Pareto Principle and how to breakthrough as an underdog
April 30, 2017
November 15, 2020
Vilfredo Pareto was an Italian engineer, sociologist, economist, political scientist, and philosopher. He made numerous important contribution to economics.
One of the most profound contributions Pareto made is his study of the income distribution. He had discovered that individual’s income in a country follows a power law probability distribution from his observation that 80 percent of the land in Italy was owned by 20 percent of the population.
This pattern is then named after him as Pareto Principle, also known as the 80/20 rule that we’re familiar with.
Pareto was born of an exiled noble Genoese family—his father was an Italian engineer and his mother, a French woman—in 1848 in Paris. After his graduation, Pareto worked as a civil engineer for some years. He then became a liberal, actively participating in political activities, while working as a lecturer in economics and management at the University of Florence.
Pareto did not begin serious work in economics and sociology until his mid-forties. He was always fascinated by the problem of power and wealth. At that time ( thnow), the gap between the rich and poor has been a consistent pattern of society condition.
Most people never questioned it, and most lived in their “fantasized” economics ideology. However, Pareto had more question about it:
To figure out the answer, Pareto resolved to measure it. He gathered tons of data on wealth and income - tax records, contemporary rent income, personal income, etc. - through different countries and different centuries.
What he found was striking.
He plotted the data on a graph paper, with the income on one axis, and the number of people on the other axis. And he found that power and wealth weren’t distributed in a linear pattern, instead, it’s a reversed hockey-stick where a small percentage of the population own a majority of the wealth.
Furthermore, he saw the same pattern everywhere in every era.
In fact, the Pareto Principle doesn't happen only in wealth distribution. If we take a closer look, the Pareto Principle, also known as the 80/20 rules appears in almost (but not all) every industry and scenario.
There are inequalities everywhere. It could be a disadvantage, at the same time, an opportunity depends on how you see it. If you believe in equality and random distribution, it’s crucial to accept and embrace this hard truth.
But it also acts as a valuable insight for many of us--helping us to filter out unnecessary data, better channel our resources, and thus, making a better decision in work and life.
Notes: I cover more of this and four more time management strategies that will change your work and life here
Most of us can’t control how the wealth is distributed, but we can still use the Pareto Principle to achieve better success in many areas of our life. There are three phases in implementing Pareto Principle in our life.
The first step to better channel our focus is to aware of where are our current focuses. Think of how you spend your time, the food you eat, the person you hang out with, and the decisions you constantly made. Keep track of how these decisions impact you in different areas of life.
At the same time, figure out the 80 percent of your accomplishments (or pleasure) and the 80 percent of your setbacks (or anything that doesn’t go well). Pinpointing these experiences helps you to find the source of these results.
After gaining a clearer picture of your activities and your results, connect the dots to link those (good or bad) results to the source of activities.
Just like how a small group of sportsman won the majority of the games, a small set of your daily habits and routines lead to the majority of the success you’re experiencing right now. And just like how a small set of bugs cause the majority of errors in software, there are a few destructive routines that lead you to failure again and again.
What to do next is obvious now. Try eliminate or at least, minimize the destructive routines and focus your time and energy on the top 20 percent habits that lead to good progress.
It’s often easier to say than done. To give you a better understanding, here are a few examples of how I use the Pareto Principle in my daily life.
Now you’ve learned a few practical use of the Pareto Principle at an individual level. Let’s dive into a few examples of how this principle can be helpful in your organization of any size.
Imagine growing a new forest of 10,000 trees. Six months later, a few of those trees grow taller. The difference may be insignificant in the beginning. However, taller trees get better sunlight, at the same time, growing a wider, deeper spread roots to collect more water and better nutrients.
These little advantages help these trees to grow a little taller and bigger again, that eventually widen the gap of advantages they have over other shorter trees. With time, these are the only trees that survive because they become so tall to collect all the sunlight while the others die under their shades.
As Malcolm Gladwell pointed out in his book Outliers, successful people are usually the one with some sort of advantages and opportunities that others don’t, especially at the starting line. It doesn’t matter if these head-starts are small, it gets accumulated over the long run.
In Pareto Principle, the winner takes (almost) all. The-Winner-Take-All effect happens isn’t because winners are better, smarter, and stronger than everyone else. In fact, most of us started at about the same place. But that tiny little advantage can take a person a long way by compounding effect over time.
I’m not writing this to discourage you. Acknowledging the Pareto Principle, and the source of it, isn’t mean your life is doomed because you’re behind. Instead, I want to to see this as an advantage and acknowledge that small improvement does matter.
Putting the 80/20 rule to work in your life means better allocating your time and energy on things that deliver the best results. This simple act is an advantage. In fact, you don’t need to start big, remember?
All you need is progress. Improve yourself in a sustainable way; even it’s just 1 percent. It takes you a long way.
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