The 80/20 Individual

by Richard Koch

• I challenge you to create more – much more than you have before, and much more than
you think possible. Try your hand at creating something big
• Creative executives nearly always get shortchanged by their organizations
• The enemy of growth is perennial underinvestment because there is a false assumption
that intelligence alone creates insight and value. Really, it is ideas.
• True entrepreneurship is not a lone pursuit but highly collaborative behaviour of critical
importance to every nation and organization, whatever its size.
• Highly idiosyncratic individuals respect, encourage, and nurture individualism in other
people. The more different and individualistic we become, the more we call forth and depend
on other individuals who have utterly different profiles

Nine essentials to 80/20 success

1. Use Your Most Creative 20 Percent- the distinctive strengths in a person that is
unusually powerful. it’s in your best interest to train and develop your spike. Outsource the
other 80%. To create you must belong. If you work for a firms where you can’t be yourself,
you may create, but only against the grain. The key is to use your 20 spike repeatedly. You
need a small team to be successful

2. Spawn and Mutate Great Ideas – in any sphere, there are just a few powerful
ideas. If you latch on to one, tow or three of these and adapt them to your unique abilities
and market, you can build a successful new enterprise. You need ideas that have proven
themselves and they need to fit your 20% spike. Float short list by trusted advisors. It is
likely to succeed if 1) the idea is a version of one that has already proven successful 2) has a
very large number of variations and has survived a serious process of business selection, by
proving itself superior to other variations 3) the idea is unique – no one else is pursuing it 4)
the idea is more economical that the original idea; a better product or service at the same cost,
or a similar product or service at a lower cost. 5) the idea complements and takes advantage
of the 20% spikes of you and your partners. Study all factors that lead to success: product,
service, time (design and deliver), customer, geography, activity. Is there a new product
working so well in your organization that it could become its exclusive focus? Could you
find a new channel of distribution for some of your firms products? Could you develop an
idea to simplify or speed up your own business or a key part of it in a way that would widen
its appeal?

3. Find the Vital Few Profit Sources – your objective should be to arrive at a
dramatically more attractive and profitable business. This remodeling usually involves
changing both the customer base (smaller more attractive segment) and the business formula
(way customer is served). Two critical issues 1) what is going to create the most wealth for
the least effort and capital 2) which raw materials are most crucial to success. Which type of
force produces 80% of the results for 20% of the resources? Which art h vital few? Who are
the vital few People? Who are the vital few customers? What are the Vital Few Products and
Services? (think small and big, think up market and mass market, pursue value innovation;
provide more for less use direct distribution channels, focus on activates that have the highest
ratio of value to cost).

4. Enlist Einstein – if you realize that 80% of wealth (or anything else desirable) is
created in less than 20% of the time available, then there is no shortage of time. Compress
delivery time to customers (self-service, delegate expensive and time-consuming tasks).
Identify the most valuable activities. Link your high-value activities to your new idea.

5. Hire Great Individuals – an 80/20 individual provides 16 times more value.

talent is not enough; ask what translates to wealth. Understand the practical implications of
the law of individual wealth creation – hiring talent is a much better deal than hiring
mediocrity. Exploit the theory of health/talent arbitrage; talent is not difficult to spot; grab it
before your competitors d0 and convert into wealth as quickly and fully as possible; need to
have instincts for spotting the vital few business genes and knowing how to use them better
than anyone else. Appreciate the value of young talent; some l/t employees stay because they
have failed to succeed; pay more than they expect and less than they are worth( other hiring
tips in book). Only hire people whom you like and who like you. Fun is a good investment.
the Value of Oddballs; diversity becomes efficient; homogeneity leads to death. Don’t start
and enterprise w/o at least one partner (preferable 2-7). Continually renew your sense of
partnership. Humility, shrewdness, creativity calculation, luck, experimentation, friendliness,
realism, the ability to cooperate with the best cooperators – all of these are necessary to keep
your team’s DNA alive and well. Keep tabs on the best 80/20 individuals.

6. Use Your Current Company to Your Advantage – it is always a mistake to

imprison 80/20 individual in a corporate structure where they lack control and ownership
stake directly related to their venture. The ideal profile for a new venture is 1) a low market
value for a business (P/E ratio) 2) high cash-generation potential. Haggling for a pay raise or
waiting for the board to compensate you isn’t enough; *0/20 individuals take control of their
own fate.

7. Exploit Other Firms – the 80/20 individual’s privilege is to select only the most
profitable activates within the most profitable parts of markets: ones that enjoy the highest
returns on capital and require the least management effort. Sub-contract all but the most
profitable parts for your business. Today niches are not consolations, they are first prizes.
The days when growth required investment in productive capacity are over. Today, growth
requires new ideas, new inspiration, new business models, variants of existing successful
models, and new and better services. ID missing ingredients in missing markets; Mature
companies often possess 9/10 of the puzzle. adhere strictly to the 80/20 frugality principle;
the two best choke points are capital and labour; scrutinize every point where capital or
employees will be used and ask if you can use another firms capital or labour. Separate
drones from star performers. Force birds of a different feather together.

8. Secure Capital – use capital only when you can multiply it; whether you are a
manger or an entrepreneur, each unit of capital should be tripled within a few years. Reduce
your need for capital; for every dollar of cost you have, you should normally have two or
more dollars of external cost; at least 2/3 of your costs should be bought-in goods and
services. Raise more capital than you need. Provide your own capital. Use the cheapest
available source of external capital. be obsessed with cash. Treat capital providers as valued
partners.

9. Make ZigZag Progress – use innovation to reach the second stage of growth.
The more successful an enterprise is in its first three to five years, the greater the upside for
the future- if it can maintain its upward trajectory. If you continue along the same path that
made you successful in the first place, you are almost certain to fail. If successful, you ought
to experiment extensively to get to the second stage of growth. Within three or four years,
you should be thinking about the next great leap forward, building on the success of your
formula while extending and changing it significantly.