Leverage and scale

The Pareto Principle (80/20)

Roughly 80% of effects come from 20% of causes.

The principle is named after Vilfredo Pareto, an Italian economist who noticed in 1906 that 80% of Italy's land was owned by 20% of the population. (It's also why this school is called Pareto.) Once you start looking, the pattern shows up in a remarkable number of places.

20% of customers usually account for 70-80% of revenue. 20% of sales reps close 70-80% of deals. 20% of products generate 70-80% of profit. 20% of bugs cause 80% of customer complaints. The exact numbers vary, but the shape almost always holds.

The principle doesn't tell you the world is unfair (though it kind of is). It tells you the world is unevenly distributed in a predictable way, and that you can do something about it.

Practically, that means three things:

Find the 20%. In any function, the most useful question is: which 20% of what we do is producing most of the result? It's usually surprising. The salesperson you think is your best is sometimes not. The product you think is your hero is sometimes a margin disaster.

Double down on it. Once you've found the 20%, the natural move is to give it more time, money and attention. Most teams instead spread effort evenly across everything they're doing, which is the opposite move.

Be honest about the 80%. Some of what you do is just there because it's always been there. Cutting low-value work is hard because someone is doing it and they don't want to admit it doesn't matter. The honest 80/20 review usually reveals 2-3 things that can just be stopped.

One more thing. The 80/20 itself follows an 80/20: within the top 20%, the top 4% (20% of 20%) often does outsized work. This is the "long tail" inverted: tiny groups doing most of the work. Worth thinking about when hiring, when promoting, and when deciding what to cut.

Examples in the wild