Main Idea

The 80/20 principle is that 80-percent of the results in any system will flow from just 20-percent of the efforts. Therefore, the key to being more productive and better organized is to focus on expanding the productive 20-percent rather than trying to eliminate the unproductive 80-percent.

Specifically, the 80/20 principle suggest that higher productivity in any activity will be achieved by:

- Celebrating and expanding exceptional performance rather than trying to raise the overall average.

- Looking for productive short cuts that still achieve 80-percent of the intended results rather than plodding on.

- Using the least possible effort to maintain control over your life rather than making things difficult for yourself.

- Seeking and working towards excellence in a few things rather than competence in a lot of different areas.

- Outsourcing as many non-productive tasks as possible to other people so you can focus on where you are highly productive.

- Choosing a career in which you can either be self employed or employ other people to multiply your effectiveness.

- Only doing those things that you love doing and that you personally do very well.

- Becoming aware of the ironies and oddities that lie just beneath the surface that most people never even think about.

- Always working out where 20-percent of your efforts will lead to 80-percent of the results.

- Targeting a limited number of very valuable goals where you can make the 80/20 principle work for you instead of against you.

- Making the most of those all too brief cosmic alignments where everything you touch seems to turn to gold.

Key Points

The 80/20 Principle

The 80/20 principle states that there is an inbuilt imbalance between inputs and results in any system. Typically, the majority of the inputs have little impact on the results while a minority have a major impact. In other words, the bulk of the results are actually derived from only a small proportion of the inputs.

A mathematical benchmark which consistently shows up is that 80-percent of results directly flow from just 20-percent of the efforts. Therefore, the key to being more productive is to:

1. Determine which 20-percent of the total effort is most productive, and to focus on increasing those inputs in order to achieve even greater results.

2. Find ways to make the 80-percent that is currently unproductive become more productive.

Business Applications of the 80/20 Principle

The top ten business applications of the 80/20 principle are:

1. Strategy

2. Quality

3. Cost reduction and service improvement

4. Marketing

5. Selling

6. Information technology

7. Decision making and analysis

8. Inventory management

9. Project management

10. Negotiation

Personal Applications of the 80/20 Principle

The key areas in which 80/20 thinking can be applied in personal lives are:

1. Time management

2. Setting personal goals

3. Forming personal and professional friendships

4. Making career choices

5. Making more money

6. Developing the personal habits of success

The 80/20 Principle

The 80/20 principle states that there is an inbuilt imbalance between inputs and results in any system. Typically, the majority of the inputs have little impact on the results while a minority have a major impact. In other words, the bulk of the results are actually derived from only a small proportion of the inputs.

A mathematical benchmark which consistently shows up is that 80-percent of results directly flow from just 20-percent of the efforts. Therefore, the key to being more productive is to:

1. Determine which 20-percent of the total effort is most productive, and to focus on increasing those inputs in order to achieve even greater results.

2. Find ways to make the 80-percent that is currently unproductive become more productive.

The basic underlying premise of the 80/20 principle was first identified by an Italian economist, Vilfredo Pareto, in 1897. Pareto was studying patterns of wealth and income in 19th century England, and he noticed that there was a consistent mathematical relationship in evidence. Specifically, Pareto noticed 20-percent of the population had accumulated 80-percent of the wealth, and that the same relationship was repeated consistently in numerous other areas. (The 80/20 principle is sometimes referred to as the Pareto Principle in his honor.)

The 80/20 principle was publicized by George K. Zipf, a Harvard professor and by Joseph M. Juran, the prime mover behind Japan’s quality revolution which started around 1950. The 80/20 principle has also attracted a number of titles, including ‘‘the rule of the vital few’’, ‘‘the principle of least effort’’ and ‘‘the principle of mathematical imbalance’’.

The concept that greater results can flow from some inputs more than others is both counter-intuitive and counter-democratic. Nevertheless, it can provide valuable insights into improving a person’s personal productivity by identifying which areas should be emphasized in order to maximize results. On a corporate level, the 80/20 principle can successfully identify which resources are most productive, and which can be eliminated with minimal effect on overall results.

