Are You Wasting 95% of Your Time in Your Business?

Transcription of Episode

In 1896, the Italian engineer and economist, Vilfredo Pareto, noted that about 80% of Italy was owned by 20% of the population. I go over this on page 104 of my new book, The Messaging Connection, not because I think it's interesting to talk about old dead people, but it is interesting to talk about their ideas, especially when they're really powerful ideas.

This discovery that Pareto had of the fact that 80% of Italy was owned by 20% of the population led him to start investigating a lot of different things, which ended up with his discovery of what's called the Pareto distribution.

It would later be shortened by this guy Joseph Juran, who is a management consultant, to be the 80/20 rule. If you've ever heard of that, 80% of your results will come from 20% of your activity, that was kind of the beginning of this country for Pareto, but that wasn't the end.

I [00:01:00] got turned on to the Pareto Principle or the Pareto Distribution later by a gentleman named Craig Jacobson, one of the brilliant small business marketing minds, probably more for than just small business but that happens to be who he likes to work with and help. He was presenting at an event I was hosting in San Diego called the Claim Your Life Back event, and he was talking about this distribution.

I'd heard of the 80/20 rule before, but I hadn't really heard of the distribution. When he explained it, he called it the P curve, but when I understood it was an actual curve or distribution I started seeing this distribution everywhere.

In fact, if you have video views on Facebook, for example, go see if you can find that chart that shows you how long each person watched. What you'll see is you'll see a lot of people watch the first few seconds and then there's a quick drop off and then a long tail.

This distribution we find in almost everything, everywhere. In fact, it doesn't [00:02:00] just apply to video views or who owns land or what have you, it's just a fact of nature. It was this pattern, the fact that Pareto saw this pattern, not only in human dynamic systems, but also in nature that led him to be able to say, "Hey, this is a distribution that just happens."

In fact, if you took all of the wealth in the world and you put it all into the hands of one person, eventually it would distribute out into the Pareto distribution. If you took all the money and you evenly gave it to everybody on the planet, it would again eventually go back to the Pareto distribution. It's a fascinating occurrence, but that's just the way that things seem to work in this world.

What's the value of it though?

The real value of it for you, especially because you probably do some sort of marketing automation, is that you could actually push this curve not just to an 80/20, but to a 95/5. I find that to be more effective and more useful because it's even less daunting.

What we're trying to do is [00:03:00] we're trying to find the 5% of our efforts that will actually produce 95% of our results. The reason that this is really valuable is because if you can identify that 5%, that means there's a lot of free time you can create for yourself to focus in on that 5% better.

Most people I meet, especially small business owners, are usually swamped. They're super busy. As I investigate why they're busy, and if I can get them to be honest and explain what they're really doing with their time, it becomes immediately apparent to me that they're spending a lot of time on things that actually don't produce any results for themselves. That's not true just for them, it's true for me too.

We all spend a lot of time on things that don't produce results. You can normally find a correlation between how much time you spend on things that don't produce results in your income, so it kind of would be a good idea then for us to be able to focus our energy and attention to be more on that 5% and less on the 95%.

[00:04:00] The big question then becomes, how do we do this?

Well, one of the big challenges that comes up for people, especially people using marketing automation software, is that there is this tendency in this community to want to really make intricate, complicated marketing automations. In fact, people will frequently post pictures of very complicated campaigns with some level of excitement. They're not doing it to get egg in their face or to be ridiculed, they're doing because they think it's pretty awesome. And, in some respects, it is really cool.

But the problem is, the more complex your marketing automation, the bigger you're making the haystack. So if we're going to say that 5% is like a needle and the 95% is hay, then the size of our haystack is going to make it harder for us to identify the 5% that really matters.

The more hay that we throw on to that stack, it doesn't hold the 5%, it actually reduces the amount so [00:05:00] that that 5% is even a smaller percentage of the overall activity that's going on.

As you look at your marketing automation campaigns that you have for your business, the question should be for you: do I really understand what's going on here?

Am I really clear on the function of each portion of this marketing automation campaign? And if I am, could I reasonably determine which of all this stuff that I have being automated is actually the 5%?

Does the stuff that's being automated actually represent a good portion of that 5% or an important portion that would be appropriate for marketing automation to do?

There is a process that you can go through to be able to identify where that 5% is hidden because that 5% isn't a fixed thing, either. Some people get in their head that, "Okay, I'll figure out what that 5% is and then I'll just do that for the rest of my life."

