Ah, the good
old 80-20 Rule… The saying “Rules were meant to be broken,” certainly applies
here. It’s one of those things that can seem like a positive or a negative
depending how you look at it. Similar to the, “Is the glass half empty or half
full?” question, your view of The 80-20 Rule is all about perspective and
making sure yours is aligned with the goals of your business.
Perhaps it’s
frustrating that 80 percent of your efforts account for only 20 percent of your
bottom line. But, it’s also pretty cool that just 20 percent of your customers
and products produce 80 percent of your profits.
It’s all about balance. And, as you find that equilibrium, you need to know when to reconsider The 80-20 Rule:
1.When More Selection is Required
There are times when one size does not fit all. You may provide the best
gosh darn spicy mustard the world has ever tasted, but sometimes a spicy
mustard isn’t the right mustard choice. There are circumstances when a classic
yellow mustard is preferable. Or maybe there’s a recipe that calls for a Dijon
mustard…
The point being: There are complexities that require consideration and adjustment on your end. That might manifest in a variance in investment strategies, production process, or product offering. Small tweaks to your 20 percent can result in a major boost in profit.
2.When The Present Does Not Reflect The Future
While a company’s best product and most loyal customers will consistently
account for a higher percentage of sales and profits, there are instances when
those factors are not reliable in the long run. Sales may drop as necessity
decreases and/or newer products/services become available. Competition is
always a factor and, during a time when technology constantly and rapidly
changes, your current best seller may not always be in high demand.
If you only focus on what’s doing well now, you’re bound to experience adversity in the future. If you rely to heavily on one thing, you inhibit potential growth. There is a simple need to develop and test new products to advance and survive.
3.When Expansion Creates Opportunity
Opportunities to expand your market will arise and the investment may not
be a part of your current 80 percent. These instances are worth serious
consideration—especially when the investment is minor. You may open up the door
to a broader 20 percent. For example, babies’ diapers are still the major
market segment, but adult diapers are the fastest growing segment. Expanding
your offering (this may include accessories, convenience items, or new market
segments) can draw in a wider customer base and that is never a bad thing.
One last
thing to consider: Diversity Requires Variation
Many markets
rely on analysis, which is based around the assumption of a bell curve where
the bulk of a population is around a center number and then distributed evenly
around that number. For example, the average U.S. adult male is about 5 foot 9
inches and 75% are between 5 feet 4 inches and 6 feet. However, if you start
segmenting by age, race, ethnicity, and country of origin the distribution
becomes much more complex. The average Danish man is almost 6 feet tall while
the average male from India is 5 feet 5 inches. In both cases using an average
of 5 foot 9 inches would miss much of the population.
Therefore,
it is beneficial to dissect your target consumer and consider multiple
offerings based on the possible variations that exist within that group.
In the end, The 80-20 Rule is still a reliable
tool in most cases, especially when trying to eliminate excess product or hone
in on top buyers. However, as always, exceptions to rules always seem to be
where the fun happens—the chance to maximize growth as you reassess opportunities,
trends, and market segmentation.
We’d love to hear about your
experience improving business performance by adding or reducing offerings.
Have questions? Call (at 914-632-6977) or email us for a FREE analysis and discussion regarding your offerings. We’d love to help you design a personalized solution.
A customized approach that caters to each of his clients’ specific needs is what sets Dr. Bert Shlensky apart. With a PhD from the Sloan School of Management at M.I.T., he focuses on implementing individualized strategies that have helped countless businesses increase sales and profit. He knows what works and has the experience and expertise to help you take the steps necessary to achieve your business goals. Visit StartupConnection.net today!
Measuring for sake of measuring is a waste of time. In order for measurements to be a valuable part of an effective strategy, they need to be more than passive content that’s mostly used for identifying problems.
To be successful, we need to know what we’re measuring and why, use clear and simple measurement tools, and clearly communicate processes and results. And, here’s the key, measurement is a process for improvement and shouldn’t be used as a way to beat ourselves or our team up.
To help you avoid common pitfalls, here are some helpful hints for making the most of your measurements.
Measurement should clearly relate to goals. Since goals can be complex and you’re often operating with more than a single goal, this can be tricky but is essential and starts with strategic goal setting. For example, focusing exclusively on short term profits can reduce efforts towards critical factors like investment, innovation, satisfaction, effectiveness, and growth. Corporate strategy and sports teams demonstrate this by reducing long term focus on growth to meet immediate needs.
