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Business Unplugged™
This blog features Carol Roth's tough love on business and entrepreneurship, as well as insights from Carol's community of contributors.

The 80/20 Rule and How We Applied It to Our Business

Written By: Matthew Gillman | Comments Off on The 80/20 Rule and How We Applied It to Our Business

The 80/20 rule is a business and personal principle focused on how to become a more productive business, person, entrepreneur, etc.

We’re all seeking that extra edge, and being more productive is one way to get that. One part of being productive should be developing a clear definition of what productivity actually is.

Is being more productive the same answer for all? The reality is that being more productive will be different for each business.

In our business, working more leads used to be our metric for evaluating productivity. As we worked with businesses needing invoice financing or inventory financing we relied heavily on building more leads that needed this type of financing.

What we realized over time was not every one of these leads were a fit for our unique business model. We then evaluated how much time we were spending on each lead. After adding up the numbers, it became clear there were specific types of leads that took up the most time – and often generated the least amount of revenue.

After years of working as many leads as possible, we realized the path to scalability and ultimate success wasn’t tied to how many more leads we could work through, but how many of the right leads we worked on. We moved to working on 20% of our specific invoice financing and invoice factoring leads and not focusing on the other 80%.

The reason was twofold. First, while trying to work all the possible leads, we were taking up valuable time with business owners and companies that didn’t see the value of our service and saw us as a commodity, which we concluded was a wasted effort on our part. Second, because we had less time available, we couldn’t fully provide our best to the 20% of leads that saw the benefit of partnering with us.

Now that we focus our productivity not on the amount of leads but the quality of them, we’ve seen our platform grow more efficiently.

In your business there could be similar opportunities. Identifying these inefficiencies requires tough internal review. In some cases, your business may be spending too much time on certain tasks, or clients, or procedures that ultimately hurt your business more than help your business.

Having worked with all sorts of small businesses, we find that frequently the answers are right in front of them, they just need to shift their mindset. Out of habit, business owners may find comfort even in situations that are detrimental to overall business strength.

We often see businesses working with low-margin clients who take up the most amount of time because they add to the top line of a business. What’s missed in this revenue-focused mindset is the result of that less-impactful client who is taking finite, critical resources away from more profitable clients. Freeing up these resources could enable you to grow your business with less work and stress.

The beauty of the 80/20 rule is in its simplicity to seek to remove anchors that slow your business down. It’s important to do frequent reviews of all processes and operations, removing any obstacles to your success.

Article written by
Matthew Gillman is the founder of SMB Compass and an expert on business financing. His firm specializes in educating and helping business owners search for and secure options that best fit the goals of their company. When he’s not working, Matthew enjoys spending time skiing, surfing, and hanging out with his family.