I’ve come across one too many business managers following Pareto’s Principle and I think we need to straighten some things out.
For those that are not familiar with the concept, Vilfred Pareto observed in 1906 that 80% of the land in Italy was owned by 20% of the population. This lead him to extrapolate this to his well known principle, or his “law of the vital few”, or “the principle of factor sparsity”, that roughly 80% of the effects come from 20% of the causes. This, in turn, opened the way for several other deep thinkers to extrapolate the principle to almost any domain, including business.
Well, Pareto was certainly right in his day, as his observation regarding land ownership in Italy can easily be verified. Other people might also have been right about applying this principle to business in the 40′s and concentrating their efforts in primarily keeping satisfied the 20% of their customers who brought in 80% of the business.
But in today’s business environment, this kind of approach is the best way to dig a company’s grave.
In a world of innovation, fast changing technology, rapidly shifting trends, companies cannot afford to focus only on the clients it considers today’s 20%, simply because in 5 years, they might all be gone. More than this, clients that will be important in 5 years from now can easily surface from the 80% not so important today. Just look at Instagram, the company started in 2010, which sold 2 years and 13 employees later for $1 billion.
So remember – whatever you do, keep all your clients happy and check out our feedback management solutions. It’s the least you can do.