Economics · The Comfort Zone

Reverse Engineering 80/20.

Otherwise Known As The Pareto Principle.

When I was still active on Linkedin, I quickly learned not to use the term ‘80/20’ because too many people dismissed the thought simply because of the term. I’d always approach the problem from the direction of the issue at hand – which, since I was a marketer in those days, usually involved business communications of one form or another. And business communication means making money; a business isn’t there to lose money – and there are all too many who, in the words of Perry Marshall, “you’re taping a $20 bill to every parcel you send out.” We’ll return to that later.

My point here is that a business is there to make money, and will do so by selling to its customers.

The problem I met with business owners was that they were in business and were in business to sell their wares. Any thought of the customer was simply absent. It didn’t exist for them; it might as well have been on the moon. This is pure ‘comfort zone’ thinking where everything is known and nothing is unknown. The gap between the known and the unknown may only be a hair’s breadth; believe me, if it is a gap they cannot cross, it is one that will forever be impossible to cross.

The problem for the business owner is that this is state of affairs, their knowing, is not only comfortable, it’s also very easy. It means that everybody else can do it and, you guessed it, they do. I’ll put it simply: if you’re in business and you’ve got stiff competition, you’ve got a real problem. A problem that using conventional MBA style thinking means reducing prices – I discussed this in my post ‘The Austerity Craze’ (1). But this only makes things worse, and shows the limitations of working from out of your own comfort zone.

When Perry Marshall puts his business consulting hat on, he has some powerful countermeasures to this situation. His problem is that any solution to the problem of competition involves a refinement of the business’ strategy: if you’re going to escape the commodity market where everything is dependent on price, you have to do something to make your service or product different.

Well, it stands to reason, doesn’t it? If you’re selling on price alone, there’s nothing else your business stands for save pennies. And in a commodity market, pennies are important. Start doing something different and you’ll find that your business grows wings. That is to say, you start making profits. It’s easy enough to say, it’s hard to find the people who are willing to take this kind of risk. But that’s what marketing is all about, determining what risks are worth taking and which not. In a business culture that is risk averse and has been for a century, this is well outside the businessman’s comfort zone. But that is the definition of the comfort zone, isn’t it? That it is risk free… but when left to itself, it will crush businesses in the way it crushes a person’s mind (2).

The Number Game.

The forces are the same. Business is, after all, a human activity. Turning it into numbers adds a veil to the realities, that is to say, the forces that underlie the numbers. Most businessmen are so stupid as to think of making profits, and looking to the bottom line of the account sheet. If you’ve got more brains, then you’ll be asking yourself a question: “where do those numbers come from?” And that simple question is where 80/20 comes into play.

The point being that we are dealing with another emanation of ‘the disconnect’ as I termed it, this ‘gap’. Nobody else had identified it, leave alone given it a name, so I had to do it for myself (3). There’s a problem, though, and it affects the businessman’s comfort zone: it deals with things that lie outside his comfort zone. Things he can know nothing about. Nothing whatsoever. That is to say, the lives of other people. There’s an easy way to find out, and those of you with access to my private blog have probably realized what I’m on about already. But that’s why you have access to it… (4)

The Problem In Business.

The real problem in business is that the solutions are always simple. If they’re complex, someone’s telling fibs. Usually this is a consultant who’s been hired on the strength of their ability to pat a businessman on the head like some puppy and tell him that he’s doing the right thing when he wees on the carpet. Okay, so the consultant does this in a leather bound report with gold leaf stampings down the spine. The effect is the same.

The renown business consultant Richard Koch has just written a new book called Simplicity, and it’s something I’m going to read. If for the only reason that I’d like to know how much he really understands of simplicity. Because, as mentioned, all true business solutions are simple. The problem with simplicity is getting your head around it.I can tell you, the simple things in life are the hardest to understand – and that is why people are repelled when someone mentions 80/20.

It’s like my post on the German Stadtsanierung: the concept is so simple, so elegant, yet I have only one comment on that post (5). Very few people have understood it. Yet I meet a bloke on the train home, and in the space of the five minutes between the stations of Zeist and Maarn, he’s understood the underlying principle and the reasons why it worked. That’s simplicity.

And he’s a man who can understand it – yet he spent his life cleaning windows! He’s the kind of man Perry Marshall would dismiss out of hand because he had no ‘business chops’. Only this kind of thinking, the kind of thinking that dismisses – the kind of thinking that ranks people based on numerical evidence – is all part of the comfort zone. Take my warning, Mr Marshall, this is your boundary. I know you for someone who can take risks; are you able to take this one? Because if you’re reading this, read on and I’ll explain.

