Simplify decision making with the Pareto principle

Too many decisions. We all feel it.

There’s never enough time to give them the attention they deserve. So, we either randomly ignore some decisions or make them in a hurry…

There are many ways to reduce the number of decisions we face. The Pareto principle can be a powerful filter. It helps us distinguish between vital and trivial decisions.

In this post you’ll see:

  • what is the Pareto principle
  • why it is so hard to apply it
  • how to use it on your daily decisions as a creator.

What is the Pareto principle?

Chance is you already heard of this principle. It’s also called “the 80/20 rule”. Or “distinguishing the vital few from the trivial many”.

It can be stated in many ways, the most useful for creators is:

80% of your output is generated by 20% of your input

So, for example:

  • 80% of your revenue comes from 20% of your clients
  • 80% of your website traffic comes from 20% of your articles
  • 80% of your opportunities comes from 20% of your network.

It works also to the negative:

  • 80% of support issues come from 20% of your clients
  • 80% of your lack of motivation comes from 20% of your bad habits
  • 80% of your wasted time comes from 20% of your tasks.

The numbers 80 and 20 are misleading. The percentages don’t have to sum up to 100. Often the imbalance is even more extreme, 90% and 1% for example.

The general concept is that a large majority of the consequences is originated by a tiny minority of the causes.

This is an empirical rule. It is hard to accept it, but it proved effective in every field.

Why isn’t everyone a Pareto master?

If the Pareto rule is so powerful, why isn’t everyone using it?

For two reasons:

  • it’s counterintuitive
  • finding the vital few is hard.

It is counterintuitive because it goes against several fears and biases. Perfectionism and need for control want us to deal with every minor detail. Fear of missing out pushes us to diffuse our attention. It also makes us feel we are missing an opportunity any time we ignore something.

The second reason needs a section of its own.

How to find the vital few

This skill doesn’t come natural. It’s especially true when you enter a new area or tackle a new kind of project. You don’t have enough experience to know what will make the highest impact.

You need to practice daily.

I’ll show you a general approach. Then you’ll see some more specific examples.

A general algorithm to apply the 80/20 rule

You can use the Pareto principle in all areas of work and life. Follow these general steps:

  1. define the outcomes of the activity,
  2. define how to measure them (quantity and quality),
  3. track the outcomes,
  4. track time, money and other costs related to that activity,
  5. regularly do a cost/benefit analysis
    1. divide costs into categories
    2. divide outcomes into categories
    3. calculate the percentage of costs and outcomes related to each category
  6. find the categories contributing to a high percentage of costs and/or outcomes
  7. reduce costs by eliminating or reducing the impact of the worst categories
  8. improve outcomes by investing more in the best categories.

Implement one small change at a time. Eliminating too many activities at once will trigger a stronger resistance. It could also simply be too difficult.

Often (veeery often) theories like this one are very good on paper. But it seems impossible to apply them to the day to day. So, here are some useful examples for creators.

Pareto and working with clients

Creators often provide services. You are always afraid you’ll remain without clients. So you accept every kind of client and every kind of job.

Without a filter, many issues arise:

  • wrong clients bring unnecessary overhead,
  • misaligned projects take too long because you don’t have the right skills,
  • you feel frustrated because you are not playing to your strenghts,
  • lack of specialization prevents you from raising prices,

These issues waste a lot of your time. You can’t work on acquisition, or on improving your skills. In the long term your revenue is always in danger.

So you stay in fight or flight mode and keep accepting any client and any job. It’s a vicious cycle.

Use the Pareto principle to analyze projects and clients:

  • track outcomes such as revenue, satisfaction, new opportunities, skills learned, probability of renewal from the same client,
  • track costs such as unsatisfying work, time wasted due to unnecessary communication or other problems related to the client or project.

You’ll find the 20% of most problematic clients and projects. You can cut them and avoid them in the future.

You’ll also find the best 20% of clients and projects on which to focus on. You could try to renew existing contract and identify their positive features. This will help you find similar projects later.

Pareto and selling products

You can apply the same reasoning to products. Initially, it can be a good idea to experiment with different products.

But after collecting some sales, you’ll have tracked enough costs and outcomes. You’ll be able to realize the minority of products that bring you the largest profits and satisfaction and the fewest headaches.

Keeping only those products will simplify your marketing efforts. You’ll also have more time to improve them.

Pareto and building skills

We’d always love to learn something new. But which skills will move the needle?

It’s hard to quantify costs and benefits in this case. You can track time spent working on a skill and track revenue from projects where you use a specific skill.

Then, there are more subjective measurements. It helps me looking for activities that bring me closer to the flow state.

For example, when I record videos and livestreams I can work far longer before getting tired. I can feel I am performing at my best. It always puts me in an excellent mood, too. It’s the description of a flow state.

Moreover, my videos are appreciated by the audience. And they are also bringing in some consulting inquiries.

All these observations suggest me that I should leverage videos in my business. Both for content marketing and products.

Are you aware of the skills that create flow for you?

Pareto and tools

Tools are the best procrastination excuse for creators. There’s always a new one to choose, learn or play with.

But their role is only to make our work faster.

So, to find the vital tools (and stop wasting time) try to measure how long you are spending on choosing, learning and making a tool work versus how much time it is saving.

On computers and smartphones you can track app sage through RescueTime. Offline, you have to use some time tracking app or pen and paper.

Look for the tools that make things too complex. When you are looking for a new tool, ask yourself whether you are already using something that can do the same. Ask yourself whether the new tool will substantially improve your results or save you a significant amount of time.

Personal growth

Richard Koch, in this book “The 80/20 rule”, introduces some useful concepts:

  • happiness islands, moments when you feel at your best,
  • achievement islands, activities that bring the most important outcomes.
  • happiness deserts, moments you would avoid at all costs,
  • achievement deserts, activities with weak or even negative outcomes.

Your habits and time management strategy should strive to maximize the former and minimize the latter.

Quantitative analysis often doesn’t help. Keep a journal. Write down the good and bad of every day. Regularly go back to past entries and find good and patterns.

Powerful questions to find the vital few and the trivial many

The book “The 80/20 rule” suggests four questions to guide your reflections. It can be useful to take an hour every month to answer them, away from distractions. Data gathered as described above will help you come up with better answers.

Here are the questions

  • which important opportunities are we ignoring?
  • What’s working while it shouldn’t? Why?
  • Is there some negative outcome whose causes we are misunderstanding?
  • What’s something important that’s going unnoticed?

Are you going to use the Pareto rule?

With my business partner we are constantly reevaluating our efforts. We don’t make formal calculations. But we fiercely cut down on things that have weak outcomes.

Are you already using the 80/20 rule in life an work?

Are you planning to use it?

How?

Let me know in the comments.

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