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- When The 80/20 Rule Goes Wrong
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[Read time: 3 minutes]
In a 10,000-person company, 100 people will contribute 50% of the work.
Yes, you read that right.
100 top performers. 9,900 others.
Imagine the destruction you could do by laying off (or undersupporting) the wrong 100 people.
Today, I’ll explain Price’s Law and why it matters to even the smallest companies (and teams).
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Price’s Law states that the square root of the total contributors produces 50% of the output.
It’s a similar concept to the widely known 80/20 rule.
The 80/20 rule (the Pareto Principle) suggests that 80% of your results come from 20% of your efforts.
While the 80/20 rule and Price's Law agree that a disproportionate amount of output comes from a subset of the input, they are different in their application and impact.
80/20 is broadly applicable; Price’s Law is specific to creative and intellectual domains
80/20 focuses on the distribution of cause and effect (output); Price’s Law focuses on the contribution (inputs)
For purposes of impact, let’s compare the two using companies of different sizes to identify how many people contribute to 50% of the work (based on each concept):
Size of Company | 80/20 Rule | Price’s Law |
|---|---|---|
10-person | 2 | 3 |
100-person | 20 | 10 |
1,000-person | 200 | 32 |
10,000-person | 2,000 | 100 |
You can see how quickly the impact scales.
Applying the 80/20 rule (instead of Price’s Law) could mean misattributing success or misaligning resources to the wrong subset of performers.
Price’s Law impact is with big numbers.
Despite this, Price's Law applies to even the smallest companies and teams because it applies to the productivity of creative (and intellectual) work in a specific network.
Three keywords/phrases in that sentence:
productivity
creative (and intellectual)
network
Let me go in reverse.
We all play in large networks, even if you are a company of one. And as your networks expand, your value relies heavily on specificity and focus (not diversification).
Only a few top performers exist in any network.
With time, you will meet new people, collect new experiences, and solve new problems. Each one of these touchpoints will expand your network of opportunity.
Opportunity is your kryptonite of focus — and there isn’t a top performer in the world who hasn’t figured out the art of focus.
Price’s Law advocates for doubling down on strengths (particularly around creative areas) and strategically quitting anything you’re not good at.
This matters because the rewards follow a similar distribution as Price’s Law:
A few people in the system earn most of the income
A few people in a niche garner most of the attention
A few people in a field hold most of the legacy
It’s built deep into the system of any iterative trading game. In our case, that iterative trading game is business (trading time or value for money).
This means that small companies and teams become top performers by strategically quitting.
Productivity relies on creative and intellectual output because technology and automation have simplified routine work.
The words “productive” and “creative” often confuse people (especially left-brained, analytical types).
The word “productive” has always been married to “more,” while the word “creative” has been married to “originality.”
But technology has forced a divorce:
“More” is now the norm because automation tools, AI, and productivity software make it more easily accessible at low costs (even free).
“Originality” is not actually real because ideas are more easily distributed today; instead of staring at a blank canvas, focus on the notion that everything is a remix of what came before it.
Top performers are the doers who figured out how to think, iterate, and create (not just push more buttons).
This is the strength of small companies and small teams: they don’t have to jump through hoops to invest time in thinking, iterating, and creating.
They don’t carry the weight of a 10,000-person organization.
Even though all companies require “routine” work to function, the larger ones rely on people to carry them out (hence the 9,900), whereas the small ones can rely more heavily on technology and systems to do it for them.
This means prioritizing attention on doing the creative (and intellectual) work.
“As your company grows, incompetence grows exponentially, and competence grows linearly.” (Jordan Peterson)
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Thank you for reading.
Peter