David Philippi is CEO of Strategythe leading 80/20 Profit & Growth consultancy.
I guide top leaders to explosive growth, and the key is to get them over their own fear. My company has delivered more than $3 billion in bottom line improvements to our customers in 10 years. We helped one client increase stock prices by more than 540% in eight years. This is not an uncommon story. The growth is extreme. The success is astonishing.
What’s the secret? The 80/20 principle, or Pareto principle, as it is commonly known. In short, the 80/20 principle means that 80% of the results are generated by 20% of the effort. In business, 80% of the turnover comes from 20% of the customers. You focus on that which produces results at the expense of that which consumes resources.
That is it. 80/20: a simple theory that results in brilliant simplicity. It starts with removing the complexities that keep companies from being successful. Then it becomes an exercise in profitable market share growth.
So if it’s that simple and that effective, what’s the problem? Why haven’t we all taken 80/20? In my experience the problem is fear: fear of the new, fear of the unknown, fear of failure, aversion to change, fear of success – they all limit the best of us.
There is definitely fear in the 80/20 world, especially in the first six months of implementing a new 80/20 strategy. Here I often see fear rearing its ugly head – and how to overcome it.
1. Ask for help
Fear keeps some leaders from asking for help. Do they consider help a sign of weakness? Or are they afraid of losing control? Are they afraid of embarrassment if they reveal what’s behind the curtain?
Sometimes strategic concepts seem so simple that we think we can do it alone, but successful leaders know a secret: you need a coach. In my world, I’ve seen far too many leaders make critical mistakes when implementing 80/20 without the help of a guide. I helped resolve a client’s self-administered 80/20; he accidentally took out 50% of their customers (many of whom had huge potential), but didn’t change the fundamentals of the company. If he had asked for help from the start, he could have saved millions.
To remind: Starting a new strategy? Find someone who has done it successfully at least 10 times and let them guide you. Even Tiger Woods, the most dominant golfer in the sport, had a coach to help him improve his game.
2. Decision Paralysis
Leadership calls for tough decisions. In my work, 80/20 analyzes highlight problems and their “correct” solutions, but leaders still need to make important strategic decisions. Sometimes leaders have a hard time choosing between two excellent (yet difficult) actions at the beginning of a commitment, so that they do nothing at all. The result? No actions, no results. Likewise, leaders sometimes have to choose between two bad options. No one wants to choose a bad option, but there are times when we have to choose the best bad option.
To remind: Poor leaders are not the ones who make bad decisions; they are the ones who don’t make decisions.
3. Change Dislike
Change is difficult for everyone. Maybe it’s because change means the way we did things was wrong, or maybe it’s the uncertainty. Change aversion is the parent of some bad behaviors. This kind of fear makes people spew anecdotal evidence in the light of data, spout rare exceptions as reasons not to change, or worse, resist change because of emotional attachment.
For example, if data proves that a historic product isn’t making a profit (as it often turns out), some leaders fight to keep it. It’s not good for business, but it’s hard to change. “That product goes back 40 years!” is not a good reason to keep selling it.
To remind: Change management is crucial. We need to communicate the purpose, reason and ‘why’ behind the change if we want people to act.
4. The need to please everyone
The key to 80/20 success is the concept of ‘fair but not equal’. In short, identify your whale accounts that generate the most revenue and treat them exceptionally well at the expense of your underperforming clients.
We are often taught that every sale is a good sale and that every customer is a good customer. But what about the accounts that suck up resources and profits? They kill companies. You don’t have to be an economist to see that a customer who generates $10K in revenue but costs $20K to serve is not a great customer.
Our teams have taken steps to simplify the customer line to make those customers profitable, offer them options or develop a departure plan for them. And yet it’s counterintuitive to have fewer customers, raise prices, and treat people differently.
To remind: You cannot please everyone. Focus on pleasing your top accounts.
5. Delayed gratification
We’ve all worked with people who change strategy on a monthly basis. You know them; they think it should take 30 days to transform a department or a company. And if it doesn’t work, they find the next strategy to try. Things pass in the flavor of the day.
With 80/20, the hardest job in the beginning is making tough decisions. Sometimes the results are not realized immediately. In some cases, it can take three to six months to see financial results. It can make some people feel like a failure, so they stop before it gets right.
To remind: If you want short-term gratification, look elsewhere. (I can recommend some hearty drinks that will make you feel good in no time.) Business leadership is a marathon, not a sprint. A good strategy is not a project or initiative; it’s a long-term commitment.
Don’t let fear sabotage your leadership abilities. Don’t let it destroy your potential to do what business leaders love: grow and succeed. In the words of Dale Carnegie, “Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to overcome fear, don’t sit at home and think about it. Go outside and get to work.”