TOP 10 LESSONS FROM "THE 80/20 PRINCIPLE" BY RICHARD KOCH

What is the 80/20 Principle?

The 80/20 principle (aka the Pareto principle) states that 80% of the results come from 20% of the causes. 

1)Thinking 80/20

80/20 thinking requires, and with practice enables, us to spot the few really important things that are happening, and ignore the most unimportant things. It teaches us to see the woods for the trees.

80/20 thinking is reflective, unconventional, hedonistic, strategic, and nonlinear; in that it combines extreme ambition (in the sense of wanting to change things for the better) with a relaxed and confident manner.

2)80/20 thinking is reflective

80/20 thinking is different from the type of thinking that prevails today. The latter is usually rushed, opportunistic, linear, and incrementalist.

Our objective is to leave action behind, do some quiet thinking, mine a few small pieces of precious insights, and then act; selectively, on a few objectives and a narrow front, decisively and impressively, to produce terrific results with as little energy and as few resources as possible.

3)80/20 thinking is unconventional

80/20 thinking discovers where conventional wisdom is wrong, as it generally is. The power of the 80/20 principle lies in doing things differently based on unconventional wisdom.

4)80/20 thinking is strategic

To be strategic is to concentrate on what is important, on the few objectives that give us comparative advantage, on what is important to us rather than others.

5)80/20 thinking is nonlinear

Traditional thinking is encased in a powerful but sometimes inaccurate and destructive mental model: It is linear.

Linear thinking is attractive because it is simple, cut and dried. The trouble is that it is a poor description of the world and an even worse preparation for changing it. Scientists and historians have long ago abandoned linear thinking. Why should we cling to it?

The most valuable insight from 80/20 analysis will always come from examining nonlinear relationships that others are neglecting.

Only a few decisions really matter. Those that do, matter a great deal.

6)80/20 in Happiness

Happiness is not money, and it is not even like money. Money not spent can be saved and invested and, through the magic of compound interest, multiplied. But, happiness not spent today does not lead to happiness tomorrow.

Happiness, like the mind, will atrophy if not exercised. 80/20 thinkers know what generates their happiness and pursue it consciously, cheerfully, and intelligently, using happiness today to build and multiply happiness tomorrow.

80% of our achievement and happiness takes place in 20% of our time — and these peaks can be expanded greatly.

Our lives are profoundly affected (for good or ill) by a few events and decisions. We can improve our lives dramatically by recognizing the turning points and making the decisions that will make us happy and productive.

Everyone can achieve something significant. The key is not effort, but finding the right thing to achieve. You are hugely more productive at some things than others, but dilute the effectiveness of this by doing too many things when your comparative skill is nowhere near as great.

Most of our failures are in races others enter us into. Most of our successes come from races we want to enter.

Few people spend enough time and thought cultivating their own happiness. They seek indirect goals like money or promotions that may be difficult to attain and will prove when they are attained to be extremely inefficient sources of happiness.

7)80/20 in Investing

Typically, 80% of the increase in wealth from most long-term portfolios comes from fewer than 20% of the investments. It is crucial to pick this 20% well, and then concentrate as much investment as possible into it.

Let those good investments compound: Nobody ever went broke by taking a profit, but many people never got rich by following the same procedure.

8)80/20 in Relationships

You don’t need many allies but you need the right ones, with the right relationships between you and each of them and between themselves. You need them at the right time, in the right place and with a common interest in advancing your interests.

Do not assume your friends and allies are all of roughly equal importance. Focus on your attention on nurturing the key alliances of your life.

You alone cannot make yourself successful (in any area of life). Only others can do that for you.

If you have a strong alliance with both X and Y and they have one between each other, that is excellent. A chin is as strong as it’s weakest link. However strong relationships between X and Y, the ones that really matter for you are your with X and yours with Y.

9)80/20 at Work

80% of the value in any organization or profession comes from 20% of the professionals. Workers who are above average will tend to be paid more than those who are below average, but nowhere near enough to reflect the differential in performance.

It follows that the best people are always underpaid and the worst people always overpaid.

Being Intelligent and Lazy

The key to earning more and working less is to pick the right thing to do and to do only those things that add the highest value.

Identify where 20% of effort gives 80% of the returns: In any sphere of activity, 80% of people are achieving 20% of the results, and 20% of the people are achieving 80% of the results.

What are the majority doing wrong and the minority doing right?

10)80/20 in Winning

There are always winners and losers — and always more of the latter. You can be a winner by choosing the right competition, the right team and the right methods to win.

You are more likely to win by rigging the odds in your favor (legitimately and fairly) than by striving to improve your performance.

You are more likely to win where you hav e won before.

You are more likely to win when you are selective about the races you enter.

80/20 Time Management

80% of achievement is attained in 20% of the time taken. Conversely, 80% of time spent leads to only 20 of output value.

We need to make a conscious effort to step away from the Protestant work ethic. We enjoy hard work — or at least the feeling of virtue that comes from having done it.

What we must do is internalize that hard work—especially for someone else— is usually not an efficient way to achieve what we want. Hard work leads to low returns. Insight and doing what we ourselves want leads to high returns.

Free yourself from obligations imposed by others

It is very difficult to make good use of your time if you don’t control it.

Eliminate or reduce low value activities

Since there is little value in the activities you want to displace, people may not actually notice if you stop doing them. Even if they do notice, that may not care enough to force you to do them if they can see that this would take major effort on their part.