You see, it’s so simple.

It’s easier than falling off a log.

Perry Marshall is adept at wielding 80/20 in a way that baffles businessmen, yet brings them huge increases in profits. He’s the kind of guy who if you listen to him and take him up on his advice, you’ll easily double your profits. There are certain limits to this, but they are all due to the complexities of the marketplace… in other words, someone’s telling porkies. Pork pies, lies. Lies are not good for business, but they’re not good for you either, personally.

Truth And Lies In Business.

Lies are what lead people to tape a $20 bill to every package they dispatch. They lead the ever suffering truck driver who wants to work – that is to say, to indulge in his comfort zone – by offering to do the job for less money than it takes to fill his lorry with fuel. What’s more, it’s something the Anglo-Saxon mind is good at, but then, they’re good at lying too (6). The Germans are too straightforward to indulge in this kind of practice; they let Polish lorry drivers do it for them instead. But that’s why Polish lorries weave around on the Autobahn at night: the drivers are as pissed as newts. There are times when being in a competitive commodity market really is bad for the health. As well as being bad for business.

But then, a lorry driver can only offer… to be cheaper. They’ve all driven their trucks against the concrete wall at the end of the cul-de-sac and can’t get any further. No matter how hard they try to make the truck go faster, they only burn more rubber. Going further means damaging their tyres, their business, and too many people do precisely that.

This kind of business, where they’re working for less and less money is where the 80/20 rule capsizes the ship so that its propellers are waving in the air. The kind of business that isn’t going anywhere. Strapping $20 bills to your package damages your business, yet businessmen cannot think of anything else to do. It’s why the American economy has eaten itself away from the inside: its businessmen have become parasites. When a business has capsized, they’re working in the world of 20/80 where everything now works against them and the ship’s propellers are useless, for all the fuel used to power them.

Everything works against them because they know their price. “I’ve been in business for thirty years.” How many times do I have to hear this kind of crap from a businessman? If I hear this, I know he’s a parasite. There’s no other word for it!

If they dismiss me for any reason whatsoever, it’s because in one way or another, they don’t get business. I could explain what their fixing of prices means, but that is beyond the scope of this post – and I’ve waffled enough as it is.

The First Rule Of Business.

It’s so simple: “Your customer values your product more than he values the money he gives you.”

That’s it.

No more, no less.

Economics in its truest sense sees the marriage of the two sides of this psychological gap: the producer and the customer in this case.
Conversion is irrelevant if you’re only selling things. That’s the 80/20 equivaleng of 50/50 where nobody gives a shit about anybody else. It’s all to do with money.

It’s also putting Perry Marshall’s ‘Tactical Triangle‘ into words; it explains everything to do with 80/20 as well. He describes it as the e=mc2 of business. Only in thinking this way, he’s made the same mistake as Einstein did: he wants to measure that which cannot be measured. Try measuring this kind of thing and you’ve cut away a huge amount of its power. e=mc2 is the pathetic, material expression of a force so powerful and so terrible I don’t even speak of it in private. But then, nor did Rudolf Steiner.

The heart of business is that you cannot know why your customer buys from you. You can guess at this, and if you’re selling on price, all you have to do is to be cheaper – but that helps nobody. I’m talking about businesses that are not only profitable, they’ve got a future. The reason that this first rule is so important is because it explains why 80/20 is so explosive. You see, if your customer values your product more than the money he pays you, ask yourself this:

What would they value more than the product you are already offering them?

The answer here always lies in your ability to think. That means several things. Firstly it will be simple – simple for you. Secondly it will be difficult for them. If it’s simple for you, and difficult for them, you can offer this at a higher price. And yes, you can say that the customer can demand you cut your price – but that is the definition of a bad customer. Your better class of customer will be pleased with what you’ve done for them because it’s saved them a huge amount of money. Perry Marshall had a gentleman who having a day’s consulting with Perry, said “what shall we do this afternoon?” Perry naturally said that they could discuss the issues more deeply, explore other avenues to deal with. But no, the customer said “it’s cost me $15,000 to get here along with your fees and you’ve already saved me ten times that amount. Let’s enjoy ourselves instead.”

That’s business. Business done properly.

Numerical Value.

Economics in its truest sense sees the marriage of the two sides of this psychological gap: the producer and the customer in this case.
‘T’ is traffic, the world of the customer that the business has no right to interfere with.

That’s Perry Marshall’s grail. Working for $10,000 an hour. The ultimate in 80/20 – where it becomes 16,000/1. Or more. There are no limits when it comes to 80/20 but then, that’s the nature of the disconnect. Put better, that which lies beyond the disconnect. The “traffic” side of the tactical triangle.

