Saturday, October 17, 2009

80/20 Book Review

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From time immemorial our elders have preached the merits of working long and hard to succeed. The motto that hard work equates to success is a rational concept, yet upon closer analysis, the empirical evidence doesn’t actually stack up.

Over a 100 years ago an Italian Economist Vilfredo Pareto produced some counter intuitive evidence that seemed to suggest that 80% of Europe’s wealth was controlled by 20% of the population, and this pattern of skewed effort and reward manifested itself in all manner of societal observation.

80% of Crime appeared to be committed by 20% of criminals. 80% of carpet receives 20% of the wear! 20% of Insurance Sales Reps earn 80% of total commissions. You get the point.

Richard Koch examines Pareto’s Principle from both an economics and business management perspective and is unequivocal in his endorsement and the lessons and advantages that can be gleaned from acting in accordance.

Unlike many authors who talk the talk but often fail in the walking department, Koch achieved significant financial success in his private equity investments business, which he attributes to the application of this strange theorem.

Many successful business entrepreneurs attribute much of their success to the application of Koch’s lessons, and this book is frequently quoted as being the most influential and favourite book in many a library.

Some of the lessons that Kock espouses:

“Leverage your own time so that you focus on the things where you add five times more value than elsewhere.”

“Choose a niche that you enjoy and in which you can excel”

“Identify where 20% of effort gives 80% of returns”

“Figure out the 20% of what you do that will contribute the most to your success in the future, then concentrate your time and energy on that 20%”

Anyone who’s ever played golf can probably appreciate the quirky contradiction that the harder you try to hit the ball the less likely it will travel far. The more you relax the better you will perform.

This is a lesson that very few amateur ‘hackers’ will ever truly accept, and therefore continue in their futile attempt to defeat the law of effort and reward. Less effort, concentrated in the pivotal area will always produce the highest degree of reward.

This is a book that takes a little patience to reach its conclusions. The first half reads like an economics manifesto, full of graphs and charts, with statistical analysis that will not be to every one’s palette. The second half however is worth waiting for. There are at least a dozen lessons that if applied can produce some profound changes in your results.

At the risk of sounding banal, you’ll probably find that 80% of the benefits you’ll gain from reading this book will come from a mere 20% of the content!

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