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The 80/20 Rule

There is a “law” and it comes from an economist named Vilfredo Pareto who lived from 1848 to 1923.

Pareto established that 80% of the wealth and income of the world was produced and possessed by 20% of the population. His further investigation into this datum found that the 80/20 law applied to many other aspects of life. 

20% of our activities create 80% of the good and desired outcomes in our life.
20% of the people we associate with cause 80% of our problems and unhappiness.
20% of a business’s marketing generates 80% of it’s sales.

The list of examples goes on and on and the ratio can be even more skewed: 90/10, 95/5 and 99/1 are not uncommon.

So here’s the bottom line: If 20% of your time and effort gives you 80% of your results (value and products), what does the rest of your time (the majority of your time) give you?

That’s right… not much!

You’re wasting more time than you can possibly imagine on activities that will give you little to nothing of value. Checking your email 35 times a day or spending 2 hours surfing the web or on Facebook, will lead to very few products and will probably not give you one iota of goals attainment.

What are you trying to accomplish in life or in your business? What 20% of your activities contribute to those goals?

What if your cell phone, computer, ipad, ipod, TV and video games all went up in smoke? What would you do with your time? You’d have to get creative that’s for sure. What if you used some of that time to re-enforce the 20% of your efforts that are producing positive results?

Take the challenge: Eliminate some of these unproductive activities for couple days, reevaluate your 80/20 and see if you don’t agree with this concept.

The Formula for Expansion

The formula for expanding an established business with a worthwhile product or service is:

  1. Intelligent promotion
  2. Good administration and
  3. Sensible economy
    …in that order.

Definitions

  1. Intelligent Promotion – proven marketing that brings in an adequate volume of leads and sales
  2. Good Administration – an organizing board, hats, training and programs that enables efficient and effective delivery
  3. Sensible Economy – financial planning that keeps income above expenses and properly invests funds back into business activities that make more money

Marketing, administration and financial management are important components of any business that can’t be neglected. The key to properly applying this formula is in knowing what condition your business is in and what step to focus on.

The Logic of the Expansion Sequence

To have any growth at all a company must be able to generate an adequate and increasing demand for its products or services.  Intelligent promotion generates that demand.

The resulting increase in business traffic will pound against and expose the weaknesses in the organizational structure and operating procedures of the company and threaten to blow it apart. By employing good administration, the organization is able to more smoothly and effectively manage the increased flow of business.

At this point there is usually a financial affluence. By putting in more discipline on the finance lines, by employing the applicable tools of sensible financial management, one can greatly strengthens the company’s stability and viability.

If a company is: shrinking, in a financial slump, not expanding, or expanding, but can predict a future financial slump it is at Step 1, Intelligent Promotion, and must find a way to increase demand through effective marketing and sales.

If a company is: generating revenues above its breakeven and turning business away because it can’t keep up with the demand, has overworked execs and employees trying to get orders filled or is desperately trying to hire more people to ease the delivery load it is at Step 2, Good Administration, and must rapidly employ the most applicable administrative tools to effectively handle the production demand. In such a case one can safely assume that it is already engaged in Intelligent Promotion.

If a company is generating revenue that is stably above its breakeven, enjoying a steady stream of new business, adequately organized and is effectively handling the production demand and executive cope is minimal it is more than likely at Step 3, Sensible Economy, and needs to ensure that proper financial planning is being used to keep the business stable, expanding and prosperous.

This formula forms the basic methodology for a business analysis.

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