80/20 Marketing: The Masters Interview

Jim Ericson is someone you need to know. 

A quiet legend in the Twin Cities and beyond, Jim was the founder and program director of The Masters Forum. For 23 years he presented workshops featuring speakers like Jim Collins, Peter Drucker, Steven Covey, and many others. Jim’s blog is here and I’m honored to be interviewed by him below …

Jim Ericson: Hi! My name is Jim Ericson and in the last few months, I met Kevin Donlin who, if I were still doing the Masters Forum, would certainly be one of the speakers I would invite to speak.

I would like to talk to Kevin today because he has done something new with an old concept. There is nothing really new in the world; there are just things that are old and important that we need to pay attention to. This one is called Pareto’s Law but Kevin calls it the 80/20 Rule. He applies it to marketing and I think he does it brilliantly.

Let’s start, Kevin.

Kevin Donlin: Jim thanks for that nice introduction.

Jim: What is the 80/20 Rule?

Kevin: The 80/20 Rule, well, I think most of us in business have heard of the 80/20 Rule, it is also called the Pareto Principle. Few of us have really done much with it but it holds such incredible promise that I have been, frankly, obsessed by it for about seven years now.

If we do a simple definition of the 80/20 Rule, it would be this: about 20% of input accounts for 80% of output. State it the other way around, about 80% of results can be traced to about 20% of causes.

Jim: So a lot of time gets wasted?

Kevin: Yeah.

Jim: 80% of the time that produces 20% of the results could probably be better spent.

Kevin: Yeah, by definition it could be. We are surrounded by things that waste our time and effort and energy. In 1906, the Italian economist Vilfredo Pareto observed that 80% of the land in Italy was owned by 20% of the population.

He didn’t name the principle after himself, however. It was first popularized by Joseph Juran, the quality expert. He wrote a book called The Quality Control Handbook in 1951. Juran used the Pareto Principle to identify the vital few causes of most defects in manufacturing.

Then in the 1960s, software developers began calling it the 80/20 Rule to describe how 80% of engineering deals with 20% of user requirements. 80% of crashes are caused by 20% of bugs, etc.

So it has been around for a long time and as you said earlier, we are actually wasting a lot of time and effort without knowing it. The 80/20 Rule kind of pervades life economics, manufacturing, it is all over the place.

Jim: I can recall recently reading an article about Steve Jobs and why he was so innovative. One of the things he said was, “Say ‘No’ to a thousand things.”

Kevin: Precisely.

Jim: There are a lot of things that can grab your attention and waste your time. Another data point is Rick Warren, who founded Saddleback Church, had Peter Drucker as a mentor and he said in an article that every time he saw Drucker, Drucker’s first question was, “What have you stopped doing?”

I have heard Jim Collins say the same thing, I have heard Jim Collins say to, “Start a to-don’t list.”

Kevin: It is not a matter of if we like it or don’t like it, it’s like gravity, you can choose to disagree with gravity but you won’t get far in life. This is just one of those natural laws out there. 

You can confirm it by looking around your life -- 20% of the carpet in your house gets 80% of the foot traffic, for example ... 20% of your friends and family account for about 80% of your phone minutes.

And if you go shopping at Target, about 20% of the items in your shopping cart will add up to about 80% of the bill; it doesn’t matter if you are male or female. The list goes on and on.

Jim: How about 20% of your kids cause 80% of your problems?

Kevin: Oh yeah. Or family members in general, 80% of the fights are with 20% of your family members. 

Let me redefine this a bit, it does not always add up to 100 and it is not always 80/20, that is just a general rule of thumb. It could be 5% of your family members cause 98% of your headaches. It could be 72-17. The numbers are always unbalanced, that is the key and they are almost always in a ratio of about 80 to 20.

Here is what is interesting -- I have been doing marketing since 1996. Because business and marketing are part of life in our world, business and marketing are predictably unbalanced as well. 

