The 80/20 Principle and 92 Other Power Laws of Nature: The Science of Success – Richard Koch
Richard Koch is an author, management consultant, entrepreneur, investor, and life long lover of history. Koch has worked at the cold face of business and management consulting for forty years.
In this book, he provides a unique perspective on the interaction between scientific laws and success within the business world. Coming from a data-focused business consultant background, Koch brings the science of these laws to life in their real world application.
The main structure of the book is divided into three primary areas. Part one talks about biological laws. Part two contains the physical laws. Finally, the concluding section covers the non-linear or ‘power’ laws. .
The following laws are discussed in the book:
1. Biological Laws
- Evolutionary Psychology — Manage and mutate Stone Age man
- Mendel’s Genes — Selfish Genes and Business genetics for executives.
2. Physical Laws
- Newton’s Laws of Motion and Gravity.
- Relativity — Think Service time.
- Black Holes & Escape from the gravity of competition
3. Non-Linear laws
- On the 80/20 Principle — Achieve more with less.
Koch connects these laws to success and business. We’ll explain most of them in more detail below.
Part 1: Biological Laws
Predictable Primitive Cavemen behavior
Stereotyping on a first impression is the result of our old caveman brain trying to protect us. It tries to tell us who to trust when we first encounter someone. Although this is not always bad, a quick decision like this may lead to many poor decisions and the possibility of lost opportunities. According to Koch, we always have to make a rational analysis of the person in front of us, rather than an emotional one.
Genetics for Executives — Guidance on Building Business Concepts and Career Development
A business concept or “gene” is always in the making. We can take an existing business concept and change it slightly to create a gene that is only somewhat different from the blueprint. This altered business gene or product has an increased likelihood of success in the business universe. Building successful business concepts is about continuous experimentation and alteration.
The same holds for career development. Koch argues that it is imperative to ask ourselves: “Am I the driver or the passenger in my career or business?” The results of this questioning may mean a change is needed. The answer might be a little uncomfortable for you to hear, but it’s necessary for success.
As the author explains, “Variation is the key in business. If you stay in the same role or position for too long, stagnation will kick in. Take on new projects, change your team around you, or even switch jobs if necessary. We must accept failure. If we do not allow ourselves to fail, we are only protecting our ego from competition which results in stagnation and moving backwards.”
Have a Plan C & Beat the Market
Koch advises to always have multiple ideas together with a plan A, B, and C for each of them. As he says, this will alleviate possible aversion to risk. This rule applies to investments, product development, and starting a business. He also recommends not to put all your eggs in one basket in any part of your life.
Furthermore, the author suggests to avoid taking too high risks when things are going badly. Either cut your losses or accept the situation. While cutting your losses will be difficult, you will often learn from your mistakes and you’ll be more likely to succeed next time.
Part 2: Physical Laws
Unexpected Market Effect
Every action and reaction creates an equal and opposite effect on everything. Although this is fairly simple to understand, the guidance provided in the book is an interesting approach on this law by Sir Isaac Newton. By thinking of and planning ahead for the reaction, it can be possible to predict what the market will demand next.
When there is mass market demand for any product, there will be a demand for an equally opposite product. For example, the popularity of high-end luxury watches in the male market is reaching record highs. At the same time, there is a corresponding rise in lower and mid range watch sales.
Another example: although many people now consume books via digital media, the appeal of paper- and hardback books will never die. A lot of ‘book lovers’ still like to hold and touch something physical.
This is what Koch calls the unexpected market effect. The market can be unpredictable. Try to be aware that action and reaction may not come from where you expect it.
The Time Hersey: time is abundant and available.
Time, in this case, can be defined as the amount of time a company or organization spends growing and developing products or services.
Research from BCG (Boston Consulting Group Company) states that less than 10 percent of the total time devoted to any work in an organization is truly value added. The rest is wasted because of unnecessary steps of unbalanced operations. The majority of companies are not being guided by what the customer wants but their own limiting structures and procedures.
Amazon is an example that stands out. They truly focus on the customers and their experience. Therefore, the growth of Amazon needs no explaining.
On Chaos, Complexity, & Lady Luck
The world is now in a state of flux and chaos like never before in history. Opportunities arise around every corner. The truth is, Koch explains, that mankind never has been so risk-averse.
How does this apply to business? Koch explains that, with too much comfort or success, companies will create a reduced appetite for risk. The result of this inaction is that your competitors who are prepared to take risks will either take more of the market share or put you out of business.
With the countless elements of luck or chance in the current business world, the advice is simple. Plan for the unexpected to happen. As Koch argues, it is most likely to appear at the worst time. When it does happen, Koch recommends to stay on course but adjust the sails. On the other hand, when luck shines on you, don’t congratulate yourself too much as it could have easily gone against you.
Black Holes & Unlikely Business Opportunities
Watch out for black holes. When in fierce head-to-head competition with another company, you may be approaching a black hole. Companies can destroy one another in competition. In most cases, Koch argues, it’s a lose-lose situation. It can lead to limited profit, restricted cash flow and restricted growth opportunities for both companies.
Black holes may appear from the outset as a complex science concept. It is your job to figure out whether a dominant organization or business is near collapse or implosion. Both can be either a warning sign or an opportunity all depending on your proximity to the black hole.
Part 3: Non-Linear laws
On the 80/20 Principle — Achieve more with less
Related to business, this rule states that 80% of the profits comes from 20% of the company’s activities. Koch’s advice is simple: define and focus on the 20% and remove as much as possible of the ineffective 80%.
Removing from the 80% can come in one the following forms: own less, acquire less, have fewer products, customers, suppliers, and/or employees.
As Koch explains, a business no longer has to own the assets in order to control and manage them. For example, a business sector which has moved away from the historic ownership-model is the airline industry. Airlines now lease their planes, contract out their engineering, and have specialist subcontractors supplying catering and ground support.
Controlling without the restrictions of ownership can allow for more flexibility. This flexibility will offer the business the possibility to change with emerging markets and take advantage of new opportunities.
Where I found this book opened my thinking was when I reflected on past decisions I made or did not make. Without fully realizing how many factors or laws were in motion and involved in circumstances affecting the outcome. While all the laws reviewed and explained in the book come form a basis of science it would be valuable to take a moment after reading each section and see how they may apply to you life experience.
All the subject matter flows into each section and allows the overall concept of the book to be understood. My final comment on this book is the way the author has taken many complex scientific theories and explained their importance and impact in life and business. If you’re in business, this book should be on your reading list.