Some examples of the 80/20 principle include:

- 80-percent of the world’s energy is consumed by 15-percent of the population.

- 80-percent of the world’s wealth is possessed by 25-percent of the world’s population.

- In health care, 20-percent of the population will require 80-percent of the total medical expenditure.

- For most non-fiction books, 80-percent of the new ideas are contained in 20-percent of the text.

- 20-percent of the new movies released each year generate 80-percent of the industry’s total box office revenues.

- 20-percent of the companies listed on the New York Stock Exchange generate 80-percent of the growth (or decline) in overall market value each year.

There are two ways to apply the 80/20 principle:

1. 80/20 Analysis

This is the traditional approach to the 80/20 concept. It requires that the possible existence of an 80/20 style relationship be assumed, and data be quantitatively gathered to determine what the exact imbalance is. (It may be shown to be 75/25 rather than 80/20, and so on).

Under this approach, resources can then be focused on the key smaller proportion of the inputs to maximize results. Alternatively, as already mentioned, attention can be turned to increasing results from the under performing major proportion of inputs.

2. 80/20 Thinking

An alternative approach suggests that rather than wait for a precise 80/20 pattern to become measurable, why not approach each situation as if an 80/20 relationship will later become apparent, and look for the key 20-percent input to focus on while ignoring the majority of factors which will later be seen to be of only marginal value.

80/20 Thinking proposes taking a proactive approach - try and identify which small number of inputs will exert disproportionately greater influence on the results through some creative thinking. It necessarily involves making some preliminary attempts that may later prove to be incorrect.

The long-term advantages of both 80/20 Analysis and 80/20 Thinking are:

- Exceptional productivity will be focused on rather than trying to raise the average results of all inputs.

- An intuitive approach to look below the details of everyday life to patterns of productivity underneath the surface can be encouraged and enhanced.

- Productive short-cuts will be sought rather than doing things the long way.

- In your personal life, you can simplify matters, accomplish more and work less by focusing on the achievement of a limited number of highly valuable personal goals rather than a large number of marginal goals.

- A company can determine which 80-percent of work can be outsourced cost effectively while resources are more intensely focused on key productive activities.

- An inclination to focus on excellence in a few key factors will be encouraged instead of trying to achieve average results in a broader number of factors.

‘‘The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.’’

--George Bernard Shaw

‘‘God plays dice with the universe. But they’re loaded dice. And the main objective is to find out by what rules they were loaded and how we can use them for our own ends.’’

--Joseph Ford

Business Applications of the 80/20 Principle

The top ten business applications of the 80/20 principle are:

1. Strategy

2. Quality

3. Cost reduction and service improvement

4. Marketing

5. Selling

6. Information technology

7. Decision making and analysis

8. Inventory management

9. Project management

10. Negotiation

1. STRATEGY

Most companies generate 80-percent of overall profits from 20-percent of activities and 20-percent of total revenues. Usually, the hard part lies in working out which 20-percent is the most productive.

To take advantage of this, break down your company operations:

1. By product or product group

2. By customer or customer group

3. By any other split which is directly relevant to your operations

4. By competitive segment

Of the four options, breaking operations down by competitive segment is usually most valuable. A competitive segment is a part of your operations where either you face a different competitor or differing competitive dynamics are in use. For each competitive segment in which you compete:

1. Analyze your competitor - where are they strongest, and where do you secure sales away from them?

2. Evaluate whether or not the segment is an attractive market to be in.

3. Consider how your company is positioned in the sector, and where the greatest potential profits will be generated.

Most companies fail to actively analyze and plan on the basis of specific competitive segments. This, however, fails to take advantage of the key benefits of studying competitive segments:

1. To identify which few activities carried out by your entire company generate the bulk of your profits.

2. To allow you to align your business activities in an effort to discontinue the non-productive activities and allocate more resources to the productive segments.

This last benefit - the elimination of non-productive competitive segments - is particularly important. Most managers have a natural bias towards complexity rather than simplicity. As a result, they tend to work towards growing ever larger companies that eventually become multi-nationals which gradually add additional products and services to their business lines.

