/By Sean

#236 Richard Koch- Using the 80/20 Principle & Achieving Unreasonable Success

Big Ideas

The concept for Richard’s book, The 80/20 Principle, began during his time as a student at the University of Oxford. Richard learned about economic Vilfredo Pareto and his conclusion that 20% of people are responsible for 80% of the wealth. Richard applied this theory to his examinations at Oxford to see what 20% of questions came up most often and he got the second best degree in his year at University of Oxford.

“I’m always trying to make things easier for myself and easier for other people by cutting out the vast sway of stuff that you don’t need to do”

Richard studied 20 of the most successful people throughout history from various industries and came to the conclusion that 9 characteristics were shared among all of them. Among the 20 people he studied, all of them had a transforming experience in their life, where they went into the situation one person and came out another. It’s important for us to all recognize opportunities in our lives for our own transforming experience.

“Opportunities are often very muffled, you hear a very faint knock on the door and the question is, are you listening? Is it likely that you’re actually going to hear that?”

Setbacks bring success. Richard experienced this firsthand after being fired from Boston Consulting Group which then led him to his next opportunity at Bain and Company. Without being fired, Richard wouldn’t be where he is today.

“One of the things which I discovered was the ability to thrive on setbacks was much more important than avoiding setbacks, in fact setbacks in careers turned out very often the starting point or the prelude to actually having remarkable success”

Richard believes that the first step to being successful is just simply taking the time to think about how you would like to change the world. Most people don’t take the time to sit and think about this, and once you have you can create a goal with action steps. Even if you fail, you can move onto the next goal and you’re still moving forward than those who didn’t take the time to think.

“If you can think of something fantastic that you might achieve which would change the world in a way that you want to change the world, then you’re hugely advantaged against the other people in the world”

2:11 Thinking Trumps Action

Bill Bain, one of Richard’s mentors told him, “Don’t let action drive out thought”

Richard describes this maxim’s impact as tremendous during his time working for Bill, as Bill continuously told him the importance of thinking over action.

Richard says he wasn’t able to get into the zen-like thinking state as someone working the rounds in the strategy consulting company, which inspired him to co-found his own strategy consulting company.

“I think that’s the secret of success in many ways, to take the formula that’s proven and worked and is new and is exciting and apply it in a slightly different context”

5:45 Seeking Formulas

Richard says he has used two formulas:

80/20 principle: 80% of results come from 20% of courses
Star Principle: Nearly all of the cash from companies comes from the very few number of companies which are the leaders in a very fast growth market or niche.

“I’ve based all of the success that I’ve had has been not due to any personal brilliance but due to using formula”

Richard says that as he has left consulting and become an investor he has acquired the zen like calmness of his former boss.

9:03 Richard’s Daily Non-negotiables

Richard attributes exercising for two hours everyday to his overall life satisfaction. His methods of choice include bike rides, playing tennis, walking, swimming, or others.

“In fact the really non negotiable thing is to have time to think and to enjoy what I’m doing”

11:10 The 80/20 Principle

Richard’s aha moment where he realized the importance of the 80/20 principle was when he was 19 and reading in the Bodleian Library at the University of Oxford. Richard had previously heard of the economist Vilfredo Pareto and began reading the Manual of Political Economy.

“What he actually looked was how much of the wealth belonged to what percentage of the people who were generating the wealth”

Vilfredo’s conclusion was that as you increase the category of wealth the number of people that were in that category dropped by the same absolute amount. This has now become known as the formula that 20% of people are responsible for 80% of the wealth. Richard applied this theory to his examinations at Oxford to see what 20% of questions came up most often.

He discovered that among each subject matter there were 5 or 6 questions that had between an 80-100% probability of being included on the exam. Richard spent all of his time perfecting the answers to these 5 or 6 questions among his subject matter and not much of the other material, causing him to get the second best degree in his year in Oxford history.

“I’ve always been interested in two things, money and success. How is it that you make more money and how is it that people become very successful”

Richard’s most recent book, Unreasonable Success, is called that because of how successful some people are compared to the vast number of people in the world.

“It’s unreasonably because these people in a sense, don’t really deserve it and so when I was writing the book was to try and identify like Mr. Professor Pareto might have done, were there any common themes”

Richard took 20 people who had been wildly successful in different areas to look for common traits among them. He started with a long list of 50 possible traits and narrowed it down to 9 that they all had.

