This Is Why the 80/20 Perspective Makes Data More Effective

“Efficiency is doing things right;
effectiveness is doing the right things.”
– Peter Drucker

Data is a great way to measure the effectiveness of just about anything in your business. But how do you measure the effectiveness of your data?

The 80/20 rule is a great place to start.

Richard Koch is widely considered the expert in applying the 80/20 rule—also known as the Pareto principle—to business. You might have heard it expressed as 80% of sales coming through 20% of your salesmen, or 80% of complaints coming from 20% of your customers.

When the 80/20 rule is applied correctly, it can be an effective way to identify opportunities for improvement and growth within a company.

For example, Koch highly recommends that companies leverage the principle to improve their teams. He calls it the A-team approach, and it means only hiring people who will perform in the top 20%. One firm, McKinsey & Company, is especially strict about their A-team when hiring: From the very first interview, prospective employees are told that if they aren’t a manager within three years, they’re out. It’s ruthless but effective for their culture and processes.*

So answer this: If your data was an employee, would it be providing A-team value?

Or would it be getting fired?

Let’s talk about a hypothetical employee named John Data.

John Data is in charge of creating your reports each week and month. And he is super hard to work with.

Would you continue nurturing and helping John Data when he demands hours of undivided attention every month, requires time from every department, and then can’t quite tell you precisely what he accomplishes?

Our guess is probably not.

If this sounds anything like your experience with data, something needs to change, especially considering the financial investment that most companies make: IDG Enterprise estimated companies would spend an average of $7.4M on data-related initiatives in 2015 (i.e., enterprises investing $13.8M, and SMBs $1.6M).

So how do you use the 80/20 rule to evaluate your data?

Here are a couple questions to ask:

Does your data let you be productively lazy?

It wouldn’t be a stretch to say that one of Koch’s guiding ideals is laziness, although his definition of the term doesn’t necessarily involve sunscreen and ocean breezes. Rather, he says laziness is all about maximizing productivity (and thereby maximizing leisure time).

As nice as that sounds, most people struggle to make it a reality. Perry Marshall, the author of 80/20 Sales & Marketing, explains that many small business owners waste a large portion of time on “$10-an-hour” tasks while procrastinating on the work that requires their unique skill set and produces the most powerful results.

We’re not saying that analyzing data is a $10-an-hour task—it’s definitely not (our data scientists are reaching for their torches and pitchforks). But the grunt work of collecting data from various departments and apps, and turning it into something clear and easy-to-understand? That shouldn’t be demanding hours of your time and energy every month.

One way to save yourself from the monthly data headache is to use a BI dashboard. At Grow, our ridiculously simple solution pulls data from all your various sources and displays it with beautiful, clear visualization. It updates in real time so you can put monthly report gathering in the past.

Does it help you identify other 80/20s in your business?

Your data should help make you more productive, and that means identifying other 80/20s. Or, put more precisely, it means you should be paying extra attention to the best-performing parts of your business.

You can use the 80/20 principle to help you get the most out of your customers. As Marshall explains in this video interview with Entrepreneur.com, understanding and targeting your top 20% of customers can unlock huge profits:

On your team, use data to identify the employees that are performing at that top-20%, A-team level, then explore what makes them perform so well. Those insights can be put to use for employee training, as well as for vetting potential hires. At Grow, we have a great sales team, but Jason was consistently at the top of the sales dashboards on all our key metrics. We didn’t want to let that kind of excellence go to waste, so Jason started training the rest of team, and the results have been fantastic.

Another perk of putting that data up on a dashboard? Your team will be more motivated to achieve when they can see the score.

Are you focusing on the right 20%?

Richard Koch has said that while complexity is ugly, simplicity is beautiful. Perry Marshall calls simplification “the essence of genius.” So what do you do when your data is complex, unwieldy, and overwhelming?

We’ve said it before: Focusing on the wrong data can be a huge distraction. And distractions are a big drag on productivity. So while you might have a lot of data that’s applicable in different contexts, identifying the 20% of metrics that affect 80% of your most valuable work is power in your hands.

Let distracting data take a back seat, and give your attention to the most crucial metrics. A dashboard like Grow’s can really help pinpoint your focus, and we’re confident your business will thank you.

Let’s be clear …

The 80/20 rule isn’t a hard and fast ratio. In fact, if you’re really doing the math, some input/output ratios might come out to 95/5, or 75/25, and that’s okay. The key idea is that there is usually an imbalanced relationship between inputs and outcomes—an imbalance that you can capitalize on. Data is essential to help you turn those imbalances into strengths.

A customized dashboard from Grow can be an invaluable tool to give you the data insights you need to do just that.

And don’t worry, we won’t make you figure our software out on your own. We match our clients with experienced integration specialists who will help you develop the dashboards you need. While we’re confident that you’ll become a Grow expert in no time, we’re always here for you with lifetime support.

There are endless ways to apply the 80/20 principle, but if you’re ready to make data part of your A-team, request a demo. We’ll be happy to show you how productive your data can be so you can focus on what matters most.

 

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