Some of the reasons companies naturally tend towards complexity:

1. Managers love complexity because it makes their jobs appear more valuable and intellectually stimulating.

2. Complexity obscures business operations somewhat, making a manager’s performance harder to evaluate on a purely result oriented basis.

3. Complexity protects the need to hire managers with the requisite experience and qualifications - and to pay them commensurately.

The paradox is that as companies become larger, they invariably become more complex, and that complexity reflects itself in an increase in overheads which almost always outweighs the additional revenues generated by the new operational lines.

In practice, simple organizations which focus solely on selling a narrowly defined range of products to a specific identifiable customer base always turn out to be more profitable than large, complex companies operating in a diverse range of industries.

The advantages of simple business organizations are:

1. Market share in one well defined niche is always more directly profitable than achieving pure scale of operations.

2. Complexity always requires overheads and management to sustain it. A simple business model doesn’t require a head office, regional offices, complex company operating manuals and so. The elimination of overheads will impact directly on profitability.

3. Simple businesses can be closer to their customers - there is less management to get in the way of listening to customers and to responding to their quest for value.

4. Simplicity can be the key focus in raising prices and lowering costs of production.

The key to creating or managing a great company is simplicity. Scale of operations is valuable, and a large, simple business will be better than a small, simple business. But growing a business by adding complexity will always introduce factors that will inhibit the company’s ability to generate profits - by adding unprofitable products, suppliers, processes, products and managers.

2. QUALITY

The 80/20 principle has been the underlying basis for two business revolutions thus far:

1. The quality revolution which took place between 1950 and 1990 encouraged by Joseph Juran and W. Edwards Denning had, at its heart, an 80/20 approach: that a small number of factors resulted in the greatest proportion of quality defects, and by eliminating these factors, the resulting overall quality could be dramatically enhanced.

2. The information revolution which began in the 1960s also has 80/20 principles at its heart: the fact that 80-percent of the benefits of any system will be found in the simplest 20-percent of the system, the fact that 80-percent of any product’s use will take advantage of only 20-percent of the available features or the fact that people use 20-percent of any software package 80-percent of the time.

The 80/20 principle also applies to industry sectors:

1. Over time, 20-percent of the competing companies within an industry will have an 80-percent market share, and generate 80-percent of the profits.

2. As new innovations are introduced to existing markets, companies will try and segment off portions of the existing market into smaller niches that can be defended.

3. Of the emerging niches, only 20-percent will generate 80-percent of the added overall market value.

Similarly, the 80/20 principle will apply to individual companies:

1. 80-percent of the surplus generated by profitable companies is created by 20-percent of the employees.

2. Most employees will generate 80-percent of their productive output using 20-percent of their available time.

3. COST REDUCTION AND SERVICE IMPROVEMENT

Applying the 80/20 principle in the area of reducing costs comes up with three useful approaches:

1. Selectivity in deciding which areas have the greatest cost-reduction potential is important. Ideally, you want to try and focus your cost reduction efforts. For most products, 80-percent of the total cost will be generated by 20-percent of the components. Therefore, it makes good business sense to focus just on the areas that will generate the greatest benefits instead of trying to tackle everything. You eliminate marginal value activities and maximize activities that will generate the greatest value-added benefits.

2. You can use the 80/20 approach to pinpoint exactly why cost overruns occur, and then focus your attention on improving just those major areas. That way, you’re taking a positive approach - focusing on eliminating the key drivers of overruns - rather than simply looking for ways to cut down on costs in other ways.

3. You can also use 80/20 principles to come at cost reduction issues from a different angle. If you intuitively accept that only a minority of your product’s or service’s features will be useful from a customer perspective, you can take the time to measure and compare which features deliver the greatest value. Armed with this knowledge, you can then creatively develop ways to provide enhanced features in just those areas for the same total cost of your product at present. In this approach, your costs remain the same but the perceived value is increased.

The natural tendency is for products to become too complex over time as incremental features are added. Eventually, most products become more inefficient at performing their primary role for the sake of versatility in performing a number of roles. Yet, versatility does not always add value from a customer perspective, and often detracts value rather than adding it.