“Regression to the mean” is a well-respected and valid tool you should be utilizing. While it sounds complicated, the term is just used to describe the statistical tendency for data to trend towards an average. For example, the average U.S. male is five foot nine inches tall. Estimating the average height of men after viewing a bunch of 6-foot athletes is disruptive. However, we do this exact thing regularly when it comes to measuring the stock market, the weather, and sporting events.
The 80-20 rule generally works. 80 percent of your efforts generally account for only 20 percent of your results. However, the flips side of that means that just 20 percent of your customers and products can be prioritized to produce 80 percent of your success — and that’s pretty cool.
You need both objective and subjective measurement. We tend to rely on quantitative measurement because it is believed to be more reliable, consistent, and, valid. While true, we need to make sure we’re looking at subjective measurements as well. Qualitative measures like effectiveness, quality, prioritization, and satisfaction can be just as – if not more – important to the success of your business.
Perceptions and bias can greatly affect measurement. Selection and sampling can affect the measurement process. So can our own internal biases and perceptions – without us even being aware of it! Our perceptions are frequently based on recent events. We tend to ignore simple cultural situations like weather, group history, and success. My simplest recommendation is to avoid being the last to speak to a hungry audience!
Measurement must consider change. We’re often slow to modify measurement activities. COVID and the associated years must be considered when analyzing data moving forward. For example, 2020 and 2021 data can be outliers in any trend analysis. Without considering the change in external circumstances, we’re likely to draw incorrect conclusions from the data. Economic, political, and social changes can also alter results. For example, the aging of our population, the popularity of remote work, Zoom meetings, and increased income inequality are having dramatic impacts on consumer behavior and the economy. The real question isn’t whether things will change — it’s whether you will change with them.
Don’t eliminate outliers. Risk tends to scare people. Our first thought is often that we’re going to lose money. In reality, many low probability alternatives have huge payoffs and limited risk. For example, young people should embrace risk in their early career efforts since job turnover rates are high anyway. Even as you move up life’s ladder and start investing, the mentality remains the same and your portfolio should include some high-risk investments. This concept plays out regularly among gamblers – who pursue the best odds, not the lowest ones – and sports statistics that now include 3-point shots, fourth down conversions, and bases stolen.
Different efforts are required for considering alternatives and decisions. Effective solutions are limited by the alternatives considered. Making decisions is based on establishing criteria and eliminating alternatives. Thus, developing alternatives requires open and widening efforts.
A relationship does not mean cause and effect. Ice cream sales and violent crime are related. However, extreme heat- not the two factors themselves – are the cause. Nevertheless, variables like weather, demographics, and the economy can be related to any number of factors. Resist the urge to automatically assume causal relationship where there is none.
Understand the diversity of data distribution. Typically, we just assume that data is distributed normally – with a high midpoint and fairly equal higher and lower numbers. If you’re measuring something like height, this is pretty accurate. When you start measuring more complex things like wealth, things get more complicated. Understanding the diversity of data means considering the impact that issues like change, disruptions, and uneven growth have on results.
Is your measurement valid and accurate. Not everything can be measured or always be effective. For example, for decades the measurements used to create baseball statistics neglected to take the Negro League into consideration — and, therefore, presented inaccurate data. Recently, this has changed and stats now include the Negro League and include discussions about how many no-hitters Satchel Page (since many were previously unrecorded).
Understanding the strengths and weaknesses of your measurement is critical to success. There are a number of tools that can help mitigate the challenges.
Historical or similar data can sometimes serve as a surrogate
Simple estimates can provide a range of solutions
Comparing the consequences of different alternatives can show the implications of different solutions.
In summary, measurement is an opportunity to improve performance and shouldn’t be feared or neglected. Set goals, use clear and simple tools, utilize the process for improvement and take comfort in the fact that even if you don’t reach your goals, you’re further along than where you started.
Dr. Bert Shlensky, President of Startup Connection, offers experience, skills, and a team devoted to developing and executing winning strategies. We’re here to help you get on track and stay there as you move forward. We welcome comments, suggestions, and questions.
