VIDEO: Introduction to the 80/20 Principle in Marketing
Watch the video on Youtube: http://www.youtube.com/watch?v=Kcmlag2OmM0
About 7 or 8 years ago, Ken McCarthy recommended a book, it’s called, “The 80/20 Principle” by Richard Koch – and I bought that book. I took it to a coffee shop and I started reading and I got to page 14 and my brain just set on fire.
It’s like all of a sudden, it was like, do you ever have one of those moments where a whole bunch of things that you know suddenly snap into place? And like, “bing bing bing bing”, it’s like a whole set of dominoes just goes “ch-ch-ch-ch” & falls down. That is what it was like for me, and all of a sudden, I understood something that I had never understood before, because most people know, like everybody knows what “80/20” is. Everybody knows, “yeah yeah yeah okay, 80% of your business comes from 20% of your customers”, that’s nice. And what I saw was that, there was almost an infinite depth to that, and I’m like wait, “I gotta go try this out”, and I had been running a consulting business for about a year, at that time. And so, you know, I was giving away Guerilla Marketing CDs on my website, and I was collecting leads, and I was mailing them out, and I was making some sales and I had some clients. And just with this little business that I had, I started plugging in numbers and I started seeing “Wow!” this describes the exact business that I already have, predictably. And I saw that 80/20 could not only be a way of looking at things that already have happened, but I could also make extremely accurate predictions about the future.
And so it’s basically a law of nature. I think it’s the most overlooked law of nature. And I’m just gonna show you a few different things that illustrate it. Here is the population of the states in the United States, 36 million in California, 23 million in Texas, 19 million in New York and we start adding this up, and we see that the 80/20 Rule is very reliably true. You have this extreme concentration of population in just a few states, right? Same with counties, you know out of 300 million people, you look at this, it looks like it’s probably about 20 million people are in five counties. Now there’s thousands and thousands of counties in the United States, but there’s millions and millions of people in just five of them.
Talk about wealth in the U.S. – the top 1% of the households owned 33% of all privately held wealth. The next 19%, in other words, from, from the 80th percentile to the 99th percentile owned 51% of the wealth, which means 20% of the people owned 84% of the wealth. And that means there’s only 16% left for the bottom 80%. Now this is the original discovery that Vilfredo Pareto discovered way back in 1890 (or something like that) when he discovered the Pareto Principle. He was like, “Hmmm, why this isn’t fair.” well, looks like lesson numero uno. Guess what. No, it’s not all equal, it’s not all fair – and there’s nothing you can do to fix that. All you can do is figure out what to do to make more.
So in the world today, we have a billion people that live very very well and we have a billion people that live very badly, and we have the people in the middle. The best thing we can do for the people who live badly, is to move everything up. We can’t make everybody equal, that never works. Communism didn’t work, I think everybody knows that. But what we can do is move everything in an upward direction. And the way you move everything in the upward direction is you move up and you make room for the person below you. That’s how it works, okay. So I want everybody to move up and make room for somebody else. I want you to get out of your miserable, pathetic, “hundred thousand pound a year” business and be in a “million pound a year business” instead.