Pareto's Principle And Becoming A More Effective Product Manager

Once upon a time, there was a man by the name of Vilfredo Pareto. Mr Pareto, considered one of the pioneers who developed microeconomics, needs no further introduction. If you are reading this, you have probably had some background in business and economics. If you do not, there's no reason to worry. I'll give you a recap about one of his most popular principles and one of the most relevant in today's fast-paced world.

The 80/20 Principle.

Pareto, although an economist, also had a green thumb. He began to connect a simple fact about peas that would change the way we look at productivity and efficiency in business (and in life).

He realized that approximately 80% of his peas during the harvest season came from 20% of his seeds. This fundamental realization helped him understand much broader topics by applying the simple principle that most of your consequences (roughly 80%) result from only a minority of your causes (approximately 20%).

Management consultants quickly took to rewording and remarketing the principle under his name, with the same ideology but applied to whatever they could get their hands on (as consultants will do).

• "80% of revenue is derived from 20% of our clients."
• "80% of wealth is owned by 20% of the population."
• "80% of our goals come from 20% of our strikers."
• "80% of our sales come from 20% of our salesmen."
• "80% of our negative customer feedback are filed by 20% of our customers."

Do you get my drift? It is not a golden rule of thumb, of course. You may skew specific ratios in certain scenarios (90/10, 70/30, but generally 80/20 is a sweet spot for most strategies +/- a few percentage points).

But I'm a Product Manager...

How is this useful to product managers? I'm glad you asked. We can break this down into several points, which revolve around the actual product and product management process.

The Planning Process:

As a product manager, you'll need to have a plan and strategy. So it's crucial that in your plan, you have everything prioritized. Remember 80/20? Well, 80% of your results are going to be from 20% of your efforts. So make sure you prioritize that essential 20%. With experience, you will see what items in your plan will be a part of that 20%. The remaining 80% of your plan reorganized and/or delegated as necessary (or even drop some in the dreaded backlog - with the intention of doing it later, of course). The first reaction to the word delegation seems to be "that's lazy", but it's not. Remember that you're trying to invest your focus and time on the 20% that will get you 80% of your result.

Risky Business:

I do realize that you have stakeholders and bosses breathing down your neck as a product manager. I do understand that everyone feels that their input to the product is the most important. However, every stakeholder's request comes in with its own set of risks. How do we mitigate? Understanding that 20% of your risks will result in 80% of your product delays is the first step. With experience, you'll begin to understand what stakeholder requests can potentially amount up to that 20% and what delays will result from that 20%. Remember, time is money, and it is crucial to master risk assessment as a product manager.

Sales & Marketing:

You will surely know that roughly 80% of your income from 20% of your customer base. The Pareto principle dictates that you should optimize your marketing and advertising efforts to that 20%. With experience, time (and hopefully good analytics), you'll understand who that 20% customer base is. You should not ignore the 80% of customers, but I would spend most of the set budget towards the 20% as precedence for marketing and advertising efforts.

Key Takeaways

• The principle is a guideline, a framework, and not a set in stone set of rules.
• Let your hair down a little and let the ratios skew a little; it will never always be precisely 80/20.
• Simplifying the idea further keeps in mind that inputs and outputs have an unequal relationship and are not directly proportionate.
• You will get better at seeing the 20% with more experience and time under your belt.
• Analytics will help speed up that experience and time if you have the data available.
• User research and conversations will also significantly improve your ability to see the 20% as a product manager.
• As time goes on, you'll be able to use fractal nature to determine more precise and smaller percentages of inputs that yield disproportionately higher results (64/4 and 51/1)
• 80/20 does not only apply to your product but everything else around you, such as marketing, your teams, customers, and so forth.

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