We surround ourselves with too much and superfluous information that complicates decision making and frequently makes it less effective. As a result, we are often incapable of determine what really matters and overwhelmed by the impossible task of focusing on it all. Stop trying to focus on everything! Instead, increase focus on the five areas that really matter.
The 80-20 Rule is a great tool to focus on the most productive activities
Before we review the 5 most important areas of focus, let’s review the 80/20 Rule. 80 % of your sales and profit will come from 20 % of your efforts.
Don’t believe me? Let’s look at what some of the most profitable companies and industries are doing:
Banks are focusing high wealth customers rather than spread their efforts among less productive clients.
Retailers are closing small stores and scaling back on inventory to allow them to focus their time and budget on their most profitable products and stores.
Companies are reducing unproductive practices to improve profits and reduce costs. Costo continues to thrive by offering fewer, more popular products.
As a startup entrepreneur, your primary goal is likely to develop as much positive cash flow as possible within a 12–18-month period. Laser-clear goals require laser focus.
5 Most Important Areas of Focus
Increase Focus on: Change
Change is the only constant in life. While it’s impossible to predict changes, there are ways to train yourself to become singularly focused on finding solutions and making improvements.
Rather than getting overwhelmed by the big picture, focus in on key areas that will jump start your programs. Simplify and reduce uncertainty and stress, understand what really affects your business, and allocate your concentration there.
Change your mindset. Rather than focusing on the hassle of making of changes; frame them as opportunities for increased sales, higher profits, and competitive positioning. This is the kind of flexible thinking that leads to success.
Increase Focus on: Open Systems
Despite the fluctuations, there are several tools for executing solutions and gains. Electric cars, women’s sports, and weight loss drugs are examples of emerging changes that will create massive opportunities
The first order of “open” business is facilitating open communication and collaboration. Empower your staff and management, and trust your employees. This may require reassessing your current workflow and hiring process to ensure you are hiring and training good people, giving them the authority they need to do their jobs well, and understanding that they will make mistakes at times.
Embracing the “status quo” of how things have always been done is the biggest mistake business owners make. Not convinced, take a look at how executing innovative solutions has been a game changer for major corporations.
What did all the success stories have in common? They all embraced the pillars of open systems:
Open Assets
Open Engagement
Open Services
Increase Focus on: Prioritizing
Our problem is not a lack of choices, it’s lack of information about each of those choices. Without all the information, prioritizing is impossible – for business owners and customers alike.
Cheese, beer, bread, and turkey breast are among the most over-assorted products in our lives. Yet, stores spend little time educating customers on varieties, taste, and price of different products. Prioritizing consumer education improves consumer satisfaction, which – in turn – improves consumer retention (and revenue).
Consumer-Facing Prioritization: Prioritize providing what consumers actually want and how they want to get it. Amazon had about 22-24% of all web traffic this holiday season and, yet, we’re still talking about less successful alternatives like retail and Internet outlets rather than educating businesses on how to capitalize on Amazon’s success.
Internal Prioritization: Prioritize what you’re good at and pay less attention to your weaknesses. Much of analytics in sports is based on getting players to focus on the efforts with the greatest probability of success.
Increase Focus on: Managing Risk
We are frequently afraid of risk when dealing with the rapid changes in our society and environment. Relying on old methods and a “we’ve always done it that way” mentality can actually be riskier than adapting and making change.
One of the biggest opportunities in evaluating risk is dealing with innovation and the exceptional. Better data also needs to be accompanied with some risk in searching for the exceptional.
“Risky” Ways to Improve Company Results
Create an open culture within your organization
Encourage testing of ideas
Embrace and cultivate diversity
Permit (within reason) “deviant” behavior
Test innovative recruitment strategies
Increase Focus on: Process
Many planning programs put financial objectives at the end of the process. Developing financial parameters at the beginning and then revising as programs develop has many benefits. It particular, it can help you avoid pursuing poor paths and highlight opportunities.
Key Takeaways
Focusing encourages you to prioritize key issues and reduce attention to insignificant ones. We’ve identified key issues and provided suggestions to help prioritize and consider the most significant opportunities. Encourage out-of-the-box thinking and ideas and avoid normal day-to-day problem solving. Encourage testing new ideas and scrapping ones that don’t work. Also, recognize that you will make mistakes and focus on solving them rather than blaming someone.