You see, 80/20 is the tactical triangle put into numbers – and if there’s one thing any engineer is good at, it’s putting things into numbers. Only numbers were the least part of what Perry Marshall did for that businessman. Indeed, they were irrelevant save as the supporting evidence for the concepts he offered. The holy grail in business is the concept. And that’s why the German Stadtsanierung was so effective, so powerful. And so baffling to the Americans who oversaw the German government as they applied it. Americans don’t get business. But then, nor do the Germans.

There is one thing that accompanies the ability to think simply: it’s confidence. The window cleaner I spoke to has the kind of confidence I’m talking about. You don’t need numbers and you don’t need evidence to see this. I can tell if someone can ‘think’ in 16,000/1 concepts just by the way they sit down.

I’ll explain. Whilst writing this, I nipped out to my local supermarket – sometimes my windowcleaner comes in for a coffee and we can have a chat. Well, he wasn’t there today, but my local blacksmith was. He gave me the kind of scowl that says, “don’t.” Anybody who says that lacks confidence. Because anybody with confidence is happy to talk and engage. This man was crouched over his shopping and looked at me over his shoulder; I only noticed him once he’d laid his eyes on me. And I didn’t take any notice of him; I walked by with that air of confidence that honest thinking brings. I’ll add that this is why the Athenian council murdered Socrates: they felt insecure in his presence. But then, Socrates could think honestly and they couldn’t. All Socrates needed do was walk and it would upset the numptie. His honesty, his innocence showed them the truth: it showed them that they were dishonest. There was that special 80×106/20 something that made Socrates ‘Socrates’; there was that special something that upsets the dishonest. A long time ago, I emailed Alan Weiss, who ranted at me, saying, “are you on LSD?” – yet so mortified was he that he couldn’t give his presentation the next day. Perry will remember that. Now he knows that Mr Weiss is not all he says he is. Lies always bite you in the bum.

Contradictions.

There’s something else, though. When anybody has that special something, there’ll be contradictions too.

Like me, on the equivalent of a minimum wage yet I travel first class on the railways. The kind of contradiction that sees a brilliant thinker happily passing his life away cleaning windows. But then, as an interior decorator, I took a lot of pleasure in the work itself. Pleasing the customer was a very important part of this, and recognizing this is what will establish what I’m looking for in a person. Pleasing customers is what the ‘Tactical Triangle’ is all about. Finding that kind of customer is what marketing is all about. It’s all about making people happier – and that’s what business is all about. The secret of business, the second rule of business is to engage with your customer in a way that pleases them.

Happiness, confidence and the ability to think – along with the enjoyment of what you do are the essential foundations for a 16,000/1 business. Perry Marshall’s $10,000 per hour business. It’s like homeopathy, where the smaller the dose the larger the effect.

But wait.

The happiest people I meet are all relatively poor. The window cleaner spends €80 a week above his fixed expenses; I live on considerably less. Yet we’re two of the happiest people on the planet.

In business terms, it’s a contradiction; but if you can find a contradiction, a genuine one that does not arise out of a lie or a misconception, you’ve found someone who has what Richard Koch terms the ‘Star Principle’ (7).

The problem for Perry Marshall, who works closely with Richard Koch, needs numbers to determine who is and who isn’t, and doesn’t offer help to those who do not already have an established and profitable business. That’s fair enough, but it is the cross he crucifies himself on. To use his own terminology, it’s his head trash.

But he’s an engineer, and I’m not.

The thing is, Perry Marshall has missed several golden opportunities on account of this one shortcoming. He’s said so himself (8). He needs numbers to determine who is and who isn’t and the problem with numbers is that they measure something. If you’re going to measure anything, it has to have happened – and numbers only tell you that someone’s working out of the past. The numbers on an account sheet wouldn’t be there without them representing a human interaction. The patterns they make are another matter altogether. They tell of the quality of the human interaction, and that’s what 80/20, the Pareto Principle is all about.

The ‘Star Principle’ Bites Back.

And there’s me, poor and undervalued, and I can tell if they have this ‘Stardom’ just by the way they take a seat. I do confirm this in asking a few questions, it’s the quality of their answer that tells me if they possess it. It’ll take me under two minutes to establish if they do or not (9).

I want to add here that those who really do possess that ‘Star Principle’ are usually not rich, nor do they have any intention of being rich. They don’t need it; nor do I.

Anybody looking for people who want to make money is looking in the wrong direction.

