One of my friends recently urged me to pick up a book - so I ordered it and read it. By page 14, my brain was on fire. Four hours later, my wife found me sitting in the living room with a programmable calculator and pages of trigonometry calculations, charts, graphs and numbers. A massive brainstorm was underway.

"What happened to you?" she asked.

"Major epiphany, honey," I announce. "This book is the ultimate explanation of almost everything!"

OK, maybe that's a bit of an exaggeration. But this book has more "eureka moments" per page than anything else I've read in the last few years. The book? The 80/20 Principle: The Secret to Success by Achieving More With Less by Richard Koch.Please see his web site: Pareto's Principle - The 80/20 Rule The 80/20 Principle. (aka The 80/20 Rule, Pareto Principle, Pareto analysis, Rule of the Vital Few). "To discover the secret of achieving more with less": www.the8020principle.com

The funny thing is, I already knew about the 80/20 rule, and I've talked about it frequently. But I never recognized how extensive and exponential the implications are until this publication - the first ever written on this subject - prompted me to really, really think about it.

The 80/20 concept, or Pareto Principle, is a generalization assuming that 80 percent of your business comes from 20 percent of your customers, and 80 percent of your problems come from 20 percent of your customers, usually different ones. (Most people greatly err by treating everyone the same.) Plus, it assumes 80 percent of your productivity is accomplished in 20 percent of your time, and 80 percent of your profits come from 20 percent of your products.

This principle has been applied heavily in the science of manufacturing quality management where people have long known that there are only two or three primary causes of almost all of your manufacturing defects. But this is only minimally understood by most people in other disciplines.

What is provocative about this book is its focus on the "exponential" nature of the 80/20 rule. I'd never thoroughly considered what happens when you stack multiple 80/20 factors on top of each other. When you apply 80/20 multiple times to a complex business or process, the implications are staggering.

Here is the result in the world I consult for every day: 20 percent of your profits come from less than one percent of your customers. Companies waste enormous resources not recognizing that there is a heavy imbalance of cause and effect in literally everything that they do. This has some interesting implications for project management, product management, database marketing, advertising, compensation plans, and just about everything else you can think of.

The kicker is that when you take 80 percent of your effort that has been wasted on the 80 percent of the activities that are unproductive, and focus it on the 20 percent that is productive, do the math - you get five times the result. When you further divide processes and customer lists into three, four or five different segments and focus attention very disproportionately on your activities according to the profits they produce, you easily attain 10 to 1 and even 100 to 1 improvements in leverage and effectiveness.

This is not a funky little theory. This bears itself out consistently if you study the numbers as they really exist in your business or organization. I immediately recognized this trend in four different groups of contacts in my customer database, and the numbers matched the model perfectly.

The ratio is not always 80/20, by the way. It can be 70/30, sometimes 99/1. The point is that the world is a very nonlinear place; inputs and outputs are very disproportionate and as much as we'd all like to treat all causes and effects the same, much as we'd like to think that everybody makes an equal contribution, the fact is that cause and effect have enormous inequalities.

Action and reaction are heavily skewed. Most people are tempted to equalize things, to spend most of their time helping unproductive people get better, when they'll get far more accomplished by giving productive people more resources, more time and more freedom. What do you do with unproductive people? Find something else for them to do.

Big corporations are almost always an organized conspiracy to misallocate rewards. The larger and more complex the firm, the greater the extent and success of the conspiracy. Accounting systems are the enemy of fair rewards, because they are absolutely brilliant at obscuring the sources of true productivity. They hide the fact that a very small amount of the activity is responsible for a very large amount of the success - and the rest is just entertainment.

Executives are almost always uncomfortable with this idea. The 80/20 Principle is not a book you'll see passed around at Harvard Business School, because it doesn't fit neatly into their spreadsheets and business models. However, it does fit reality nicely. I find that when you operate according to the "is" world instead of the "should be," life gets a lot easier.

The truth is, you can fix problems with much less effort, by knowing what telltale signs to look for. I've already had extensive discussions with several clients about applying this principle to drastically cut waste out of their advertising and get explosive results from very small numbers of customers.

Here's a few more implications of the 80/20 concept:

• Most of our failures are in races that others enter us in. Most of our successes come from races we ourselves want to enter. We fail to win most races because we enter too many of the wrong ones - their races, not ours.
• Everyone can achieve something significant. The key is not effort, but finding the right thing to achieve. You are vastly more effective at some things than others, but you dilute your effectiveness by trying to be well-rounded and balanced. If you're frustrated in your job, if you're not as effective as you could be, it's probably because you are doing the wrong things.
• There are always a few reasons why things happen, and they are often not obvious. All of us have to constantly question our assumptions about what's really making things work.

Perry Marshall is an author, speaker and consultant who does guerrilla marketing for industrial and high-tech companies. You can contact him through his Web site at www.perrymarshall.com

Copyright the authors and/or Keith Cowan