Business matters The 20% Who Read This Article Will Improve Their Business Profit - The 80% Who Don’t, Won’t

The 20% Who Read This Article Will Improve Their Business Profit - The 80% Who Don’t, Won’t

By Doug Emerson

This story is about an Italian engineer, economist and philosopher who discovered one of the most important rules of business over one hundred years ago. His discovery happened as he studied his vegetable garden one day and observed 20 % of the pea pods in his garden produced 80% of the peas he harvested.

Being an economist, his observation of his pea pods led him to research and make observations about the distribution of wealth in Italy. He concluded through his research that 80 % of the wealth in the country was controlled by just 20% of the population. He was astounded that 80% of the population had only a fractional share of the remaining 20% of the national wealth.

The talented economist was Vilfredo Pareto.

The concept became known as the 80/20 rule and is also referred to as the Pareto Principle.

Pareto went on to explore other mathematical relationships of 80% and 20% as they applied to both people and wealth. Pareto’s 80/20 observation is not always exact as it’s not a mathematical formula. It’s a generalization that gives amazing insight to human nature. Sometimes the ratio is 70/30 or 90/10, but the observation holds true. What’s important to understand about the Pareto Principle is that most often, a small number produces the greatest results.

Pareto, and others after him, confirmed the relationship between inputs and outputs is not balanced, proving once again that life is not fair.

Here are just a few examples of what the Pareto Principle means to you and your horse business:

80% of your profits are earned from 20% of your customers

80% of your profit comes from 20% of your time

80% of complaints come from 20% of your customers

80% of work is completed by 20% of employees

Think about the 20% of your students, boarders and training clients who contribute to 80% of your profit. They typically listen to what you say and put it to use, respect your professionalism and pay you on time. Most likely the 80% of your students, boarders and training clients who only contribute 20% of your profit are poor listeners, question your knowledge and experience and are slow to pay.

Identify and list the traits of the 20% of students and clients who help produce 80% of your profit. Ask yourself where you can find more prospects with these traits.

Do the same with the 80% of your students, boarders and training clients who contribute 20% of your profit. Ask yourself how they can contribute more to the profit of your business as well as determine if that is even a possibility. Most agreements in the horse business world are short term contracts.

If a customer is not a good fit for your business model, then help the customer find a more suitable arrangement with another horse business.

Evaluate the individual team members you supervise. Which ones are the 20% who crank out 80% of the work? Identify the personal qualities demonstrated by the productive 20% group. Review the 80% of the remaining team and judge whether they should remain with you or move on to a job more suited to their skill set.

Applying the 80/20 to your business analytically is not difficult. You’ll know on paper what you should do. And if you want a more successful and profitable business, you’ll easily see that without change for the better, your business will remain stuck where it is.

The difficult part is taking action on what you have discovered through your analysis.

The horse business is relationship based. Your students, customers and employees think of you as a friend and rely on you.

Making changes in how you conduct your business involves dealing with emotions and potentially hurt feelings. Often, a business relationship of several years with an employee or client will cause anticipation of a stressful decision for you.

In anticipation, stressful imaginary conversations play out in the business owner’s head of how an employee dismissal or client relationship termination will go. These imaginary conversations are likely to cause decision procrastination. Delay in action is understandable. After all, no one likes to add more stress to life.

However, most of the time, the actual conversation goes far better than the imagined conversation does.

If better profitability, less daily work and reduced stress are among the goals of your business, the sooner you take advantage of the 80/20 rule, the happier you’ll be with your business growth.

About the author: Doug Emerson, writes, speaks and consults about running a profitable horse business. His favorite method of helping professional horsemen is through one day workshops focusing on the business half of the horse business. You can find out more at www.ProfitableHorseman.com building games, and more. Contact us about applying for a position at East Valley Ranch today! Helpful tip(s) to share with other instructors on running a successful camp:

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