And, As Always:
Don’t neglect key elements of success: We sometimes forget that the chain is only as strong as the weakest link. Operations, customer service, and logistics are just as important as traditional functions. They present huge opportunities for a business to become more efficient and differentiate itself (i.e. selling on Amazon or bundling products).
Always be willing to improve. What are some specific areas you’d like to improve? Focus on those. Try to channel your energy into clear goals rather than on general ideas. And remember that success takes time and consistency. It may not happen overnight, but if you keep putting in the work, you will see progress.
We welcome comments, suggestions, and questions. You can write us at: bshlensky@startupconnection.net or call at 914-632-6977
Dr. Bert Shlensky, President of www.startupconnection.net, offers experience, skills, and a team devoted to developing and executing winning strategies. We guide your plans for business success and unlock your profits.Our strategy includes clear steps, and over 150 free articles and templates to facilitate your efforts and guide your process. We’re here to help you get on track and stay there as you move forward.
At StartupConnection, we’re all about delivering blogs that are not just informative but also packed with actionable insights. We understand that information overload is real. So, we’re testing a new approach – a blog solely dedicated to parameters, giving you the space to prioritize what truly matters. We’d love to hear your thoughts on this, so feel free to drop us some feedback! In this post, we will be discussing optimizing strategies regarding making decisions and taking action.
Developing Programs with Precision
Sometimes, we’re so engrossed in creating programs that we forget about the parameters needed for optimizing strategies. Let’s simplify it. Here are some straightforward tips to consider parameters effectively:
Crafting Your Money-Making Plan
The “Pro Forma Income Statement”
This may sound a bit grand, but it’s your roadmap to cash flow.
Consider how a big marketing budget can affect your income. It may seem counter-intuitive but spending more on marketing might just boost those unit sales.
Investor-Worthy Plans
Investors crave plans but hate wild guesses. Be the entrepreneur who delivers realistic projections using templates. Specific numbers matter, even if they’re just a start. Remember that sales volume goals and pricing strategies are the building blocks of any plan.
Holistic Planning
Comprehensive Considerations
Levels of marketing, overhead, and administrative costs – they all play a role. Analytical, social, and intuitive considerations should also blend seamlessly into your plan.
Adaptability is Key
The world changes fast, and so should your strategy. Regularly review parameters like population, economy, and social values. Stay updated as the latest variables might just be the game-changer.
Navigating Cause and Effect
Decoding Relationships
Cause and effect can be spurious. Relationships involve a mix of factors. Analytics is critical, but don’t ignore intuition, risk, and low probabilities. Just like Gates, Bezos, and Jobs – master the art of thinking outside the box. It is the outliers and risktakers who create much of the innovation, excitement and change in our society.
Managing Bias and Embracing Risk
Navigating the Bias Maze
Bias, especially in small businesses, is human. Be mindful; assumptions, analysis, and data can sway your decisions. Consider different age groups without falling into bias traps.
Risk and Outcomes
Predicting results with historical data is straightforward. However, for new programs or inconsistent data, it’s about educated estimates. Embrace risk as it’s where innovation thrives.
Commit to Action
Nike’s Wisdom: JUST DO IT!
Not making a decision is a decision in itself. Recognize the importance of parameters in your decision processes.
Balancing the 80-20 Rule
Strategic Account Maximization
The 80-20 rule suggests maximizing old accounts with increased potential before reaching out to new accounts. Balance critique with support, collaboration, and teamwork.
The Expertise Quotient
Seeking and using expertise might be the missing link in your strategy. Collaboration enhances effectiveness, so let’s focus on teamwork as well as obtaining expert support.
In summary, understanding and incorporating parameters into your decision-making process is the secret sauce for success. So, let’s navigate these parameters together and remember that optimizing strategies will help to pave the way for effective and strategic decision-making.
Contact us for a FREE evaluation and get an alternative perspective on your business. We’d love to help you identify ways to adapt to current trends. No one has time for BS—so we’ll cut straight to the point and answer any questions you have. Reach us at:
Dr. Bert Shlensky, President of StartupConnection.net, has an MBA and PhD from the Sloan School of Management at M.I.T. He served as the President of WestPoint Pepperell’s apparel fabrics business & President and CEO of Sure Fit Products. More than 2,000 clients have benefitted from his business acumen over the course of his long career. He now focuses on working with select startups and small businesses. Please visit our website: https://www.startupconnection.net/ for more information.
