Richard Koch is a former management consultant, an entrepreneur, a succesful investor and a writer of several books dealing with the Pareto principle (80/20 rule) and its applications in all walks of life. Koch has also used his concepts to make a fortune from several private equity investments made personally. Richard Koch graduated from Oxford University and received an MBA from the Wharton School of the University of Pennsylvania. Some of famous books include 'The 80/20 Principle' (1997) and 'Living the 80/20 way' (2004).

 

 

 

 

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Ginger Rogers - the Academy award winning actress - had once famously quipped – “Stand for something or you will fall for anything.” Despite the fact that Ginger’s context was entirely different from Pareto’s, I could always relate the two. I was introduced to the concept of Pareto’s 80/20 Law in my B-School. I found the essence of the principle quite refreshing and inspiring. The 80/20 principle is a principle of selectivity and focus; in a way, indicating the benefits one can leverage from standing for something. In other words, our success in life is not a function of how many things we know, instead, it’s how well we know what we don’t know. Many of us may already be cognizant of the fact that our incapabilities far outnumber the capabilities we have. Yet, we keep on drudging along, trying to work off our grey areas in order to achieve success. Needless to mention, results are anything but encouraging. Richard Koch's version of the 80/20 principle deals with the same issue, albeit, in many different contexts – ranging from personal achievements to business strategy to marketing and what you have. Let me sound you out on the outset that if you are a hardcore statistics aficionado or for that matter, someone who sees any improvisation on good old economics principles as preposterously insulting, then you might feel let down a bit. At the same time, I would stick my neck out and proclaim that this book is a must read for management students, educators, corporate greenhorns (for whom the corporate learning curve seems mighty steep) and anyone who hasn’t read an ‘un-boring’ management book for a long time.

 

What I like the most about the book is the eloquent and cerebral manner in which it has been written. There are no loose ends, no mind-numbing phrases and no yawn-inducing chapters. All in all, despite the pot-pourri nature of the book, it’s a clear winner. It’s one of those books you would look forward to reading until the very finish. Richard Koch brings in a  number of different domains in the purview of the 80/20 principle. You have Business strategy, Self-actualization, Investing, Project management, Decision-making, Time management, marketing, etc. For those who have missed out on Stephen Covey's 7 habits, there is Koch's seven habits of happiness.

 

Richard Koch - a London-based entrepreneur and a successful investor -  elaborates upon the concept put forth by Italian Economist Vilfred Pareto in his book - “The 80/20 principle: The secret of success by achieving more with less.” Despite the fact that this book draws upon the principle of an erstwhile economist, it comes across as more of a motivational book. However, unlike the heap of motivational books out there– a majority of which are low on substance and high on fluff - this one doesn’t preach. On the contrary, Koch capitalizes upon the work of Vilfred Pareto and improvises a theory which, in my opinion, has definite ‘practical’ manifestations in one’s professional as well as personal life. Of the many ramifications of Pareto’s Law, the one I find the most encompassing is – “a miniscule fringe of things in our life contributes to the majority of happiness and bliss that we enjoy.”

 

Pareto arrived at 80/20 principle while he was studying the disproportionate patterns of wealth and income in the 19th century England. The imbalance between the wealthy and the income earners appeared again and again in Pareto’s study, thus, solidifying his concept of proof. The basic premise of the 80/20 principle is that universe abhors equilibrium. Koch states that there is an inherent imbalance between two sets of data that relate to causes and effects, inputs and outputs, effects and rewards, and so forth. For instance, 80 per cent of efforts may yield only 20 per cent rewards. Now when looked at from a different perspective - 20 percent of efforts can yield 80 per cent rewards. Significance of the 80/20 principle lies in detecting that 20 percent in order to yield 80 percent.  Those few things that can have a fantastic impact on our lives, according to Koch, should be identified and improved upon and multiplied. Corollary is equally important – Wasteful proportion, if in majority, should be drastically reduced. In short, identify the ‘vital few’ and cut back on the ‘trivial many’. Thus, there is enormous scope for improvement, which can be only achieved by shuffling things around.

 

Koch underlines a very important point when he draws parallels between Chaos theory and 80/20 principle. All too often, we attribute our success to ostensible reasons e.g. hard work, good networking, etc. Never once does it cross our minds that our success may in part be due to variables that we hardly take into consideration. Since those variables are difficult to detect, our brain rather steers clear of them and settles for gross oversimplification of an otherwise complex array of data. But then, that’s the way we, humans, have been programmed. Linear thinking has been coded into our DNA. And this is where the 80/20 principle is different. It goes against the common grain that 50 percent efforts would lead to 50 percent rewards.

 

Koch reminds us that the piecemeal approach towards the 80/20 principle has left the idea underexploited, even by those who recognize its significance. You can read this book in a piecemeal manner, however. Though reading this book should be a 'high-value' activity for you. Nevertheless, you can read the first three chapters and then read the chapters on 'Money' and 'Happiness'. This book is full of gems. I am listing down a few of them that appealed to me.

 

 My Key Takeaways from 'The 80/20 Principle'

 

    •   Universe hates stability. There is always an inherent imbalance between two related sets of data. Identify the ‘vital few’ and cut down upon the ‘trivial many’. Be strong somewhere than being mediocre everywhere.
    •  Things are not always lined up straight. There will always be subterranean forces at work. Always take non-linearity and its importance in your life into consideration.  
    •  A product has to be only 10 percent better than of the competitor’s product to generate a sales difference of more than 50 percent and a bottom-line difference of, perhaps, 80 percent.
    • Outsourcing is a terrific way to cut costs. Retain your core competencies and outsource everything else.
    • Why do supposedly profit-generating firms turn into epitomes of complexities, despite being cognizant of the value-destroying implications of such moves? Koch’s answer is curt yet emphatic. Managers embrace complexity because it’s stimulating and intellectually challenging, thus, creating interesting jobs for managers.
    •  Koch says, “Important as focus on the few best products is, it is much less important than focusing on the few best customers.” (Remember: 80 percent of the revenues come from 20 percent of the customers). Being customer centered on all your customers is pretty much impossible; however, catering to the top 20 percent is as feasible as it is rewarding.
    • 80 percent of negotiations occur in the last 20 percent times. In the similar vein, most of what we achieve in our lives occurs in a very small proportion of our lives.
    • Most people spend most of their time on activities that are of low value to themselves and others, for example, watching TV and playing video games. The 80/20 thinker escapes this trap by making efficient use of only 20 percent of time involving ‘high-value’ activities.
    • We live in an increasingly marketized world. The top names command enormous fees – but those who are not quite as good make relatively little. The key to earning more and working less is to do things that you are enthusiastic about.
    • Carve a niche for yourself in some field. Be a specialist. You don’t have to commission a research to figure out the kind of privileges specialists enjoy. Who commands more respect – a general physician or an ENT specialist?
    • You have to know more about something than anybody else. Do not stop improving until you have expertise in that niche. Reinforce your lead by constant practice and inveterate curiosity.
    • If you feel that you are always behind, if you are struggling to keep up with the work’s requirements: then in all probabilities either you are in the wrong job or doing it completely the wrong way!
    • What is the 20 percent of your time when you achieve 80 percent of your results? Do more of it! What is the 80 percent of your time when you achieve little? Do less of it! Identify the times when you are happiest and expand them as much as possible. Depression is a self-created and self-reinforced phenomenon. Cut out events that you know stir trouble in your life.