“I’m always trying to make things easier for myself and easier for other people by cutting out the vast sway of stuff that you don’t need to do”

23:53 Setbacks Bring Success

“One of the things which I discovered was the ability to thrive on setbacks was much more important than avoiding setbacks, in fact setbacks in careers turned out very often the starting point or the prelude to actually having remarkable success”

Richard dives into an example of this with Winston Churchill’s career.

“Understanding the value of setbacks because they give you feedback and tell you this particular path is not the way to go is very useful”

Richard explains how in his book all of the 20 people have a transformative experience – joining a company, a social group, a political movement, or other defining moments, pleasant or unpleasant.

“Where you go into the experience you’re one person and when you come out of the experience, maybe a year later or maybe much more than that, you are a different sort of person because you’ve acquired some very important rare knowledge”

Richard suggests thinking about transforming experiences in our own lives and if you haven’t, seeking out potential experiences that would be transformative.

“Opportunities are often very muffled, you hear a very faint knock on the door and the question is, are you listening? Is it likely that you’re actually going to hear that?”

32:07 Richard’s Transforming Experience

Richard says his own personal transforming experience was when he got fired from the Boston Consulting Group when he was 25.

“That failure then led me to think, do I want to stay in this world of strategy consulting, which I absolutely loved, or should I go and do something different”

Following his experience of being fired, Richard landed an interview with Bill Bain and began working for his consulting company. These two experiences led Richard to realizing the success of strategies within both groups.

“If I had not had the setback at BCG I would not have worked at Bain and Company and I would not ever have been able to compare and contrast the way that these two firms, which on the surface looked exactly the same”

36:11 Uncovering the Formula

Richard says that his process to thinking through a formula, process, or idea, is to draw out pictures and look for patterns. He explains how the most profound ideas are the ones that are in plain sight but we tend to overlook.

“I do encourage people, if you’re looking for principles perhaps don’t try and invent your own principles, try and see if there is something which is impertently true, it’s been proven to be really useful in a particular area and apply it in a slightly different area”

38:19 Developing Self Belief

Out of the 20 successful people that Richard studied, self belief was not a quality that most were born with – only 3. Using Albert Einstein as an example, Richard explains how he was not innately confident, wildly smart, or particularly genius, but once he began to gain recognition from great quantum physicists of his time he gained self belief.

“When people give you a bit of credit for that and they are the most famous people in their field, well naturally it will go to your head a little bit. He started with this weird view of what God was doing and he came up with an idea and then he gradually became incredibly self confident”

Richard says that self confidence is often formed from a sense of self doubt. He brings up Steve Jobs as an example of this, saying that Steve’s adoption as a child gave him a sense of abandonment that fueled his success.

“It’s the people who actually haven’t had the advantages and it’s often the people who are not expected to succeed who create this tremendous motivation inside themselves”

Another one of the 9 landmarks on the book is having an idea of a breakthrough achievement.

“You can only be very successful at something and I think the first step to self belief is identifying what that something might be”

Richard explains the importance of taking the step to think about what you want to accomplish, because once you have the goal you can create the steps to accomplish it. Even if it doesn’t work out you are still doing more than most people who don’t take the time to think about it and you can just move onto the next goal.

“If you can think of something fantastic that you might achieve which would change the world in a way that you want to change the world, then you’re hugely advantaged against the other people in the world”

49:45 The Importance of Reaction

Richard says that understanding your uniqueness and abilities happens from various experiences. Richard dives into a story from when he was 9 years old and was made fun of by an adult for wanting to grow up to be a millionaire, making Richard even more determined to do that.

“There can be something totally unfortunate or accidental or humiliating in your existence and it just depends on how you react to it”

56:20 Developing Intuition

Richard says that what he has read about intuition is ‘knowing an awful lot about very little.’ He says to look at and think about what works and what doesn’t work to develop useful intuition. Richard uses his time at Boston Consulting Group as an example, saying that his intuition was developed around why certain companies are more successful in a very narrow area than other companies.

“It’s actually taking a narrow area and getting as much experience in that area as you possibly can by looking at people who are in the area, who is successful, who isn’t successful”

Asking these questions is what Richard says creates a subconscious intuition about the topic, developing useful intuition.

“I wouldn’t say intuition is something you can train but you can feed it, you can feed it with lots and lots of questions and lots and lots of experience”