The 80/20 Weekly Update
In 1896, an Italian economist made an observation that resonates today–both accurately and as a form of folk wisdom. It’s also connected to sex and pleasure, but we’ll get to that in a minute.
He observed that 80% of the land in Italy was owned by 20% of the population. Thus did Vilfredo Pareto outline the principle that bears his name and celebrates its 125th birthday on August 20 (08/20)*.
The Pareto principle applies to many other fields:
80% of fundraising comes from 20% of donors.
Fixing 20% of bugs in a piece of software will solve 80% of errors and crashes.
In baseball, 15% of players account for 85% of wins.
In the US, 20% of patients use 80% of health care resources.
20% of the Lego pieces left on the carpet provide 80% of the pain when you step on them.
The Pareto principle can be dangerously mis-applied. A study in New Zealand was one of many that identified 80% of crimes were committed by 20% of criminals. These beliefs were used to justify “Stop and Frisk” policies across the US that resulted in huge social injustices. Over 90% of citizens victimized by these policies were found not to have committed any crime.
Pareto’s observations also underlie one of the most important principles in marketing that still is overlooked today. In his 1991 book “Managing Brand Equity,” David Aaker introduced the loyalty pyramid. A few years later, Michael Lowenstein made the obvious observation that we are constantly trying to move customers up from one level of loyalty to another. Just as important, we should prevent customers from moving down. If we don’t close the back door, it doesn’t matter how many people we let into the front door. The argument is that an equal investment should be made in customer retention as customer acquisition. This is rarely done.
Other than phonetically, there is little evidence the Pareto Principle is related to the Peter Principle where you are promoted to one level beyond your competence. Although if 20% of your consultants provide 80% of the value – there might be a connection after all.
The Pareto Principle is echoed in Sturgeon’s Law – the idea that 90% of everything is crud. It’s usually brought up in the context of criticizing modern popular culture. For instance, if you thought that all the Netflix movie releases weren’t much good, you might be reassured to think that 90% of all movies ever haven’t been much good; it’s just that for movies pre-pandemic, we only remember the good 10%.
This leads nicely into Robert Conquest’s grumpy Third Law: “The simplest way to explain the behavior of any bureaucratic organization is to assume that it is controlled by a cabal† of its enemies.”
So true.
Why this topic came to mind was an article in the Globe & Mail that stated:
“The parental study found mothers and fathers may be more open-minded about sex ed than was previously assumed, particularly during Ontario’s heated sex ed wars, when vocal conservative critics helped scrap modernized curriculums in 2018.”
The article goes on to report that more than 87% of parents were comfortable with schools teaching controversial topics such as pleasure and gender identity.
This looks a lot like the Pareto Principle – 80% of the fears about sex education come from 20% of families. Without judging either position, this sex ed debate shows that just because you are in the 20% doesn’t mean that you can’t have a powerful voice. And just because you are in the 80% doesn’t mean that your majority voice will rule – as the sex ed debate also shows.
Let’s celebrate the Pareto Principle’s anniversary a few months early and think about how small percentages of our efforts and our businesses provide most of the value.
One might presume that 20% of this update provided you with 80% of its value. We apologize for you having to wade through the rest.
Stay safe, welcome spring.
*That date was a total wild ass guess that is 99.3% likely to be wrong.‡
†Our WOWU is cabal – a private organization or party engaged in secret intrigues. That sounds like fun. I think we’ll call our next team meeting the “gathering of the cabal.” Let us know if you’d like to join.
‡99.3% is not a guess, it’s math. Which 20% of the population believes is a guess too.
Future weekly updates will include a bit about the format of these footnotes, including the dagger †, double dagger ‡, daguerrotype, and number 77 on Rolling Stone’s Best Songs of 2007 – Chelsea Dagger.