Chasing Squirrels and Breaking the '80/20' Rule

Have you seen the movie Up? The movie has one of my favorite characters, Dug. I laughed so hard the first time Dug was introduced, when he started talking about how much he loved his new master and -- squirrel! He gets distracted, as do the other talking dogs in the movie. I can relate to Dug, sometimes a little too much! With hundreds of new opportunities popping up every week, I can get distracted from the business at hand. We all do. However, I need to be dedicated to picking out the right squirrels to focus on, which ones to ignore, and which ones to kill.

Once you've removed all the distractions, it's time to focus on the business side of things, on how to streamline the process and figure out what will make your business profitable.

One of the rules I would use daily is the 80/20 rule. If you're in business, you know about the 80/20 rule, also known as Pareto Principle. For those that don't, the Pareto Principle dates back to 1906 when Italian economist, Vilfredo Pareto, studied the patterns of money and wealth in Switzerland and discovered that 80 percent of the nation's land was controlled by just 20 percent of the population. Upon further research, Pareto discovered that the same pattern occurred in other countries. Other economists paid attention to this, and started noticing similar unequal patterns. In business, we apply this as a general rule that the top 20 percent of your customers account for 80 percent of your revenue.

Hence, the 80/20 rule. It's something that you and I often use to evaluate people, customers, tasks, and even ourselves.

As leaders, it's our job to push our teams to the limit, exposing excuses and causing tension. Sometimes, the 80/20 rule can lead to excuses -- like sales teams focusing on just the 20 percent and ignoring everyone else. I sat down to talk with Peter Philippi, CEO of Strategex, a business that focuses on creating customized growth strategies for mid-to-large B2B organizations. When it comes to the 80/20 rule, Peter has an interesting take on it -- a take that has helped his team push past self-imposed limitations and excuses.

To understand Peter's idea, grab a piece of paper and pencil. First, make a list of all of your customers from the last 12-month period. Organize the list in descending order of revenue. From there, split the list into four equal groups, with the top being the top 25 percent in terms of revenue, the bottom the bottom 25 percent and so on.

According to Peter, what you should see is that "the top 25 percent should account for 89 percent of your revenue; the second 25 percent accounts for 7 percent; 3 percent on the third; and 1 percent on the bottom." An 89/7/3/1 is quite a bit different than Pareto's 80/20 rule, and Peter is so sure of this that it's printed on the back of his business card!

By breaking out your customers according to the 89/7/3/1 rule, you and your sales team should be focusing on the "whales" -- the top 25 percent that bring in 89 percent of your revenue. That's a more efficient way to target rather than the previous 80/20 model, don't you think? Your "minnows," the 7/3/1, should still receive attention of course, but more proportionate to the revenue you receive. The goal of the 89/7/3/1 rule is to help you and your team focus on the right business. However, according to what Peter told me, most businesses don't do that. Why is that? I believe it comes down to one of three things:

Won't Focus

There are some people who just don't want to focus on what needs to get done. And it takes all kinds of people to keep the world spinning. But I don't have time for these people, so I have nothing to say to them.

Can't Focus

Thinking big and acting bigger can take time to adjust to. There are people who jump in feet first to the deep end, and others who take time to wade in from the shallow end. Whatever way they get to the deep end, at least they're getting there. If your team is having trouble getting there due to lack of education or tools, it's your job as a leader to give them what they need in order to achieve the goals you've set forth for your company.

However, sometimes people are too preoccupied with other things to focus. It's up to them (and you) to help them realign their goals to meet yours. We all can be distracted squirrels, but it takes dedication to push past the distractions and focus on the big picture.

Don't Want to Focus

Then, there are times when people simply don't want to focus. It could be because they're too close to the client that they'll offer to do free work -- even at the expense of paying clients. It could be that you've always used this specific product or service and refuse to look elsewhere, even when other products or services are obviously better. Whatever the reason, emotional attachment can cause people to not want to focus. That isn't where your focus should be; your focus should be on your business and doing what it takes to make it the best. If clients, employees, or services are holding your business back - find a way to help them, and then let them go.

In the end, it's up to you as the leader to focus your business, team, and even yourself on the business that matters. Remember Peter's 89/7/3/1 rule to help keep your focus aligned on what's best for business, and then go after it.