Therefore, keep in mind major cost reductions may be available by doing things differently or by doing less. As the cliche goes, less really is more when it comes to product features and designs.

4. MARKETING

80/20 principle marketing rules are:

1. 20-percent of your product line will currently be generating around 80-percent of your profits. For those products, focus your entire company’s resources on delivering a stunning, knock-out product in those key product lines. Focus every available resource on expanding what those products are doing right. Don’t worry about trying to improve the poor performers - they don’t matter much anyway. Concentrate on improving the high performing product lines. Be marketing-led in this area.

2. Similarly, 20-percent of your customers will be providing 80-percent of your revenues. For those customers, your entire company should be customer-led: that is, every resource of the company and every marketing initiative should focus on getting those key customers to buy more by:

1. Providing them with exceptional service.

2. Targeting new products at this 20-percent sector only.

3. Doing whatever it takes to keep them loyal and happy.

3. There are time when your company should be marketing led and times when it should be production led. Broadly speaking, if you have a product/service/price package that is better value than anyone else can supply, the bulk of your efforts will be marketing led, focusing on creating satisfied customers and expanding their purchases. (Typically, this situation will arise in the 20-percent of your product line that generates 80-percent of your profits).

If, however, you don’t have a sustainable advantage in your current product/service/price package, you need to innovate. At that stage, your company will be product led rather than marketing led.

5. SELLING

To increase sales performance, think 80/20 rather than concentrating on averages. Some ideas:

1. Most companies are aware 20-percent of their sales force generate 80-percent of their business, but they never analyze why that is. Perhaps the key to increasing sales simply lies in identifying what exactly the top sales people are doing differently, and train the entire sales force to do the same.

2. Another alternative is to try and hire more of the same type of sales people who are top performers. What kind of personality traits and attitudes do they have that you should seek in potential new sales people?

3. Experiment a little. Take a top performing sales team from one part of the business to another on a temporary assignment. Find out whether there are structural reasons for teams to perform differently in the various divisions, and eliminate in-built barriers to success you may not even be aware exist.

4. Focus sales people’s efforts on the 20-percent of your product line that generates 80-percent of profits.

5. Similarly, train your sales people to devote more attention to the 20-percent of your customers that generate 80-percent of profits than to others. Ideally, 80-percent of their time should be spent with those key 20-percent customers.

6. Consider whether or not it is practical to consolidate key customers under one high-performance sales team so they can receive above-average service levels and attention.

7. Actively look for ways to lower the costs of selling to the lower value 80-percent customers. Perhaps move them to telephone based systems rather than requiring face-to-face sales meetings. Whatever is appropriate.

8. Actively and aggressively re-contact people who have been high volume customers in the past, and give them rational reasons to begin doing business with your company again. They have the potential to once again become high-value current customers. Give them every encouragement possible.

6. INFORMATION TECHNOLOGY

The 80/20 principle is widely known and applied in the information technology industry. Some examples:

- Most software developers realize 80-percent of the benefits will come from the simplest 20-percent of the code they write.

- Software designers also work on the premise most people will use 20-percent of the features 80-percent of the time, and therefore these high use functions should be as simple and accessible as possible.

- The value of automated technology which is accessible to every employee of the company is increasing rapidly as companies become decentralized through the use of better technology.

7. DECISION MAKING AND ANALYSIS

Generally speaking, companies today tend to be over analyzed by the hordes of management school graduates who have poured into the marketplace since the 1950s. Analysis has thus tended to drive out the traditional business visionaries who drove corporate growth in the past.

The 80/20 principle provides five practical rules for decision makers:

1. In terms of results, not many decisions will turn out to be all that important. Therefore, don’t conduct time consuming analysis - make a decision quickly and move on.

2. Your most important business decisions will frequently be made by default - by external events. In that situation, insight and intuition will be of more value than detailed analysis.

3. For important decisions, use 20-percent of your time to gather 8-0-percent of the available information and then make a 100-percent committed decision on that basis. You’ll be far more productive.

4. If what you’ve decided isn’t working, make changes early rather than later.

5. When something is working well, find a way to redouble your resources in that area. And keep doing that for as long as you can. Don’t settle for modest growth - look for 10- or 100time improvements.