If you look around your business, 20% of your clients will deliver 80% of your profits. 20% of your products or services will do the same thing and about 20% of your marketing methods will produce 80% of your profits.

We may have been introduced to this in one way or another, but what is going to be new to most, if not all, people is that these 80/20 relationships are hidden from view. They are not immediately obvious, by definition. 

After all, if it were clear to you today that 80% of your profits were coming from 20% of your clients and you knew exactly who those clients were and exactly what you were doing that made them so profitable, you would be doing more of it right now. You would hang up on the other 80% of your clients and start calling and surrounding with love the 20% of the clients that were making the lion share of your profits. These things are hidden and you have to look for them.

Jim: What pops into my head, I was just thinking about some of the music groups and the bands that get out and do their tours. I am old enough to remember the Eagles and the Grateful Dead and I am thinking to myself, “You know, it was probably about 20% of their songs that generated about 80% of the audience that showed up.”

Kevin: Sure. Or 20% of their fans are buying 80% of their downloads. It is all over the place.

Jim: Yeah.

Kevin: But you have to know what you are looking for. When I am consulting with an entrepreneur or a sales and marketing professional, I help them find these 20% areas. They say the same things over and over, when we identify them they say, “That’s surprising” or “I did not realize that!”

Jim: Right.

Kevin: The goal of 80/20 Marketing is to generate the most profit from the least amount of time, effort and money. You achieve this by doing more of what is highly profitable and the time you now waste doing what isn’t.

When you make this mental shift, you are making what amounts to the world’s best and safest investment.

Here’s why: If the vital 20% of your marketing efforts produces 80% of the results, that is a four times output, let’s say 4X. Now if the trivial 80% of your marketing produces 20% of your results, which is a one fourth output or 1/4X.

As a result, when you do the math, your vital 20% is 16 times more powerful than your trivial 80%.

You simply do more of what is highly profitable in the time you now waste doing what isn’t. It is like trading dimes for dollars, day in and day out.

Jim: What interesting though is that people get into such habits, our brains are lazy and kind of grooved. Most of us in our lives, most of us in our businesses, keep doing the same things over and over gain until they slowly die on the vine. Was it the character in The Sun Also Rises, Hemingway’s book, when somebody asked him, “How did you go bankrupt?” He said, “Slowly, then all of a sudden.”

Kevin: Exactly.

Jim: That is kind of what happens, isn’t it? Isn’t it harder to figure out what is the 20% and what is the 80%? You have got to figure that out before you can stop doing the stuff that wastes your time, energy, and money.

Kevin: Exactly. An initial reaction that I get from some people is, “Well, wait a minute, if I am going to be focusing more on what I am already doing, am I going to cut myself off from new ideas and am I going to restrict myself?” The answer is, no.

Remember, what Steve Jobs said? Saying no to a thousand things is a prerequisite for innovation.

Jim: He also said, “Innovation is simply connecting things.” To connect things you have to look outside at the world for very different points of view. If you can free up some time to do that, you add to your potential to be innovative and not subtract from it.

Kevin: Let me give you an idea and there is not time to go into all of this, but let’s talk about a couple of signs to help people recognize the 20% of their marketing that is really highly profitable.

One criterion is this: it's 20% or less of how you are marketing now.

That sounds obvious and idiotic, perhaps, but it could be 10%, it could be 15, it could be 25. If a marketing method works so well that it might account for 80% or more of your current revenues and profits, why wouldn’t I be doing more of it? 

Well, there may be several reasons but one of the most common is you simply take it for granted. Success with this marketing has become expected and you have not been excited or determined enough to push it as far as it can go for some reason or another. It is probably a small amount of what you are doing to market your business and yet it is highly effective and you just have not pushed it as far as it can go.

Here is another criterion: a 20% type of marketing produces an unexpected success.

