What is the Pareto Rule AKA the 80/20 Rule?

In today’s video, Matt reviews a video that goes over the Pareto Rule. This business person is giving context to how much growing your business can be hurt because of how this rule plays out in employees’ efforts. Matt has some other thoughts. Watch to see what he thinks.

There are tons of people out on social media giving business advice. Some of it is good advice, but most of it isn’t good. In this series watch CapForge’s owner react to different advice videos. He’s an expert in all things business and has 20+ years of experience under his belt. Some of the things he reacts to might even surprise you!

Video Transcript: 

Business Advice Video:

And the Pareto Rule, sometimes you hear it characterized as the 80/20 rule, 20% of your customers will give you 80% of your business. But it’s way worse than that. The actual law is the square root of the number of people involved in an enterprise do half the work. If you have 10 people that work for you, three of them do half the work. Now that seems pretty understandable, right? If you have 100, 10 of them do half the work. And if you have 10,000, 100 of them do half the work. 

Matt’s Review:

I don’t think that’s true. I certainly think that in any given business, there are people who are more productive and less productive. But to imply that 3 out of 10 are doing half the work, not likely unless you’re really running things wrong. But I mean, if you’re up to the point where you have 100 out of a 1000 or whatever it was 100 out of 10,000 like that doesn’t make any sense. It’s not really the way the world works. The principle I think was a shorthand to give you a rough idea of how things a lot of times break down. A lot of times there is a certain 80/20 to things going on and in the world. But to suggest that, you know, 20% of the people in an organization even, and he’s saying it’s worse because of the actual formula with square roots. But even to suggest that 20% of the people in an organization do 80% of the work or even half the work I think is inaccurate and not really taking into account how things work. I guarantee in fact that if you had a business with 100 people and 80 of them left you would be a lot worse off than just having half the work not getting done. This is shorthand. It maybe sounds good on the bumper sticker or lets you write a book about it, but I don’t think it translates very well to the real world. I think it’s an exaggeration at best.