Internet, content is king. People come online to find solutions to their problems. If you have the
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right content, that can result in a significant profit for your business.
Traffic Generation: If content is king, then traffic is queen. Traffic generation is a process that takes a lot of effort but, when done correctly, makes the difference between a part-time income and an income beyond your wildest dreams.
Monetization: Content and traffic are good things to have, but having a good monetization strategy is essential to taking your business to another level. Learning about monetization strategies and implementing them in your business is of utmost importance.

The other tasks

There are other tasks that, umm, putting it mildly, either don’t have as great an effect on your business or are an absolute waste of valuable time. Here are some examples:

Checking email:
This is something that is important in every business. However, it is also something that can drain your time as much as flushing the toilet drains umm . . ok, I’ll stop there. I think you get the picture.
Instant Messenger: Wow, time really flies when you are on IM. Get online to do some serious business, turn on IM and get a message from a long lost friend, or from a business associate who has a ton of questions and you will notice how easy it is for hours to fly by without you even thinking about it.
Browsing the Internet: The internet is an amazing place, but just like in the other two examples above, it can definitely be a low yielding habit.

How to apply the 80/20 Principle to Make your business better

Now that you have a realization that all tasks are not created equally, it’s a good idea to make a list of all the tasks that you do on a daily basis in your business and rank them according to which activities yield the most profit for your business. You might be surprised to notice where most of your productivity comes from. Also, what is a 80/20 task for me might not be an 80/20 task for you, so keep that in mind when coming up with your list.
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Once you have identified the 20% of what you do that accounts for 80% of your profits, you should spend more time on those things. By doing this, you can literally accelerate your earnings and have a bigger and better business. These are the tasks that will help your business to grow.
On the other side of the coin, you need to determine what the things are that have the opposite affect. What are the things that take up 80% of your time but only contribute 20% to your outcome? These are the things that you need to either spend less time on (possibly by outsourcing), or stop doing today.
If there were a third side to the coin (I know, I know. I’m weird), it would be this. 80% of your headache comes from 20% of your clients, customers, habits etc. ELIMINATE THEM. I know, it sounds harsh. However, you need to ask yourself the question – Is it worth the headache? If it is, then it’s something to deal with. If not, then you should be getting rid of those things.
By making those changes, you will be surprised to see what the effects are on your business. You WILL have more time on your hands and you WILL be more productive. I’m in the process of doing that in my own business and will be letting you know how it progresses. I would recommend getting a copy of the book, reading it and applying it to how your run your business.

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