The 80 20 rule for startups

If you’re in business, you may have heard of the 80 20 rule. Why should you care? Fair question. The 80 20 rule is about doing more with less. How would you like to invest 20 percent of the time, energy, money and resources you are now and still get 80 percent of your results?

“Hell yes!”, I hear you say. “Where do I sign?”

Easy there cowboy/ cowgirl/ city slicker. No need to sign anything… you just need to know how it works.

Who discovered the 80 20 rule?

Vilfredo Pareto was an Italian Economist. In 1896 (or thereabouts) he discovered that 20 percent of the plans in his garden were producing 80 percent of his peas. This gave him an idea that similar inequalities might exist elsewhere. At the time, 80 percent of wealth was controlled by 20 percent of the people. In fact it was discovered that similar ratios were observed when applying this to power imbalances and to different aspects of the economy.

My own 80 20 experiment

When I was in advertising, about 2019, I decided to test this myself. TV advertising had taken a hit, so I had 15 spending clients on my books. I read Daniel Priestley’s book, Oversubscribed, and paid attention to the part that suggested I spoil my top clients and let everyone see that. I invited my top 3 clients (20 percent) and their partners to one of the most popular restaurants in town and paid for some finger food and drinks, where we spent about 2 hours after work having a laugh. Most importantly there was no talking about business or selling them anything.

As a result, the next day, I received phone calls from 2 of those clients to book advertising campaigns. Another client noticed me out to dinner and remarked (jokingly) that she would like an invite next time. That client also phoned a day or 2 later and booked the biggest single advertising campaign I ever worked on. In 2 days, I booked my budget for the month and significant revenue for the next 2.

How can you use the 80 20 rule in your startup?

In the video above, I pointed out 3 possible applications of this principle for any startup or microbusiness but there are likely to be hundreds of ways to apply this, depending what business you are in.

Who are your top clients?

Every business has clients. You probably already know, off the top of your head, the ones who book ahead. Clients that pay full price, rarely cancel, stay loyal and add value to your business. These are the clients you need to spoil. Go above an beyond to impress these clients. Some quick sums might even tell you, your top 20 percent bring in 80 percent of your revenue.

80 20 in practice: spoil your best clients.

Who are your top prospects?

Now that you know what your top clients look like, what do your top prospects look like? Who would you like to get as a client? You will probably find them by looking for people similar to your best current clients. Make a list of the prospects you would like to get on board and then connect with them on LinkedIn or find out which networking events they go to, so you can rub shoulders.

Who are your worst clients?

I know, I know. You like to treat everyone well, whether they spend money with you or not. I hear that from a few of my clients. But if you invest too much time with clients who don’t pay you or don’t pay you well, you will go broke. Everyone has clients who haggle over every price, cancel often, miss appointments and are generally painful. No one is saying you need to be mean and push them over in the playground. Just stop spending time and money supporting clients who clearly don’t value what you do.

What are your best products?

As a startup, you probably spread resources pretty thin. If you have a few products, work out which 20 percent of your products bring in 80 percent of your revenue. Then, perhaps work out which 20 percent of products are likely to be responsible for 80 percent of your business growth. Look at the remianing 80 percent in both categories and consider dropping any of those products or services that are costing you time, energy and money.

Which marketing efforts are your best?

You can apply the 80 20 rule to your marketing also. Consider which 20 percent of your marketing or promotional efforts get you 80 percent of your results. You need to know how you are measuring this. Depending on the medium and advertising message, you might measure this by surveying brand awareess or you might want to measure inbound leads.

How else would you use the 80 20 rule?

I have given you a few examples above but there are still plenty of ideas we haven’t explored in this article. While the proportions may not always be 80 and 20, it is clear that some activities are more powerful and provide more leverage for your startup or micro business than others. If you can think of any areas in your business where this could apply, I’d love to get your comments below.

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