Applying the 80/20 Rule to Business and “Racking the Shotgun”

When it comes to launching a product for our business, it’s important to gauge our prospective consumer’s interest in the product before we create it. However, when creating products, many people, myself included, come up with what we think is a great idea and create a product without testing the market first. We think something up that makes perfect sense in our minds and assume that it will translate to other people. This is one of the biggest mistakes we make as business owners. We need to understand that the market dictates whether our product is good or not. It doesn’t matter if we think we have the next great startup idea. If we are not able to determine if it’s a fit for a given market, we are are setting ourselves up for failure.

By testing our market first, we are able to identify if it’s worth our time and money to create our product. We do this by surveying our prospective group of consumers in order to identify the percentage of them that are interested in our product and then marketing to that specific percentage.

This leads me to a book called 80/20 Sales and Marketing by Perry Marshall. In this book Perry talks about testing the market by using an example that is somewhat outside of the box, but makes perfect sense. The example he uses shows us how to apply the 80/20 principle to any situation. This principle states that 80% of our outputs, come from 20% of our inputs.

In this excerpt, Perry is telling a story about his friend John who moved to Las Vegas to become a professional gambler. After a few weeks in Vegas John became a bit overwhelmed and decided to find a mentor to help him out. John hires a gentleman named Rob, who ran a professional gambling ring in the past, and agrees to teach John for a percentage of his winnings. Rob explains to John that if he wants to win in gambling he has to play games that he can win, with people who are beatable. These people he identifies as “marks”. So John naturally asks “how can I figure out who the marks are?” Rob says, here, I’ll show you.” Rob then proceeds to take John to a strip club. They walk in and sit down at a table. There are people everywhere, music playing loudly, and girls dancing. Rob then proceeds to pull a sawed off shotgun out of his jacket, hold it under the table, and rack it loudly. A few people turn their heads around in response to the loud noise but most people don’t hear a thing and remain lost in their drinks and the women. At that point Rob turns to John and says “you see John, those people who turned their heads around are not marks, do not play poker with them.”

This story is a great example of how we can apply the 80/20 rule to any situation. In this case, the people that turned their heads around are extremely in tune with their surroundings and likely would perform better at a poker game. When it comes to business we want to do research such as this to identify the 20% of people interested in our product, and then double down on that 20%. We want to tease out the 80% of people that are not interested, or not paying attention, and focus on the people we have a chance to successfully sell to.

Let’s look at a different example that pertains more directly to a situation a lot of businesses will encounter these days…

Another great book that is a must read is Gary Vaynerchuck’s new book called #AskGaryVee. In one of the chapters in this book Gary illustrates how to perform 80/20 analysis when marketing through videos on Facebook. Gary explains how on Facebook it only takes 3 seconds of looking at a video to count it as a view. Think about that… 3 seconds is all it takes for someone to “view” your content. Say you are trying to see the exposure one of your videos gets on Facebook. You upload the video and you see that it gets 1000 views in the first week. Great! Then you look closer at the analytics and see that 700 of those people had an average view time of just 3 seconds. Do you really think they got a firm grasp on your product? It’s verrrry likely they didn’t. Now. At this point you can get pissed and complain to Facebook to change their viewing standards so that videos only count as “viewed” after 30 seconds or a minute. While this may work it will more than likely be a waste of time.

So what do you do?

If you are smart, you go back to your analytics. You see that annoying stat of 700 people only viewing for an average of 3 seconds. Then you look a little closer, and see that 75 people viewed your video for an average of 6 minutes! This is where 80/20 comes into play. Instead of getting annoyed at all the people that passed over your video, why not double and triple down on the 75 people that found value in your content and market to them? Yes it’s only 75 people out of all 1000 that viewed the video but these are the folks that will have the highest chances of converting as customers.

Both of these examples just go to show how important it is to identify the 20% of people that are paying attention and that are interested. In a world where business owners have massive email lists, it is so important for them to run tests on their markets to know exactly who is interested in their products. Once they identify these groups and their areas of interest they can double down and really see a nice ROI as a result of some great 80/20 analysis.



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