8. INVENTORY MANAGEMENT

The natural tendency is for a company to carry too much inventory, dragging down earnings. The broad rules of an 80/20 based inventory management system are:

1. Look for ways to completely eliminate your most unprofitable product on a regular basis.

2. For any given number of products, look for ways to cut down on the number of variants offered for each product.

3. Try to export inventory management to either your suppliers or your customers wherever feasible.

4. Move the highest volume 20-percent of your inventory into the most easily accessible areas of the warehouse.

Inventory management efficiencies generated by applying the 80/20 principle often result from a clearer focus on the most important customers, the highest volume product lines, etc.

9. PROJECT MANAGEMENT

Applying the 80/20 principle to project management means:

1. Simplify the project so that team members can focus on the 20-percent of activities that will generate 80-percent of the overall value.

2. Once that 80-percent value threshold has been achieved, evaluate whether the time spent attaining the remaining 20-percent added value is worth it. If not, end the project at that point.

3. Allocate more time to detailed planning than to execution. You’ll find that 80-percent of the problems will arise in the design phase, and they will be easier to correct sooner rather than later.

4. Keep in mind 20-percent of the problems will cause 80-percent of the cost overruns.

10. NEGOTIATION

Applying the 80/20 principle to negotiating skills:

1. Always keep in mind 20-percent of the points at issue will comprise 80-percent of the value of the disputed territory. Always try and concede negotiating points outside that critical 20-percent group in exchange for movement in areas that are of vital importance.

2. In most negotiations, 80-percent of the agreement will be decided in the last 20-percent of available time. Therefore, pace the negotiation so as to bring up the most critical items as a deadline looms - people are much more likely to be flexible at that stage rather than sooner.

‘‘My effort is in the direction of simplicity. People in general have so little and it costs so much to buy even the barest necessities (let alone the luxuries to which I think everyone is entitled) because nearly everything we make is much more complex than it needs to be. Our clothing, our food, our household furnishings

-all could be much simpler than they are now and at the same time be better looking.’’

--Henry Ford

‘‘Those who analyze the reasons for their success know the 80/20 rule applies. Eighty percent of their growth, profitability and satisfaction comes from 20 percent of the clients. At a minimum, firms should identify the top 20 percent to get a clear picture of desirable prospects for future growth.’’

--Vin Manaktala

‘‘A database, no matter how copious, is not information. It is information’s ore. The information a business depends on is available, if at all, in a primitive and disorganized form. For what a business needs the most for its decisions - especially its strategic ones - are data about what goes on outside of it. It is only outside the business where there are results, opportunities, threats.’’

--Peter Drucker

Personal Applications of the 80/20 Principle

The key areas in which 80/20 thinking can be applied in personal lives are:

1. Time management

2. Setting personal goals

3. Forming personal and professional friendships

4. Making career choices

5. Making more money

6. Developing the personal habits of success

The advantages of using 80/20 thinking in personal matters are:

1. 80/20 thinking is reflective, and will lead to insights that, when applied, can vastly improve overall quality of life.

2. 80/20 thinking is unconventional. It will identify unproductive areas which can be eliminated that the majority of people would never realize.

3. 80/20 thinking seeks to maximize the time spent in pleasurable and productive activities and minimize time spent at tasks that are not much fun.

4. 80/20 thinking is optimistic by nature and encourages individual progress and self-improvement.

5. 80/20 thinking is strategic - it focuses on the productive few rather than the marginally productive many.

6. 80/20 thinking is creative - it looks outside the box rather than restricting itself to arbitrary limits.

7. 80/20 thinking combines personal ambition with a structured, intelligent approach rather than trying to be everything to everyone.

1. TIME MANAGEMENT

The underlying aim of 80/20 based time management is not to organize yourself better but to increase your productivity. The seven key principles are:

1. Make the mental leap of disassociating effort and reward, and acknowledge that more can be achieved by working less if you focus solely on what is most productive.

2. Never feel guilty about enjoying what you do. On the contrary. Take every step possible to make what you most enjoy doing the way you earn a living.

