If you have any desire to get more done, take advantage of some of the newest trends and technologies and properly prioritize the most important things in your business, this book is a must read! I plan on sharing some of my thoughts from this book in a number of different posts, but one of the best spots was when the author discusses how he implemented the Pareto Principle in his business.
If you don't know what the Pareto principle is, it is also known as the 80/20 rule. The author tells a story of how he used this principle to cut out the 80% of his customers who only brought in 20% of his revenue. This allowed him to focus more on the 20% who were responsible for most of his revenue, increasing revenue from them and giving him more time to find more customers just like them.
The Pareto Principle with Customers
If you are in a startup company with limited resources this will be a very valuable exercise. Honestly, though in a small company where everyone feels such ownership for things, this can be a difficult process to go through and might make for some uncomfortable conversations to start with. It's also really difficult to cut customers early on when every dollar counts. Though you may not be able to perfectly follow it today, there is value in starting the conversation now. By talking about this early, you might be able to learn some things from evaluating existing customers that will help you create more profitable situations in the future.
Recently, I've noticed that most of our projects, whether they are implementation, operations, or web development projects seem to follow this rule. On a lot of projects we can complete 80% of the outlined requirements of a project in about 20% of the overall time allotted for it, but the final 20% usually takes the remaining 80% of the time.
This begs a very important question. How important is it to complete a project 100%, especially if the final 20% of the project will take 4 times longer than the first 80% did? I am a perfectionist, but I also hate to waste time so in these cases, I believe that in a startup, "B work" is good enough. So if after 20 hours of work, a project is 80% functional and it's going to take an additional 80 hours to get it to 100% perfection, it's just not worth it. Stick a fork in it now, cause it's done!
Time is often the only resource a startup has at its disposal and it's just way too precious to waste on perfection when "B work" will suffice. Granted, if the product doesn't work at all at 80%, then you'll have to adjust this, but find a way to make the 80% work for now and move on. If the remaining 20% is really that crucial, then it will keep coming up and you'll know you need to address it. However, you might be surprised how little that 20% mattered and it is far better to finish a task that is 80% perfect than to not finish because it will never be 100% perfect. I'll talk more about the value of completing imperfect projects later.
Let me know what you think. Does the 80/20 rule apply to your customers? Are you in a company where you can openly discuss this and get the buy-in to cut the 80% that is only responsible for 20% of your revenue? What about with your projects? Can you be okay with "B work"?
Finally got around to checking out your new blog (was reminded by one of Mark's tweets). First two posts look great! Keep up the good work. :)
ReplyDeleteI think the 80/20 rule definitely applies to my business. I definitely make better money in less time from streaming jobs, but I always get requests to do time-consuming editing or video creation work. Being a self-taught and still rather inexperienced editor, it almost always takes me longer to complete a project than I think it will (and part of that might be due to the 80/20 project rule). But since I enjoy learning and tinkering, I've really struggled to cut out these unprofitable jobs/customers. I'm just not good at turning down work, even when it really doesn't make sense for my core business goals.
Lately, however, I've been managing to fight that weakness with another principle from the 4-Hour Work Week: Outsourcing. I've started finding sources for profitably handling projects from customers that previously didn't make sense. It's really hard to relinquish control and I haven't got it figured out completely, but my initial results are promising and I'm excited about the possibilities it presents.
Congrats again on the blog. I've aspired to blog regularly on multiple occasions, and never seem to find the time. Maybe I just need to be more willing to throw up b-work posts--not that I think that's what you've done. :)
Clark, thanks for the comment. No offense taken. Interesting to hear how you've used the Pareto Principle in your business. As someone who has started their own company in the last year, your feedback on this point is very valuable. I'd love to hear more about your success with outsourcing.
ReplyDeleteWould you be interested in writing a guest post for the OpzGuy blog on your experience with that or other things you've learned in starting your own business?