Read The 80/20 Principle: The Secret of Achieving More With Less for Free Online
Authors: Richard Koch
most firms, 80 percent of profits come from 20 percent of clients. In the consulting industry that means two things: large clients and long-term clients. Large clients give large assignments, which means you can use a higher proportion of lower-cost, younger consultants. Long-term client relationships create trust and raise the cost to the client of switching to another consulting firm. Long-term clients tend not to be price sensitive.
In most consulting firms, the real excitement comes from winning new clients. In my new firm, the real heroes were those who worked on the largest existing clients for the longest possible time. They did this by cultivating the top bosses of those client corporations.
The second key insight the consulting firm had was that in any client, 80 percent of the results available would flow from concentrating on the 20 percent of most important issues. These were not necessarily the most interesting ones from a curious consultant’s viewpoint. But, whereas our competitors would look superficially at a whole range of issues and then leave them for the client to act (or not) on the recommendations, we kept plugging away at the most important issues until we had bludgeoned the client into successful action. The clients’ profits often soared as a result, as did our consulting budgets.
Are you working to make others rich or is it the reverse?
I soon became convinced that, for both consultants and their clients, effort and reward were at best only loosely linked. It was better to be in the right place than to be smart and work hard. It was best to be cunning and focus on results rather than inputs. Acting on a few key insights produced the goods. Being intelligent and hard working did not. Sadly, for many years, guilt and conformity to peer-group pressure kept me from fully acting on this lesson; I worked far too hard.
By this time, the consulting firm had several hundred professional staff and about 30 people, including myself, who were called partners. But 80 percent of the profits went to one man, the founder, even though numerically he constituted less than 4 percent of the partnership and a fraction of 1 percent of the consulting force.
Instead of continuing to enrich the founder, two other junior partners and I spun off to set up our own firm doing exactly the same thing. We in turn grew to have hundreds of consultants. Before long, although the three of us, on any measure, did less than 20 percent of the firm’s valuable work, we enjoyed over 80 percent of the profits. This, too, caused me guilt. After six years I quit, selling my shares to the other partners. At this time, we had doubled our revenues and profits every year, and I was able to secure a good price for my shares. Shortly after, the recession of 1990 hit the consulting industry. Although I will counsel you later to give up guilt, I was lucky with my guilt. Even those who follow the 80/20 Principle need a bit of luck, and I have always enjoyed far more than my share.
Wealth from investment can dwarf wealth from working
With 20 percent of the money received, I made a large investment in the shares of one corporation, Filofax. Investment advisers were horrified. At the time I owned about 20 shares in quoted public companies, but this one stock, 5 percent of the number of shares I owned, accounted for about 80 percent of my portfolio. Fortunately, the proportion proceeded to grow still further, as over the next three years Filofax shares multiplied several times in value. When I sold some shares, in 1995, it was at nearly 18 times the price I had paid for my first stake.
I made two other large investments, one in a start-up restaurant called Belgo and the other in MSI, a hotel company that at the time owned no hotels. Together, these three investments at cost comprised about 20 percent of my net worth. But they have accounted for more than 80 percent of my subsequent investment gains and now comprise over 80 percent of a
In most consulting firms, the real excitement comes from winning new clients. In my new firm, the real heroes were those who worked on the largest existing clients for the longest possible time. They did this by cultivating the top bosses of those client corporations.
The second key insight the consulting firm had was that in any client, 80 percent of the results available would flow from concentrating on the 20 percent of most important issues. These were not necessarily the most interesting ones from a curious consultant’s viewpoint. But, whereas our competitors would look superficially at a whole range of issues and then leave them for the client to act (or not) on the recommendations, we kept plugging away at the most important issues until we had bludgeoned the client into successful action. The clients’ profits often soared as a result, as did our consulting budgets.
Are you working to make others rich or is it the reverse?
I soon became convinced that, for both consultants and their clients, effort and reward were at best only loosely linked. It was better to be in the right place than to be smart and work hard. It was best to be cunning and focus on results rather than inputs. Acting on a few key insights produced the goods. Being intelligent and hard working did not. Sadly, for many years, guilt and conformity to peer-group pressure kept me from fully acting on this lesson; I worked far too hard.
By this time, the consulting firm had several hundred professional staff and about 30 people, including myself, who were called partners. But 80 percent of the profits went to one man, the founder, even though numerically he constituted less than 4 percent of the partnership and a fraction of 1 percent of the consulting force.
Instead of continuing to enrich the founder, two other junior partners and I spun off to set up our own firm doing exactly the same thing. We in turn grew to have hundreds of consultants. Before long, although the three of us, on any measure, did less than 20 percent of the firm’s valuable work, we enjoyed over 80 percent of the profits. This, too, caused me guilt. After six years I quit, selling my shares to the other partners. At this time, we had doubled our revenues and profits every year, and I was able to secure a good price for my shares. Shortly after, the recession of 1990 hit the consulting industry. Although I will counsel you later to give up guilt, I was lucky with my guilt. Even those who follow the 80/20 Principle need a bit of luck, and I have always enjoyed far more than my share.
Wealth from investment can dwarf wealth from working
With 20 percent of the money received, I made a large investment in the shares of one corporation, Filofax. Investment advisers were horrified. At the time I owned about 20 shares in quoted public companies, but this one stock, 5 percent of the number of shares I owned, accounted for about 80 percent of my portfolio. Fortunately, the proportion proceeded to grow still further, as over the next three years Filofax shares multiplied several times in value. When I sold some shares, in 1995, it was at nearly 18 times the price I had paid for my first stake.
I made two other large investments, one in a start-up restaurant called Belgo and the other in MSI, a hotel company that at the time owned no hotels. Together, these three investments at cost comprised about 20 percent of my net worth. But they have accounted for more than 80 percent of my subsequent investment gains and now comprise over 80 percent of a
Similar Books
The Adolescence of Zhenya Luvers
Boris Pasternak
Point of No Return
N.R. Walker
Tiger
Jeff Stone
KILLER INSTINCT (A Mafia Bad Boy Romance Novel)
Julia Gardener
Bringing Down the Krays
Bobby Teale
The Stranger You Know
Andrea Kane
The Perfect Soldier
Graham Hurley
Savage Coast
Muriel Rukeyser
It Came From the Nightosphere
Laura Farrell