Making better life decisions with the Pareto Principle.
The Pareto Principle, also known as the 80:20 rule, is a concept that has been around for over a century. It was first introduced by an Italian economist named Vilfredo Pareto, who observed that 80% of Italy's land was owned by 20% of the population [1]. Since then, this principle has been applied to various fields and has proven to be valuable for improving productivity, time management, and decision-making.
So what is the Pareto Principle?
The Pareto Principle states that roughly 80% of the effects come from 20% of the causes. This means that in certain situations, a minority of inputs or efforts usually lead to the majority of results or outcomes.
Why should you care?
Once I paid a little more attention to this principle, I began to identify where to focus my resources in my personal life, hobbies, career and investments.
Let me explain.
You don't need a lot of friends
In our personal lives, most of us speak to a handful of people daily. These people influence what we wear, what we discuss, where we go on vacation etc, as opposed to the thousands of followers we have on social media. This would mean that 80% of our happiness (or sadness) may come from 20% of relationships. The few people close to us make us happier (or sadder) than the majority of people we know. Therefore by focusing on building meaningful relationships around you, you can live a happier life.
A good example of this can be seen in the bible. Jesus had twelve disciples but Peter, James and John seemed closer to him than the rest of the twelve. We can arguably say that these three had a significant impact on his life, during his time on earth.
If Jesus had instagram, Peter, James and John would be on his close friends.
Spend more time doing less
I have also seen this principle applied to personal development. As the year commences, most people have a list of things they want to achieve and improve on. If you are like me you then your list tends to be oversubscribed, putting pressure on yourself to achieve them. Applying the Pareto Principle here would see that most of our progress comes from the few habits that we instill. Therefore by cultivating the right habits, we can achieve our goals with less struggle.
People often say that the quickest way to pick up a new language is to live in a place where they speak it. This is because in all languages only a small percentage of words make up the majority. That's why when you pick up the most common words and phrases, you can quickly get conversational, as opposed to learning multiple synonyms from a text book.
"When people ask me if I speak French, I say - 'bah oui'. 'Un petit peu' is too mainstream."
A few good baskets might be all you need
You may have heard of the phrase, never put all your eggs in one basket. Well venture capitalists (VC) and angel investors are an exemption to this rule. In the VC world only a few investments are responsible for the majority of returns in a portfolio. Therefore, successful VCs focus on finding and investing in those few winners rather than spreading their investments thinly across many startups. This is an example of the Pareto principle in action.
"Play long-term games with long-term people. All returns in life, whether in wealth, relationships, or knowledge, come from compound interest" - Naval Ravikant
Re-consider your business model
If you noticed that most of your revenue comes from a few customers or products, then you might want to reconsider your business model for your business. This may not mean getting rid of the ones that bring in less revenue, but it could inform a number of decisions:
Do you encourage your marketing team to double their efforts on the successful pool of customers / products?
Do you train and support your top sales people to improve the performance of your overall team?
By identifying the critical tasks in a project that add the most value, how do you best prioritise them to save time and money?
Decisions....
So by identifying and focusing on the vital few factors in your business, you can achieve more significant results with limited resources.
The Pareto Principle is a simple yet powerful concept that can help individuals and organisations achieve more with less. By focusing on the vital few, we can optimise our productivity, time management, and decision-making.
However, it's important to note that the ratio of 80:20 is not always precise and may vary depending on the context. But the idea still stands - a minor few causing an outsized impact on the majority of results.
So with a better understanding of its benefits and limitations, we can use the principle to make better decisions and achieve better results.
Where else have you seen this principle applied? 
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