I need money. Put better, I need enough to live on, and I’m prepared to work within my community in order to do so. But there’s one thing I really do not need, and that is to be rich. The business with the greatest ‘Star Principle’ is the business that is self-limiting. It serves, and in doing so, provides the businessperson with something that money cannot buy. You can’t buy happiness, but you can earn it through making other people smile.

The truth is this: such people would do their work for the sheer joy of it. The joy of making other people happy. They can’t do it for less than it’s worth because that’s not how societies work. But they’d do it for ever and ever. And never tire of it. If ever there was a definition for heaven on earth, that is it. It’s like when Martin Luther said, “even if I knew that tomorrow the world would go to pieces, I would still plant my apple tree.” He knew the value of work; he knew what it was to enjoy the work and seek no reward save the doing of it. Someone like that is never poor, they’re never tired of life. 

My local blacksmith would never understand that, because he gets tired from his work. But then, so do I; anybody who shifts half a ton of compost would be physically tired. It’s when in my tiredness I can still walk as if my feet were six inches off the ground. As for the blacksmith, for all his fitness and muscular strength, he probably has flat feet.

Heaven On Earth.

The rainbows in the dewdrops are enough for me to feel at one with the world. It’s something you can’t buy; but then, you can’t buy happiness. Nor can you buy conversation; someone who can converse has already sorted their relationship to the worlds beyond their comfort zone, integrated their ‘tactical triangle’ into their own lives in the way it is natural for humans to do. Because the secret of the tactical triangle is conversation. The secret of conversation is confidence, the confidence it takes to accept that someone else might be right where you’re not.

Because I’ll tell you this: when someone puts me right – more likely it’ll be to show me a side to the world that I’ve never experienced, never knew existed – it’s the most wonderful experience. Thanks, Alex. Those who reject this, those who need numbers to tell them if a person has the capacity to converse or any other reason to put up a barrier will have failed the test.

In this respect, Mr Marshall has already failed mine.

But then, that’s what it’s all about: that might just be his contradiction. If ever we meet, I’ll know in the space of two minutes. And I’ll also know the reason.

It’s what life’s all about.

Note: if you want business advice, speak to Mr Marshall (10). I am no longer in this game, so please do not ask. This isn’t crappy reverse-psychology; leave that to the unhappy fraudsters. I have a book to write and a garden to dig, both of which I enjoy immensely. What I do not need is a fawning bed-wetting businessman clinging to my grubby jeans. Not at any price. If we happen to meet in the restaurant car of a train and you can establish your credentials over a cup of coffee, then we can talk. I can determine these within the space of ninety seconds, with no other evidence whatsoever (11). But that is what being able to work with the forces that drive business does for one. The forces that drive 80/20.

Footnotes:

(1) See my post on ‘The Austerity Craze‘. (Click here).
(2) See my posts on dementia for more on the unseen boa-constrictor that strangles you when your comfort zone has turned against you. It’s the same with business, or an economy. It’s the same force, and it’s the same because we’re all human. You either master it or it will master you. (Click here for more on dementia).
(3) This was long before I knew that Rudolf Steiner had discussed it at length. To understand him is to understand the terminology he employs to describe naturally occuring phenomena – like conversation. I could mention a few things about Goethe…
(4) There is no charge for membership. Posts mentioned no longer link to the site.
(5) You can find my post on the Stadtsanierung here. (There are prizes for those who can get their head around the simplicity of the concept!) It’s what the American government should have done, but was too scared to. Being risk averse is what led to the crash of 2007 – not that it was a crash. It was the banks refusing to honour the contracts they’d signed. I can smell a liar… and it cost me my fucking business. Thanks guys. Now you know why I hate Americans – yet they make the very best of friends. That’s a natural contradiction, isn’t it?
(6) See my last post, ‘Jack The Ripper’s Boss Letter‘.
(7) Find out more, here: http://richardkoch.net/2012/11/1355/ (Click here).
(8) Perry explains everything here: https://www.perrymarshall.com/new-renaissance/ (Click here).
(9) I explain what happens and what it feels like in my post, ‘When My Heart Sings‘.
(10) For more information: https://www.perrymarshall.com/want-consulting/ (Click here). Non affiliate link.
(11) See (9).

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5 thoughts on “Reverse Engineering 80/20.

    1. All I can say is that I haven’t known any rich people, the temptations to be rich must be overwhelming for some; and then to find they can have everything they desire… only to find it rather dull after a few months because they can’t think of anything else to do?

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      1. Don’t get me wrong 1 was a horse trainer very successful , the other was inherited money , he was the worse with his money ! The last a self maid man , but still wanted more scared to loose it , I guess , I actually worked for #2 for 24 yrs .They appeared to do nothing but worry about everything

        Liked by 1 person

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