This helps emphasize, again, that you want to look for surprise victories in your marketing. You would have probably passed them by otherwise and you would not be able to fully exploit them if you were not looking for unexpected successes. 

Here is what Yogi Berra has to say on the subject: “You can observe a lot just by watching.” But who really takes time to watch and observe?

And here is an example of how this works -- there is a very large and successful tax preparation firm, they get a lot of referrals based on how they treat their clients and these referrals make them a lot of money.

First they were getting these referrals accidentally; it was not until the owner started observing the employees who were generating the most referrals that he saw something unexpected. The top employees were walking into the lobby, greeting clients by name, shaking their hands and walking them, very respectfully, back to the office.

It turns out that being treated with respect -- even though it cost nothing to do and it wasn’t anything the boss considered essential -- it was a very big deal to these clients, because they were low-income people. They were used to being treated like dirt by other businesses.

The company president never considered this as a marketing tactic, but after seeing the same pattern again and again -- because he was looking for it -- he turned this unexpected success into part of his company’s training program and he is doing very well these days.

The bottom line is, what you think is important and what your market thinks is important are often completely different things. You want to pay attention to any unexpected successes in your marketing and never dismiss them as lucky breaks or accidents, not when you can systematize and capitalize on them.

Jim: I think one important thing to add there is that John le Carre said, “It is very dangerous to view the world from behind a desk.” For that CEO to actually get out from behind his desk, talk to people, and figure it out, is a very important part of that equation.

Kevin: Exactly. You have got to be sleuthing around and looking for unexpected successes. There is no shortcut in Excel or QuickBooks that I know that looks for unexpected successes. It takes a little brain work, but it is definitely worth it.

Jim: Cool. So, what from here? How are you going to implement this? Are you in the process of bringing this to the market place? Are you starting to work with some people on helping them with this? It sounds like there’s a pot of gold sitting at the end of a rainbow here for some people if they would just start to pay attention and you probably have got the key. 

Kevin: I am not offering a magic elixir and I am not promising the world to people. It was about six or seven years ago that I really got into this, when I added it up it was a $2.1 million windfall from one of my businesses simply by following these ideas and going very deep. That counts for something I suppose. Going very deep in and doing more of what worked and less of what didn’t.

Again, it is simple in theory but not easy. It wasn’t easy because I had to do a lot of thinking and looking for things but I have managed to put together a list of signs to look for. 

I did a pilot session about a month ago with very good results with some people who run their own business. I am excited about this because when you are engaged in 80/20 Marketing, it's like sculpting for fun and money.

Michelangelo said, and I'm paraphrasing, "in every block of marble I see a perfect statue. My job is to simply chip away the walls that imprison my vision." 

With 80/20 Marketing, you do the same thing, only what's revealed are profits.

In your business, no matter what you do, you are surrounded by 4/5 of what is not your vision, not your ideal result. Simply chip away at those ugly parts of your marketing and you can reveal some seriously beautiful profits hidden inside.

Jim: A lot of people try to make things so complicated.

Kevin: Right.

Jim: And so mechanical that they miss the really, simple and effective things that they might be doing. I like country music and I am reminded of what Harlan Howard once said, he said, “Country music is three chords and the truth.”

Kevin: You can do a lot with three chords and the truth. It is a simple formula but there are an infinite number of applications.

Jim: Yup.

Kevin: That's how 80/20 Marketing works. I want to wind down here and give people two website addresses where they can get more information ....

If you want to join my next 80/20 Marketing "UnCoaching" program, you can learn more at www.8020Unlimited.com. It's geared toward entrepreneurs and sales/marketing professionals who want to chip away 4/5 of the crap that's surrounding their business.

And if you want to sample the tactics that work best in 80/20 Marketing, I will point you to www.ClientCloningKit.com. That's where you can download a set of six tools, all based on these ideas. It's free to download and there are also a limited number of kits that can be mailed out for free in the continental US.

Jim: Fabulous! Thanks, Kevin.