The reality [00:06:00] is, that 5% is going to move. As your business matures, as you grow, as things begin to progress in your company in the positive direction, the 5% is going to move. The 5% is going to be isolated on whatever the constraint is.

Inside of any business, there are things that are going really well, in fact, maybe too well, and there's other things that are not going quite as well, maybe not well enough. Whatever is restricting the flow of money through your business, and ultimately hopefully landing in your personal bank account, but whatever is restricting the flow of that money is called a constraint. It's stopping the progress of money in your business.

Constraints take on very many different forms. They could be in the form of waste. It could just be that we're getting opportunities and we're not converting them into money.

It could be the we're spending money foolishly on things that aren't actually producing results. There's a lot of different places that could happen.

It [00:07:00] could be that our messaging is just wrong and our messaging is scaring away the right people and attracting the wrong people so we don't like the customers we have because they're creating a bunch of problems and headaches and not really getting results.

Maybe our systems or processes are bad.

There's all these different places where that 5% can be hidden. And that 5% will shift, so you need to have a process for going through and looking at your business and being able to identify: what is the constraint? That will tell you where the 5% that's going to produce 95% of your results is trapped.

The long and short of how you go about this process is first, we've got to map out what the flow of money is in your business. It's important to keep track of money, but you also need to keep in mind relationship.

You don't want to create a purely transactional business because they're the worst kind of businesses to have. A purely transactional business is very susceptible to changes in trends and demographics.

[00:08:00] A relationship based business, which doesn't mean that you have to have this really close relationship with everybody that buys from you, but it does mean there has to be some basis of relationship in the company and in the transactions that do occur. It is more resilient, much more able to withstand changes that will occur naturally as markets shift and demands wane and those kind of things. You want to be able to have the relationship to give you a buffer to be able to learn and adjust your business to the changes that occur in the marketplace.

You have to map out that process of how does money flow. The reason we use money is because it's very fixed and it's pretty rigid, so it gives us a clearer picture of what the path is that we should be paying the most attention to.

But money is also a representation of value. Where money flows is where value is being exchanged. You want to look and see if from the point of getting someone's attention to getting them [00:09:00] to identify themselves to getting them to purchase for the first time to where you deliver on the promises you make in marketing and sales to the point where you've collected the money if that happens before after your delivery, put it on either side, and then any of your fixed cost things in there.

Then you can get this map of, how does my business operate? How does my business function? What are the essential parts?

That word essential is really critical. If you don't know what the essential parts are, then you're going to waste your time on the 95% that doesn't produce very much result.

You really got to get clear on, what are the essential parts of this business? What makes this business valuable to the marketplace?

If you feel tempted to say, "Well, all of it," don't.

Get really specific. Analyze. Critically question those things that you have assumed are the key ingredients and make sure they really are. They may be. They very well may be, but make sure that they actually are the key ingredients.

You want to look at and see, what are those key [00:10:00] processes? What's that key path in my business where most of my revenue is happening, where most of my opportunity is being created?

You're going to look at that path and now you're going to start looking at the numbers of that path. You're looking for the numbers that you can. We want to get it to dollars as quickly as we can because, again, that number is a lot harder to move around and it's more meaningful.

At the end of the day, profit is what you're working towards.

You're working towards creating a good profit for you and those you care about, so we have to have money be a key measuring stick in this as quickly as possible.

Some other measuring sticks we might consider are raw numbers. On the front side before money has changed hands, it's better to go with raw numbers because those things again can't be massaged or changed.

If you go with a average customer value to try and apply that on the prospect side, you could get yourself into a lot of trouble. Just go with numbers when you don't have dollar numbers to actually work with, and once you have dollar numbers, go with that.

Another thing to take into consideration when you're trying to identify a [00:11:00] constraint in this business process is you want to look at time. Time can be a major factor in profit. If I put in $1 and it takes me two years to get back $3 versus someone else's process where they put in $1 and it takes them 5 minutes to get back $3, that's a significant difference in terms of the investment.

I can then take one of those $3, put it in, get $9 five minutes later, and then, boom, by the time I get to 2 years, I could be a billionaire. But for the guy that can only get $3 back in after a year, he's got to work for a lot longer time to be able to move his capital through and multiply it. Or, in other words, create profit.

