In this guest post by Certified Go-Giver Coach, Doug Wagner, the very wise and successful entrepreneur takes inspiration from a book by Perry Marshall. Here, he looks at the famous “Pareto Principle” (a/k/a, “the 80/20 rule”), applying it to The Go-Giver and one’s overall business success.
Enjoy Doug’s wisdom! – Bob Burg
I recently read 80/20 Sales and Marketing by Perry Marshall and decided to apply some of the concepts to The Go-Giver and see what might come of it.
Pareto’s principle states that, for many events, roughly 80% of the effects come from 20% of the causes. In the context of business we could say that 80% of the income comes from 20% of the people.
The exact ratio is not always exactly 80/20 but the concept itself applies to a great many things. And, it actually tells us a lot more useful information than simply averages.
So how does this apply to The Go-Giver principles?
The Law of Value
If you are dealing with products and services that are more complex or have a lot of features and benefits:
- 80% of the client value will come from 20% of the features.
If you can figure out which 20% of what you do matters the most to the majority of your clients you will create a huge economic advantage.
You can focus on improving that 20% much more than the rest of the product. In fact, some products going after a niche problem focus exclusively on that 20% and ignore the rest. Are they losing lots of potential customers?
Yes. But they have more than enough remaining and the economics are fantastic; it costs you less to provide more value to THOSE customers.
The Law of Compensation
If you have a good distribution of customers, 20% of them will provide 80% of your potential revenue.
Here is the cool part:
The distribution is exponential and fractal.
If you take the top 20% and slice the top 20% out:
- 4% of your customers will drive 64% of your potential revenue.
If you do it again; 0.8% of your customers will produce greater than 50% of your potential revenue.
I consciously chose “potential” revenue because you may in fact be missing a huge opportunity. You might not be offering those high value clients anything else they could buy.
This is why it is often wise to have product and service offerings going from low to very high. Only a few will buy at the higher-end but when they do you make a lot of profit.
The low end may be a book and the high-end may be a corporate speaking engagement.
The other option of course is volume; the companies who buy 1000 copies of a book at once for example.
Go-Givers and Go-Takers
20% of Go-Givers will most eagerly embrace the laws and generate 80% of the results. It is exponential and fractal so less than 1% will generate over 50% of the results.
The same holds true for Go-Takers:
- 20% of Go-Takers will manifest 80% of the bad behaviors, etc.
The curves when laid over top of each other also suggest something else.
Even the most avid Go-Giver will be a little bit of a Go-Taker at points in time. This is because we are all human and share the same basic composition. Suspending our self-interest takes conscious effort and a relaxed mind for example.
If The Go-Giver was to reach full market penetration:
- 80% would have heard about it and maybe even read it.
- 20% are almost impossible to change because they don’t want to.
- 20% will be avid supporters and get 80% of the results.
Here is the great part… even a very small shift in overall behaviour can change the world.
Although it is the avid 20% who produce 80% of the results in the world, the remaining 80% of people get at least some of the increased benefits because the bar is lifted for everyone.
Cool analysis of two great business concepts. The Go-Giver and the 80/20 principle in full collaboration for market penetration! Excellent.
Thanks Dennis, it was a fun exercise.
Love the way you applied this principle to the 5 Laws. It’s especially instructive when you realize what “market penetration” would accomplish. Even though only 20% would really get it, apply it, and get results from it – imagine how much value that 20% would create!
Thanks Dixie! Once you understand how this principle works, it frees you to leverage the power of the 20%. Looking forward to applying both sides to our business as well.
Interesting analysis Doug – and cool to find yet another of your brilliant skills – math! 🙂 Seriously, The Pareto Principle is valid in virtually every situation and I do admire how you applied it’s role/potential within the Go-Giver – very clever and insightful. Bob used this principle in the first talk I ever heard him give – on Endless Referrals – so hearing it from you has essentially had things go full circle.
Hi Bill, that is very cool that Bob used this principle in his earlier talks on Endless Referrals. I had been aware of Pareto for quite a while but it was very informative to apply it and some of the more powerful nuances to this example. Thanks.
P.S. I actually took Electrical Engineering way back in the old days. Most of my math skills have gone bye-bye.