3. Become free from working for anyone else. The world’s most wealthy 20-percent didn’t get there by working for someone else - only for themselves.

4. Free yourself from arbitrary social conventions. Your time is yours alone.

5. Spend time identifying what 20-percent of your time is most productive - that is, generates 80-percent of your achievement, your results or your personal happiness.

6. Actively look for ways to increase the amount of productive time applied to your life. Look for complimentary activities that will be equally productive.

7. Finally, eliminate or reduce all activities which are of only marginal value. Look for non-conventional, creative ways to avoid these activities.

For most people, the Top Ten Low-Value Uses of Time are:

1. Tasks other people want you to do.

2. Things that have always been done this way.

3. Tasks you’re not very skilled at.

4. Tasks you personally hate doing.

5. Tasks interrupted halfway through and never completed.

6. Things few other people share an interest in.

7. Tasks that have already taken twice as long as originally anticipated.

8. Tasks where you depend on other people who are unreliable.

9. Tasks that have a thoroughly predictable cycle.

10. Answering the telephone

Conversely, the Top Ten High-Value Uses of Time are:

1. Tasks directly related to your overall purpose in life.

2. Things you’ve always wanted to do.

3. Highly productive tasks which generate the majority of your achievements.

4. New ways of doing things that save time or increase effectiveness.

5. Achieving things other people assured you were impossible.

6. Applying innovative techniques that have been successful in other applications to your own life.

7. Tasks that tap into your personal creative capacities.

8. Getting other people to do specific low-value things for you.

9. Working creatively with other people who are highly productive.

10. Things for which a deadline is about to lapse.

2. SETTING PERSONAL GOALS

An 80/20 based goal setting system strives to set goals in high-productivity areas that will generate at least 80-percent of our overall happiness. The priorities of this type of system:

1. Start with lifestyle goals first. They will lay the foundation for all other goals. What specific goals will make you feel good at least 80-percent of the time?

2. Career is the next area in which to set goals. Look for a career which you enjoy at least 80-percent of the time. Also, how will your partner’s career impact on your personal lives, and what goals should be set in that area?

3. Next, decide what level of money you require. Ideally, you want to make money doing something you really enjoy, where you can be your own boss or have employees and where you can generate a surplus for investment purposes.

4. Finally, decide what you want to achieve - your legacy. What have you been productive at in the past that you can expand on and build a lifetime of successful accomplishments in?

3. FORMING PERSONAL AND PROFESSIONAL FRIENDSHIPS

Applying 80/20 thinking to the area of personal relationships yields these insights:

1. For most people, 80-percent of the value they derive from personal or professional friendships comes from 20-percent of those associations.

2. 80-percent of the total value from relationships comes from 20-percent of close relationships that were formed first in our lives.

3. Most people devote far less than 80-percent of their time to the 20-percent of their relationships that are of the most value.

You can greatly increase your success in your career if you form an alliance with a strategic partner who enjoys being with you, who respects your abilities, who has a similar professional background, who can generate added value for you and from you and who you trust. Ideally, you want one or two allies who are mentors, two or three allies who are peers and one or two allies to whom you are a mentor.

4. MAKING CAREER CHOICES

In today’s society, winners take all. In other words, the people who are at the very top of their professions are constantly in the news and make far more than all others combined. Using this fact as a basis, 80/20 thinking generates the following concepts for career success:

1. Specialize in just one niche, and work hard to develop extraordinarily good niche-specific skills.

2. Choose a niche you feel passionate and enthusiastic about, where you can be noticed if you excel and become acknowledged as the best.

3. To make a career out of your enthusiasm, you need knowledge. Know more about your niche than anyone else on the planet.

4. Figure out who will be willing to pay for your knowledge or your skills in that niche, and find ways to deliver that value to them.

5. Identify in which areas 20-percent of your efforts will generate 80-percent of the returns and focus on those areas exclusively.

6. Be willing to pay to learn from the best in your niche, and observe how they think, act and spend their time.

7. Become self employed - where you can get paid for your results - early in your career.

8. Employ as many employees as add value to your efforts as possible.

9. Focus on your niche skills exclusively and use outside contractors in all other areas.

10. Exploit the advantages of capital leverage - applying capital to duplicating successful strategies in additional fields of in equipment that is more cost effective.

