80-20 Pareto in a Startup

BY aarrieta

Pareto Principle is known as the 80-20 Rule

The principle states that, for many events, 80% of the effects come from 20% of the causes, while the remaining 80% accounts for 20% of the results.

One of the most popular application is its use for commercial-sales analysis: where an analysis of the sales over the number of client is done and we can see that 80% of sales comes from 20% of the clients. With this information you can decide which are strategic clients (and you have to care for them) and which are less important (and on many cases get rid of them).

Even the fashionable concept is long tail in order not to pay attention to 20% of the results, what I am trying to explain here is another thing.

On the startup field, where everything needs to be done and everything seems to be important and many things urgent, it is very important to use this rule from Vilfredo Pareto to determine which is that 20% of the actions that I have to take today and is going to generate 80% of the results I can not have today.

This same way of thinking ends up being applied to each action, which you have to take on a day. It is a reality that I will not be able to do all that I had planned for today, the list is endless and the resources limited. I have to decide what to do today and more important what not to do and Pareto has to help me decide.

On this context is where a knowledge that is more than two centuries old becomes relevant and critical for the success of a startup. When this practice is internalized we can gain two things:

–       Being free of the guilt caused by not doing what we had planned.

–       Learning to estimate the impact of each action that we take.

If we apply Pareto to personal time management and we make it a habit, we will find ourselves applying to:

–       The definition of the products mix: which products (20%) are going to generate the highest income (80%)

–       The definition of which clients to fidelize 20% that generate 80% of the profit.

–       The definition of which employee to reward: 20% that generates 80% of the work.

–       Which movie to watch (Batman) for being among the 20% that generate 80% satisfaction, or comments from my friends.

In all a very useful tool that becomes a one way trip… Hop on!

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