Book Review: Does the 80-20 magic really work?

“Work Smarter, Not Harder”

I bet you have received this advice a zillion times in your life when you are not making much progress, even after working hard on the task at hand. And this advise makes a lot of sense. No one should work harder, if they can produce the same or better output with less effort. It’s common sense. We all know it. In fact, humans are inherently lazy. We continuously work towards finding ways to reduce our efforts by developing & using various tools and technologies to assist us.

But still, it is not actionable advice. Here is the issue I have with this advice. It is quite nuanced and does not tell us “What & How to do” . Imagine every time you talk to your boss about the task at hand and issues you are facing, your boss just tells you the same thing – work smarter, not harder. But he doesn’t provide any concrete feedback or suggestions on how to solve the problem at hand. Will that help?

What we need is actionable advice. Something that we can use to figure out what working smarter would actually mean. Well, there is an efficient way. And the book, The 80/20 Principle by Richard Koch provides us the framework on HOW to work smarter.

It builds on the famous Pareto Principle, also known as the Vital Few. This principle was more of an observation by Mr. Pareto that roughly 80% of the outcome comes from 20% of the causes.

~80% of the work in the company is done by ~20% of the employees.
~80% of the wealth in the world is owned by ~20% of the population.
~80% of customers’ issues are due to 20% of the bugs in the software (Microsoft figured this out in early 2000s).

But don’t get stuck to 80-20. The real message of this principle is Non-Linearity in outcome & causes. The outcome/causes relationship in most of the cases can be 65/35 , 70/30, 80,20, 95/5 and so on. And Richard Koch has picked up this principle and has provided a framework around this principle that we can use to work smarter. He has divided the book into two main parts : 80-20 Analysis and 80-20 Thinking.

80/20 Analysis

80-20 Analysis is about using past data to find out which causes/inputs have the most effect on the outcome. And once you have identified the top causes, work on optimizing those and not everything. This will reap maximum rewards with minimum effort. Figuring out what to optimize & how to optimize is more important wasting your energy in optimizing everything.

The writer gave many examples like analyzing sales data, customer grievances, bug reports, profit per product, etc. But my suspicious mind couldn’t accept it as given. So I performed this exercise on 2022 spending:

77.2% of my spending comes from 25% of the causes. Those causes were rent, travel and groceries. So according to this principle I need to work on optimizing those as it will have the most effect on the outcome. And It is totally true. I calculated that just 2% savings in top 3 categories will result in additional savings of $622 a year. On the other hand, 2% savings in the bottom 9 categories will only be $183.

So what does that mean? I don’t need to go totally crazy and save on coffee, unsubscribe Netflix and avoid health check ups. Maximum gains will come from focusing on the top 25% categories. BTW, I did that and I was able to save 4% of rent just by negotiation and saved over $1600 (Click here to see how I saved on rent)

I found this method to be immensely helpful. And the best part about this framework is you can apply it to optimize pretty much anything where you have the past data. And you can go a level deeper too. I further broke down my travelling cost into hotels, flights, food, rental car, etc. to further optimize the cost with the least effort possible.

So yes, 80-20 Analysis really works. But there is an issue here. What if we don’t have any past data to analyze? Or what if those inputs are nuanced and you don’t have an associated number like cost? It won’t work. Because 80-20 analysis is more of an reactive approach. And to tackle such scenarios, Richard suggests 80-20 thinking

80/20 Thinking

This one is more nuanced. In scenarios where you need to project the future without any past reference, Richard suggests that we should use the 80-20 thinking process. Figure out what you want to achieve, what factors or inputs are important for those achievements. Chances are that you will come up with a list of factors/inputs. So instead of working on optimizing all those inputs, you need to think in a structured way:

– List down all the inputs that you can think of.
– Now give some weightage to each of the inputs. This is a tricky one because there is no defined formula and the weightage will depend a lot on your understanding of the task at hand. (This is the step that’s different from 80-20 Analysis. Here you are creating our own data based on your understanding)
– Sort those input by weightage
– Now pick a few from the top and double down on those inputs.

This will help you get closer to your goal with much less effort than what you would put-in in a regular scenario. The idea is to strive for more but work less (as much as possible). We know outcome and inputs are not linearly associated. By practicing this approach, over time, you will become good at it. And slowly develop insights on what factors matter and start producing terrific results with less effort.

My opinion (Does the 80-20 magic work?)

It has been around 6 months since I read this book. And I have tried many different 80-20 personal experiments and it worked every single time. It feels like either I have a lot more time in my life or I am doing too less but still achieving my goals. Either way, I feel much better and I plan to keep using this 80-20 filter to achieve my goals.

The 80-20 magic certainly worked for me. So, I encourage you to try it too.

Should you read this book?

Definitely yes. To be honest, my review of this book is just a tip of an iceberg. This book provides many great examples covering a wide range from how to increase your business profits to how to improve your personal life. You will definitely find a lot more value from reading this book.

Note: If you are looking for reading recommendations, here is the list of all the meaningful books I have read.