Concepts related to the 80/20 principle

The 80/20 rule or “Pareto Principle” says that for many phenomena, a majority (eg 80%) of the effects come from a minority (eg 20%) of the causes. For example, if you’re a lawyer, the top 20% of your clients probably generate around 80% of your revenue. Also, the worst 20% of your clients probably generate around 80% of your headaches.

What’s powerful about the concept is that if we can successfully distinguish the super-potent causes from the less-potent causes, we can prioritize our efforts and get a lot more bang for our buck.

There are a number of related concepts that I find super useful. Here are some.

  • Compounding returns — interest on interest for exponential growth
  • Matthew effect or law of accumulated advantage — the rich get richer
  • Leverage — any influence which is compounded or used to gain an advantage
  • Force multiplication — a factor that increases the effect size of a cause
  • The 1 Percent Rule — “over time the majority of the rewards in a given field will accumulate to the people, teams, and organizations that maintain a 1 percent advantage over the alternatives.”
  • Power law or “heavy tailed” distributions — “a relationship between two things in which a change in one thing can lead to a large change in the other, regardless of the initial quantities”
  • Return on investment — the ratio of benefit out to cost in