Monday, June 08, 2009

Pareto, shmeto - it's all 80/20 to me

Jim Collins (the guy who wrote Good to Great, that book about some companies that were good, became great, and some of which—Circuit City and Fannie Mae, for two—are now bankrupt...) once said that each of his books come out of questions. Someone asks him a question to which he doesn't know the answer, and next thing you know...

A question was posed to me today: what kind of gibberish is "80/20"? Now, I knew the basics of the 80/20 rule—80% of your results come from 20% of your input (be it profits and customers, comments and readers, or whatever). But, upon further reflection, I realized I had no idea where that rule came from.

Turns out there was this guy, Vilfredo Pareto, in 19th century Italy, who posited that 20% of the population owned 80% of the land. And so it was.

Now it also appears that it those two numbers don't have to add up to 100. It could be 80/10 or 90/20. But the rule of thumb is 80/20.

And you all know where "rule of thumb" comes from, right?

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