80/20 Rule in the Real World

I’ve always been fascinated by the 80/20 rule. The 80/20 rule was an observation made by Italian economist Vilfredo Pareto in 1896. Pareto observed that 80% of the land in Italy was owned by 20% of the population.

The main idea is that the majority of particular outcomes in systems are often caused by a disproportionately low portion of the possible causes (even though the ratio isn’t always exactly 80% of outcomes produced by 20% of causes).

Here are three examples:

In the United States:

• The top 10% of taxpayers pay 70% of the federal income taxes (and possess 69% of the country’s wealth).
• Over 30% of motor vehicle deaths are caused by car accidents involving a vehicle rolling over (which represents only 3% of all car accidents).
• The top 100 most frequently used words in English (0.06% of the 170,000+ words in the English dictionary) occur over 25% of the time in written English.

One of my early mentors referred to the 80/20 rule as the “little hinge that swings a big door.”

I’ve found that quite true in my career and in my personal life.

At McKinsey, 90% of how I was perceived within the firm was based on 5% of the hours I worked (they occurred when I was presenting… and in particular, usually from just one slide in the whole deck).

For my career as a whole, 70% of the positive outcomes came from 5% of my work (making the right decision at the right time… the right career choice, hiring the right person, finding the right mentor, taking the right risk).

As a parent, 80% of my kids’ memories of me in their childhood came from the top and bottom 1% of our experiences together (the best moments and the worst). I learned to treasure the former and make repairs on the latter.

You can work smarter than other people.

You can work harder than other people.

As I’ve gotten older, I’ve appreciated the idea of working smarter… and by smarter, I mean looking for the high-leverage opportunity (the little hinge that swings a big door).

When it comes to troubleshooting problems in life, I try to solve the one macro problem that, once addressed, solves dozens of other problems.

(For example, with my clients, the macro problem often is having the wrong team. The wrong team creates lots of problems that need to be solved, but hiring the right team makes all those other problems go away.)

In terms of pursuing opportunities, I’m constantly looking for an opportunity with a high upside and a very limited downside. This is a venture capital/private equity way of thinking. When I was younger, I was far too willing to “bet it all” to “win it all.”

(After “losing it all” multiple times, that got really old, really fast. Now, I’m looking for “win a lot” and “bet very little.”)

Looking back on it all (my personal life and professional life), the 20% that produced the 80% has really come down to people decisions and intangible assets.

People decisions involve: Who do I spend my time with? Who do I allow into my life? Who do I hire? Who do I ask to mentor me? etc.

The intangible assets have been:

1. Long-term relationships (where somebody trusts me more than the typical person because of a 10- to 20-year history together)
2. Reputation (Treat people well over long periods of time, and they have a habit of telling a lot of people over a decade.)
3. Acquiring and leveraging expertise (It’s really hard work to earn a living doing manual labor; it’s far easier to think, talk, and write for a living.)

The 20% that has made the biggest impact on my life will be different from the 20% that could make a big impact on yours. My point isn’t that you should copy what has worked for me, but rather figure out which 20% of your life has a disproportionate impact on the positive outcomes in your life.