“The difference between successful people and very successful people is that very successful people say ‘no’ to almost everything.” Warren Buffett
I recently read about American business magnate Warren Buffett and his incredible ability to manage his time dealing with things that matter most. Buffett is acknowledged to be the most successful investor of the 20th century and he accounts much of his success to focusing his energy on tasks that give him maximum return for his time.
This is a business-savvy application of a phenomenon known as the Pareto Principle, which states that for many events, roughly 80% of the effects come from 20% of the causes. In business, it generally plays out as follows:
• 80% of a company’s profits come from 20% of its customers
• 80% of a company’s profits come from 20% of the time its staff spend
• 80% of a company’s sales come from 20% of its products
• 80% of a company’s sales are made by 20% of its sales staff
• 80% of a company’s complaints come from 20% of its customers
In essence, the Pareto Principle suggests that businesses can dramatically improve their profitability by concentrating on the most crucial or effective areas of the business, and by delegating, discontinuing, disregarding, automating, or retraining the rest. In other words, we ought to manage our resources wisely and focus them on areas of the business in which the most significant difference will be made.
This means sometimes having to limit the time and energy spent on things that, in perspective, are of lower eventual profitability or necessity. For example, Microsoft has noted that by fixing just the top 20% of the most-reported bugs, 80% of the related errors and crashes in a given system would be eliminated. This is an effective way of prioritising which errors should be focused on first.
Warren Buffett has been quoted saying, “The difference between successful people and very successful people is that very successful people say ‘no’ to almost everything.” What he is trying to convey here is the need for people to really analyse the worth of the tasks they undertake and to be judicious in spending time on things that matter most. For example, when examining expense reports, I find that typically 20% of journeys account for 80% of total travel costs. This provides an understanding upon which travel expenses can be better monitored and controlled.
I believe that our ability as leaders lies heavily on our discretion in allocating resources, both our own and those of our team, to those areas that will produce the most yield or customer satisfaction. This foresight will go a long way in making the most of our time. ❐
Author: Brett Tromp CA(SA) is CFO of Discovery Health