To effectively gauge opportunities and tackle challenges, take charge – a handy tool is reviewing your past results, current challenges, and potential opportunities down the road. While a bit of analysis and number-crunching can be beneficial, my advice is to keep things informal and swift. The key here is to concentrate on spotting opportunities and embracing change, steering clear of getting bogged down in the intricacies of the review process. Let’s shift the focus to identifying and assessing alternatives instead of merely singing your own praises.
Building on Success
The best opportunities are frequently found by building on success rather than repeating disappointments. Take health, for instance. There’s a world of opportunities to boost your well-being beyond the obvious options of exercise, a balanced diet and annual checkups. In the ever-evolving health scene, there’s a constant flow of new medications to prevent problems that we can take charge of if we stay informed.
Financial Snapshot
Now, let’s ask ourselves the big questions: How are you doing right now, and what do you want to achieve? Get a snapshot of your financial landscape, factoring in your growth, age, wealth, and goals. If retirement is here or peeking around the corner, consider your goals, wealth, income, and maybe leaving a little something for the next generation. Here’s my two cents: take a bit of risk, understand your investments, as well as your financial advisor’s recommendations.
Reality Check
After gathering your data, give your findings a reality check by going over them with someone – a professional, an expert, or a colleague. Trust is key here, so the person you consult with needs to be knowledgeable enough that you can trust their feedback.
Mapping Your Journey
Now let’s talk about career and life. What’s on the horizon for next year? Can you hit your job goals, or is it time to re-evaluate them? Do you need to tweak your work-life balance, maybe dive into some new activities or maybe let go of ones you simply don’t enjoy anymore? This is the time to take charge mapping out your personal GPS for the next leg of your journey.
Communication and Cooperation
When it comes to communication, how do we go about cooperating to create a win-win situation?It is well proven that tactics like collaboration, trust, and listening work better in decision making than dictating, lecturing, and proclaiming false expertise. There’s extensive research supporting the idea that people resist change unless they can see what’s in it for them. When given the opportunity to argue your case, try to emphasize the benefits for the other party. If you can make them, see the positives they’ll reap in the compromise, you’re much more likely to convert them.
Risk and Creativity
Let’s talk risk. Consider when it would be beneficial to break free from the predictable and try something more creative. Making decisions and taking risks are a dance between probability and information. Predicting outcomes with solid data is one thing, but it’s a different ball game when it comes to new ideas. Help take charge of your future. And remember that sharing information often maximizes benefits for everyone.
Fresh Ideas and Strategies for Growth
Below you’ll find links to some recent blogs to help take charge of improvement in all areas. Hopefully, reviewing some of the suggestions from this list inspires you to incorporate some fresh ideas and explore various strategies. We also recommend using the content to develop and test new alternatives and solutions. In your efforts, don’t be afraid of some failures along the way—it’s the best way to learn and grow.
And remember, as the year comes to a close and stress levels tend to increase, be kind to yourself and others, find ways to relax, enjoy time with family, but also make time for yourself. Take deep breaths, cut yourself some slack, and know that your best is enough. Prioritizing can dramatically improve results. Focus on what you are good at and don’t sweat the small stuff. Think about it this way – most sports analytics are based on getting players to focus on the efforts with the greatest probability of success.
In a nutshell, taking stock of your current status can add to the excitement and potential of your efforts. Aim for accomplishment and satisfaction. Prioritize tasks and set realistic goals. Remember that accepting risk and managing change allows you to maximize your efficiency and accomplish more. Don’t shy away from those out-of-the-box opportunities either. And who knows, your next move might be a game-changer in making next year your year.
Dr. Bert Shlensky, president of Startup Connection, prides himself on his ability to define what is unique about each and every business. He works closely with individuals to develop a personalized approach that targets specific areas of concern and offers solutions based on his 40+ years of experience. His expert team will address your particular needs while working to save you time and money.
When you want to stand out, reach out to Bert for the tools that will build your “sticky” brand. My focus is on understanding and analyzing your dilemmas and challenges, so your company becomes profitable faster.
Call (914) 632-6977 or email me at bshlensky@startupconnection.net. Don’t leave without signing up for our useful free eBook!
Feeling stumped or overwhelmed? Contact Bert at (914) 632-6977 or Email to start the process. Thanks!
