The 80/20 Rule guides our actions. The eponymous Pareto principle states that 80% of our results come from only 20% of our efforts. The 80/20 rule supplants the long-established “work more” mindset. If our greatest efforts come from but a few of our investments, then we should stop the wasted effort and focus on investing in the paths yielding the most sizable returns.
The concept seems so simple. Devoting ourselves solely to our most fruitful efforts seems flawlessly obvious. The problem arises in the context of a startup. How is a startup – without quantifiable data – to appropriate efforts according to the guiding principle? How are entrepreneurs to properly apply energy so as to realize 80% return? The problem with the Pareto principle is simple: how are startups to know where to allocate resources?
The answer to this question lies in the startup strategy. Startups should work in a precise and predetermined manner, analyzing the results at fixed intervals. The work output should be planned. Tasks and goals should be narrowly focused. Work time should be monitored and revisited at fixed time intervals. This is a data-driven approach to startup strategy and the 80/20 rule.
The startup must first develop a plan to deploy resources, in the form of work output. The startup must stick to the plan. This keeps the startup on task and avoids distractions. After implementing the plan, and following it for a fixed period of time startup strategy revisits the plan to review the results.
The review cannot occur in too short intervals. It takes time to realize the gain from our efforts. So, a daily review of our results will frustrate the process since significant results cannot be seen in such a short time. By reviewing the results every two to three weeks, the startup can obtain an accurate
Sticking to the work plan is critical for an accurate review. Think of it as a science experiment and limit all the variables. Focus intently on the work plan by limiting distractions. If the effort does not yield significant results, change the work plan.
The review stage is critical for the 80/20 rule and startup strategy. The review stage is where an honest, objective assessment occurs. Did your two-weeks work output produce sizable results? If so, then great! The work should continue. But if the work did not produce a positive gain, then change the output. Poor results mean the work plan should be modified and reviewed in another fixed interval. The process continues.
Results should be viewed both in a short-term and long-term perspective. A startup strategy requires viewing work as a hierarchy. Think of Maslow's Hierarchy of Needs – his view was that people satisfy basic needs and then move onto satisfying more complex needs. In this way, startups must work to first achieve the most basic results, such as finding commercial space and then connecting utilities. However, simultaneously startups must work towards long-term goals such as implementing a marketing strategy and working on its product or service. Startup strategy applies the 80/20 rule by initially applying the majority of work towards accomplishing short-term immediate goals. Correspondingly, minimal work output should initially be allocated to long-term goals.
As the startup progresses, the 80/20 resource allocation should begin to shift upon the fixed interval review. As the initial basic needs are met, the startup should begin to shift to accomplish more complex tasks. During this shift from short-term to long, the startup strategy remains the same – working in a precise and predetermined manner, analyzing the results at fixed intervals.
The 80/20 rule is paradoxical to a startup without data. However, Pareto's principle can be applied to a startup through data analysis. The key to applying the 80/20 rule is to utilize startup strategy, developing a plan to precisely implement work output, and then reviewing the results at fixed intervals. Startups face a seemingly insurmountable list of “to-do's”. Applying a startup strategy and the 80/20 rule stress can be reduced. Using this action plan allows the startup to intently focus on work without worrying about results until such time as the review is scheduled. Startup entrepreneurs have great passion, and this process is vital to allowing the startup to invest fully in that passion.