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Use the 80/20 Rule to Grow Your Business

If your business is not growing, you need to get a handle on the way you’re running it. Many business owners tend to spend a great amount of time performing unnecessary tasks that contribute little to the growth of your business. The 80/20 rule, otherwise known as the Pareto Principle, teaches that only 20% of your actions should lead to 80% of your results. Get a handle on your business by putting the 80/20 rule into effect and identifying high payoff tasks.

The 80/20 Rule (Pareto Principle) Explained
Developed in the early 19th century by Vilfredo Pareto, an Italian economist, the Pareto Principle was used to explain why only 20% of the population was responsible for 80% of the country’s wealth. It was later in the mid-1900s that the theory of the Pareto Principle was modified by Dr. Joseph Duran. When applied to cause and effect, he theorized that 20% of actions (cause) would produce 80% of the end results (effect). Because Duran’s theory expanded on Pareto’s original version of the 80/20 rule, Dr. Duran’s theory soon became known solely as the Pareto Principle.

What the Pareto Principle Means for Your Business
The 80/20 rule can be applied to pretty much any situation, but, it is especially beneficial when applied to a business (especially if you’re currently a one person show). The 80/20 rule isn’t just another ordinary time/business management method; when used effectively, it holds the power to drastically increase your income and free up valuable time, allowing your business to grow.

Maybe this means that you can cut down on staff by weeding out tasks that are completely unnecessary by setting up an automated system. Perhaps it means that it is time for you to hire an assistant or virtual assistant to whom you can delegate low-priority tasks. Using the 80/20 rule to identify the high payoff tasks within your business and automate the low-priority or non-income driving tasks will allow you the freedom you need to grow revenue.

Identify the High Payoff Tasks
For the purpose of putting Duran’s theory into context, let’s say that 20% of your employees are responsible for driving 80% of your sales, or 20% of your clients make up 80% of your product or services sales revenue.

To grow your business and success, it’s vital that you closely analyze your business model and examine which 20% of your actions are accountable for 80% of your results.

Put the 80/20 rule into action by focusing in on specific tasks that will result in driving sales and revenue. Instead of relentlessly marketing your business to new clients, focus more of your attention on up-selling to your existing clients. It takes as often as ten times the effort to get new clients to purchase from you as it does to up-sell to an existing client.

Review your product and service sales for the past two years. If you have products or programs consistently not selling – close them out at a reduced cost or completely discontinue them. Identify the products or services (usually 20% of your stock) that consistently sell and then focus your energy on driving more sales to more clients.

If you’ve received client feedback, let’s say, on an eBook you wrote, the instinctive solution would be to either address each inquiry individually or release an updated version of the eBook, free of charge. However, you can easily turn the situation into a high payoff task by keeping that feedback or questions in mind and addressing them in a completely new series of eBooks. Remember, the Pareto Principle is about doing more with less effort. You already have the issues to address, all you simply have to do is put it in information form.

The Other Side of the Pareto Principle
You may assume that you only need to address the productive side (the 20%), but the tasks that fall into the unproductive 80% must also be addressed. Administrative tasks like answering phones and emails, bookkeeping, setting up your website and monitoring it, and pushing papers should certainly not fall into the hands of the executive in your business (that’s you). Not to say that these tasks should be eliminated from your business model, because they are essential. The difference is that they must be delegated so you can focus on the high payoff tasks and set your business up for growth. Hire a virtual assistant or employee to take responsibilities for the tasks you can’t and shouldn’t do.

If your business is struggling, you can use the 80/20 rule to identify high payoff tasks. If you are currently working ten hours or more each day, put the 80/20 rule into action to finally take back control of your life. By doing so, you’ll be able to move past the fruitless tasks that make up 80% of your business and take up most of your time.

Intelligent Businesses Use Echolocation!

In an environment driven by speed and dominated by growing uncertainties, businesses are expressing more and more difficulties to sustain and improve their competitive position. Mighty companies such as IBM, Apple, Yahoo, Microsoft or Nokia do know that business success is never an “acquis” and that any long-time leadership position can now get eroded within weeks and even days in some sectors.

Just some weeks ago, rumours were circulating about the collapse of the giant Eastman Kodak Company. The 131-year-old icon that brought photography to the mass and launched the first digital camera is forced to face tough realities of the new business world.

The K-brand company is another clear example that there are no definite winning rules in business; any competitive environment can be disrupted anytime. Rules of business games can now be reinvented and imposed by new entrants. It is no longer the privilege of the big or the mighty.

In this ever-changing playground, it is essential for companies willing to survive and thrive to understand their environment, track their competitors, critically review their position and never ever fall in the trap of complacency: this is the very concept of business intelligence.

A quick Google search pulls out millions of internet pages on business intelligence. Many of them associate this concept to information technology (IT). Wikipedia, the online encyclopedia, defines business intelligence as “computer-based techniques used in identifying, extracting and analysing business data”. On the website, one can read “business intelligence is a broad category of applications and technologies for gathering, storing, analysing and providing access to data to help enterprise users make better business decisions.”

These definitions are wrong. Yes, IT is at the heart of business intelligence. No, business intelligence is not IT as some might claim. IT is just an enabler!

To define business intelligence and illustrate its importance for companies, a simple and natural technique used by bats (Yes Bats!) can be referred to. Bats emit, in the dark, high-frequency vocalisations through their mouths and noses as they fly. These vocalisations then bounce back to them as echoes, which enables them to form images of their surroundings in their brains. If their ears get injured or clogged, they are unable to receive any echoes and therefore lose their ability to locate themselves and move accordingly. This continuous process known as echo-location is a sine qua non for the survival of bats as it allows them to scan their environment, track their prey, devise their future movements and eventually feed themselves.

Business intelligence is echolocation for businesses. With the new dynamics of business games, it is vital for companies to echolocate themselves on a constant basis, to critically assess their position and adapt their strategic movements accordingly.

Entrepreneurs and business managers claiming that business intelligence is useless and that their flair and experience are enough to ensure their path to success are living out of this world. Sure, flair and experience help but without a proper understanding of their business environment and analysis of their competitive position, businesses are condemned to failure.

For those who want to succeed, keep this in mind: Intelligent Businesses use Echolocation!