Applying the Pareto Principle
The Pareto Principle (more commonly known as the 80/20 rule) is a notion that illustrates an unequal relationship between input and output. The principle stems from the paper ‘Cours d'économie politique’ written by the Italian economist Vilfredo Pareto in 1896. In his paper, Pareto argued that approximately 80% of the land in Italy was owned by 20% of the population and expanded his observation to realize that about 20% of the pea-pods in his garden contained 80% of the peas.
Thus, the 80/20 rule was born.
The principal got it ‘legs’ in the early 1940’s when a management consultant named Joseph M. Juran came across Pareto’s paper and began to apply the 80/20 rule to quality issues in business management. Since then, people have applying this theory to all aspects of life.
An excellent example of this is the ‘Living The 80/20 Way’ book series by Richard Koch. Koch took the 80/20 Rule and made it his own by writing a series of books that use the principal to apply efficiency and increase productivity in business and every day life. Get the book here.
In addition to many personal applications, this principal is particularly relevant in real estate investing. Let me give you some examples. According to the rule:
• 80% of your profits will come from 20% of your deals
• 80% of your best leads will come from 20% of your agents • 80% of your problems will come from 20% of your tenants • 80% of your work will be done by 20% of your employees
• 80% of your time will be used doing 20% of your tasks
Puts things into perspective, doesn’t it?
While this rule may not always be seen in these exact quantities, the concept can be applied to increase efficiency and maximize your output as a real estate entrepreneur. In fact, this idea has completely changed the way we operate at Iron Oak Holdings .
As investors with high-responsibility 'day jobs' we have very limited time every week and as such, it is essential that we make every moment count! Here is how we have applied the 80/20 rule to our business.
KNOW THE NUMBERS > It may seem tedious but, we actually measured our daily investing activities. We noted the hours we were spending on each task and calculated what efforts were taking the most time. We then compared the time were were spending to the outputs we were seeing as a result of those efforts. Low and behold- the 80/20 rule was in play!
FOCUS YOUR EFFORTS > After we knew the numbers, we realized that we we spending too much time on things that were not yielding tangible results and that we were wasting time by working on similar tasks. With our knowledge about the activities we adopted the 'divide and conquer' for our operations. Each of us took responsibility to the activities that played to our strengths and we re-prioritized what activities got pushed to the top of our respective to-do list.
MAXIMIZE YOUR OUTPUT
> Once we better understood the results of our efforts, we strategically integrated this knowledge into our short and long term road-map. We were able to clearly align a specific action plan with our goals. We felt invigorated from this elevated efficiency and immediately noticed an increase in our measurable productivity!
In conclusion, 80% of your results are going to come from 20% of what you focus on! So, you must focus on what gives you your desired results. Being mindful and purposeful of your actions will allow you to be more productive, see better results, and achieve your goals sooner.
"The key to success is not doing more. It's doing more of what works."