The 80/20 Rule & Our Finite Lives

ML Jul 14, 2006

So, I sort of love the 80/20 rule. There is an elegance in zeroing in on the first 20% of the work that results in 80% of the benefit. I like the rule so much, especially in the context of our finite time on this planet, that I wrote an 80/20 rule poem. I first learned about it from the tax code, about the rules for deducting a home office. I have since learned that the recognized origins of the rule is the Pareto principle, and discusses wealth distribution–how 20% of the population controls 80% of the wealth, and how this was universal, no matter when in history or what type of society.

So, the long tail notion is all about the invalidation of the 80/20 rule, where the rules of nearly infinite supply-side abundance combined with effective means of looking for and receiving what you want, evens out the distribution. The more easily product can “flow”, the more this new shape of business will emerge, and it is most apparent online and with digital product. It is less-so with products that must be produced at the location of consumption–say, restaurants. Restaurants will always follow the 80/20 rule.

The next thing that struck me as odd is how Chris Anderson points out that the 80 and the 20 measure different things. Say Wal-Mart wants to carry the 20% of products that sell best and account for 80% of sales. The 20% is a portion of products, while the 80% is a portion of sales. So, they don’t have to add up to 100%. You can just as easily have 5% of your product account for 90% of your sales (5/90 Rule?) or any variation. It’s just a ratio. And it’s a ratio of derivative numbers at that, making it much less useful in practice than one might intuitively imagine. The innate elegance of the 80/20 rule is an illusion.

What’s really at issue is that the concept of supply-side scarcity is what’s threatened. Supply-side abundance is happening BOTH through online services and through super megastores like Wal-Mart. As much as we like to chop at the ankles of giants, Wal-Mart has actually increased diversity of choice on the shelves. It’s not always about internet efficiencies and the long tail. Sometimes it’s about economies of scale, overall operational efficiencies, and the logistics curve (the unsung hero of statistical business model curves).

But where does supply-side scarcity forever remain, aside from restaurants? No matter how the rules of business change, what are the fixed factors? At least for now, it’s the finite timespan of our lives. No matter how infinite choices become, we can only spend so much time consuming. Chris makes excellent points about compressibility of certain consumables (listen to radio while doing something else). But in the end, we only have so many minutes in our lifespan, and we divvy them out as we see fit. Because of this decided scarcity on the supply-side, our lives will forever follow the 80/20 rule–however much of a convenient illusion it might be.

You can’t do everything, though trust fund babies can certainly try. For the rest of us, we have to divvy out our precious time between livelihood, family and friends, using whatever’s left over for travel, altruism, hobbies, and exploring the long tail of consumable goods. And with the infinite supply-side through online, such as endless blogs such as this, to read, the filters have got to be pretty darn good. For given the incredibly finite nature of our lives, we as individuals are very well served to focus in on the 20% of our precious time seeking out those experiences that will make 80% of the impact on our lives.

One response
  1. amckinnis

    As the English say “spot on” — there is always going to be a finite resource in the mix – and you picked one – Time. Money would be another. It’s interesting, so many concepts mean absolutely nothing (like infinite supply) at the single person level. I (as a single entity) can not “buy” everything (infinite supply). It sort of like all those people in rush hour traffice believing there is a way for them to be “first” in line.

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