5. MAKING MORE MONEY

The essential 80/20 based principle of making more money is deceptively simple: Put money in the right place and then leave it there to compound untouched as long as possible.

Applying 80/20 thinking to the process of making money generates these rules:

1. Match your investment strategy with your personality. Practical people should invest in well-known areas. Analytical systems best suit those who are methodical.

2. Take positive charge and create an unbalanced investment portfolio which aims to maximize returns rather than minimize risk.

3. Invest mainly in the stock market, unless you have specialist knowledge in any other collectible.

4. Be a long-term investor. Completely ignore day-to-day fluctuations in prices.

5. Increase your rate of investment when the market is low, when everyone else is pessimistic.

6. If you can’t beat the market, at least match it buy buying only those stocks which are included in the widely known indexes.

7. Invest in just one area in which you have specialized information to draw upon.

8. Consider investing in emerging market stocks which have the greatest potential for above average gains in value.

9. Sell immediately and without exception any stock which depreciates in price by 15-percent or more. Cut your loss leaders.

10. Resist the temptation to take profits too early. Let the gains run as long as possible. Sell only when the gain has gone down to 15-percent below its highest point.

Making money or having a successful career is not a passport to personal happiness, and it is important to never lose the perspective that in the final analysis, money is always going to be a means to an end rather than the end in and of itself.

6. DEVELOPING THE PERSONAL HABITS OF SUCCESS

Applying 80/20 thinking to happiness is quite straightforward:

1. Identify when you are the happiest and duplicate them as much as possible.

2. Identify when you are least happy and structure your life to avoid them as far as possible.

Achieving these simple aims in life is the ongoing challenge. As in anything else, the habits we employ will have a significant impact on our rate of success. To achieve personal success, actively seek ways to build in these personal habits:

1. Daily physical exercise. The endorphins naturally manufactured during exercise will be far more exhilarating than any other alternatives - natural or man-made.

2. Mental stimulation - something that makes you think new thoughts about something new.

3. Spiritual or artistic stimulation or meditation. Feed your imagination or your spirit each day as carefully as you guard your physical health.

4. Do something for another person or a group. It will bolster your spirits and give a better perspective to the challenges of life.

5. Share a pleasurable short break with someone you thoroughly enjoy being with.

6. Give yourself at least one treat a day doing something you love.

7. At the end of each day, take a moment to congratulate yourself on what you achieved. It will make you feel good about how things are moving along.

In addition to the daily personal habits, 80/20 based shortcuts to a happy life are:

1. Maximize the proportion of your life which is under your direct control.

2. Set reasonable and attainable goals that will generate feelings of accomplishment.

3. Be flexible to the inevitable changes that occur because of events beyond your direct control.

4. Develop a close living relationship with a happy partner.

5. Cultivate just a few close friendships with positive, happy people.

6. Develop strong professional alliances with just a small number of people you really enjoy being with.

7. Move towards the lifestyle - work, home and social lives which you and your partner want.

‘‘We cannot be certain to what height the human species may aspire in their advance toward perfection. We may therefore safely acquiesce in the pleasing conclusion that every age of the world has increased, and still increases, the real wealth, the happiness, the knowledge and perhaps the virtue of the human race.’’

--Edward Gibbon

‘‘Relationships help us define who we are and what we can become. Most of us can trace our successes to pivotal relationships.’’

--Donald Clifton and Paula Nelson

‘‘there are only four types of officer. First, there are the lazy, stupid ones. Leave them alone, they do no harm. Second, there are the hard-working intelligent ones. They make excellent staff officers, ensuring that every detail is properly considered. Third, there are the hard working, stupid ones. These people are a menace and must be fired at once. They create irrelevant work for everybody. Finally there are the intelligent lazy ones. They are suited for the highest office.’’

--General Von Manstein, German Officers Corp.

Table of Contents

Main Idea

Key Points

The 80/20 Principle

Business Applications of the 80/20 Principle

Personal Applications of the 80/20 Principle