Once, a long time ago, I had a really interesting opportunity. I was working on a project where I was actually analyzing the marketing and sales of various competitors who let me look at their books. This doesn’t happen everyday so it was rather unique. They did like most companies, followed the idea that 80% of their business came from 20% of their clients. This idea generally held true, the top clients brought in the bulk of their business in all cases.
Down the road as I ran into more situations, I noticed that a lot of companies run on this unwritten rule, the 80/20 rule. It essentially translates into, focus your attention on the same 20% that brings in the business and also most of your problems. The problem aspect comes in that, I also learned, this 20% is generally the same 20% your competitor is focused on too. This leaves an 80% opportunity!
Most companies spend a large amount of time on the accounts that bring in the most money because they bring in the most money. But this is circle logic. 80% of the market is waiting for someone to serve them. I’ve seen a lot of companies get into trouble when that 20% decides to do business else where. Then they have to scramble for new accounts and that snubbed 80% is not so nice after years of neglect.
I never liked the 80/20 rule; frankly it is putting too many eggs in one basket. I don’t like the idea of 80% of my business coming from a small group of clients or a small group of products. From a marketing point of view and a strategy point of view, this alarms me, too much is tilted in one area. Your entire company becomes a slave to those market forces that dictate the success of that 20%. This means it is harder to ride out economic swings or changes in the market. What if your 20% is in a fade state like Krispy Kreme was a few years ago and then bang! Low carb craze kicks in and they are in trouble.
It just makes more sense to go after the 80% and to spread out a bit more. It’s also generally an under serviced market that can have quite a few gems in it. I remember looking at one such under served market that turned a profit in 6 months when a new approach to sales and marketing was taken. A simple design change was all that was needed and competitors were left to scramble for a solution.
The 80/20 is one of those ideas that sounds good and is often correct, but not very good from a strategy point of view. So it can be rather hard to break away from. But it is a good idea to make it an assumption you did away with. NEVER limit yourself to assumptions! The first thing I always do when I enter a situation is learn what the assumptions are and they proceed to break them or prove them. Assumptions limit, business should never be about limitations based on an assumption. Who benefits from an assumption that limits you?