Book Author: Richard Koch
Book Review by : Sanjib Dutta
Faculty Member, ICMR (IBS Center for Management Research)
managerial capitalism, democracy, 80/20 Principle, effectiveness, Microsoft, Amazon, Apple, Oracle, Virgin, narcissistic, vital few, upmarket, mass market, LEK, Filofax
There is a new way to create wealth that is better than the traditional route of managerial capitalism, and creative individuals are at the heart of the new revolution. The rise of the individual can be seen in the growth of democracy, the free market system and increasing individual mobility. The new revolution follows one simple principle: the 80/20 Principle. An 80-20 person's creative powers are apparent rather than submerged. An 80/20 person is successful because of an exclusive focus on the powerful forces operating in any arena.
The growth of an economy can be linked to the growth of small companies and behind the success of every small company is an individual or small group of individuals. Individuals have always exerted enormous influence. Today, much less capital is necessary to create really valuable business. Organizations are no longer vital; and ideas, which cost nothing, are becoming the most important way to create new value. Microsoft, which did not exist 30 years ago, is worth $300bn today. A few very creative individuals have made Microsoft.
The success of Amazon, Apple, Oracle and Virgin can also be attributed to the few highly creative individuals. To become an 80-20 individual one has to be true to himself. The self here refers to really distinctive and productive self, a person's unique self, his imaginative, positive and creative self. The 20% or less of oneself contributes more than 80% of his impact and happiness. People in top jobs are often unusual characters with a few fantastic strengths, and many fit the profile of what Sigmund Freud called narcissistic. One should find the 20% that he is outstandingly good at and ask other people to perform the rest. It is much easier to identify the 20% one is outstandingly good at than the full 100%. The author includes a “20% spike questionnaire” in the book (refer pp 41-42) to help people find their strengths. The answers should be checked with several people who knows the person well and whom he can trust to give honest feedback.
There are abundant business ideas and opportunities, but the idea of the 20% spike implies that one should not look for any old opportunity, however great it may be. One should look for the specific opening that he or she can exploit better and more creatively than anyone else. One should also identify the “vital few” ideas that can bring success. The ideas should also fit the 20% spike. One has to take those ideas and make better use of them than anyone else. One should also find the vital few profit forces that can work for him or her, enlist capital and enlist great individuals.
Coming to think of the vital few customers, one should follow the follow steps: Define the vital few customers: what type of customers would you want? While identifying the vital few super profitable customers the following dimensions should be included: size of customer, longevity of customers, typical purchase quantity per order, main product or service bought, breadth of purchase, the personality of customers. Identify the customers with the highest ratio of value to cost: the same product or service may have different value to different customers.