You want to make sure that you're taking into consideration not only money, not only run numbers, but time as well. You want to look at your system, this process that is the essential process that you've identified and you want to really look and see, how well are we moving people from one step to the next? Where people [00:12:00] dropping out at an unacceptable rate? Where do we see a backup?

If you were to imagine this as a little manufacturing facility and we were building a car and we have to build the frame and then we got to put the tires on it and sit the motor in it and then put the body on it and then paint it, put it out or whatever. Let's say that was the process.

Well, if we started getting a backup of frames in the very first step, what would that tell you immediately? It would probably tell you that putting the wheels on is happening way too slowly or building the frame is happening too quickly.

If we kept on running the frame building process and just backed up five thousand frames in front of the wheels, what would that do?

Well, number one it would have used resources that aren't going to produce profit. It's going to cost us money.

You may say, "Well, yeah, but we got the people working. We want to keep them working." But actually, no. You'd be better off than not have them working because they're consuming raw [00:13:00] materials.

The same thing kind of can happen in your business if you're generating a good portion of leads, but you're not converting enough of those leads to customers. In that case, it's the same kind of thing. What happens is, the more money, time, and effort you put into producing more leads, the more money, time, and effort you're withdrawing from the place that actually is going to produce results, which is conversion.

You may say, "Yeah, but I'm really good at that. It makes me feel good that I can produce all these leads." Well, feeling good actually doesn't produce profit.

You will feel a lot better if you produce profit, I'll tell you that.

Instead, let yourself separate from that thing that's making you feel good temporarily and look and see what thing will make you feel good in the long term, which is producing real tangible results for those you love, whether that's yourself or family or whatever.

You're going to look at the part that's actually constraining the flow of profit. Maybe that's conversion. You wouldn't [00:14:00] want to spend any extra time, you still have to have the maintenance of the lead generation going on, you can't drop that entirely and let it fall to zero.

But then, as you're maintaining that, you don't want to spend any extra time on it, you would want to spend it on that thing that's actually going to produce results at this point in time, which would be sales and conversion.

So if somebody came to you and said, "Hey, I've got a great training on how you can get new leads," you would say, "No, thank you."

If someone came up to you and said, "Hey, I got a training for you on how to convert those leads into customers," you would say, "Absolutely, that's what I need."

And that would be your 5% at that time.

The Pareto Principle is very powerful, but only if you use it. And the way that you use is you have to have this process for identifying what is constraining the flow of profit in my business and then focus in on it.

In my other book, How to Fix Your Funnel, I actually go in depth into that in a very short period of time so it's a really easy read. It's only five bucks on Amazon. The reason I put it so cheap is because I don't want any [00:15:00] business owner to not understand how to find out what they need to be doing in their business because they don't have very much money.

It's five bucks, anybody can get that, go get that book, go through that process. It'll give you the framework. I've kind of explained it here in this podcast episode, but the book will do an even better job of it. So go get the book. It'll help you to be able to work through that process, figure out what yours is, and then you'll know where that 5% is that you need to be focusing on.

The other activity again that I gave you to do in this episode, if you want to take it, is go look at your existing marketing automation and analyze the existing marketing animation and say, "Is this actually producing results? And if it's not producing results of why do we have it in there?" It may be a good idea to prune back.

The other question is, "Do I understand everything that's going on in my marketing automation?" And if you don't, it might be a good opportunity to prune back. The truth is, if we know what the 5% is that's actually producing results, we can make it super powerful and we can produce phenomenal results and have time to spare.

[00:16:00] One last thing I want to point out about Pareto's Principle that I kind of touched on but I don't think I touched on it enough is this fact that if we really do believe, and I'll give you the 80/20, because that's a little bit easier for people to swallow, but if you really do believe that 20% of your efforts are producing 80% of your results, that means you have 80% of your time and effort that is being misused.

What I would challenge you to do is allocate that to the 5% or the 20%. You have to know what the 5% or 20% is, and then force yourself to actually spend time on the 20%.

There's usually a reason that we only allocate 20 or 5% percent of our time to that thing that actually produces results and it usually has to do with some misconception we have about the 80% or the 95%. The truth is that usually, that stuff that's being done by you that is 80 or 95% of your time could adequately be [00:17:00] done by somebody else for a lower rate or lower cost.

Now if you're saying, "Hey, Ryan, I don't have a ton of money," that's okay. Not everybody needs a ton of money to do some of the things. And you don't have to do it all at once. You're not going to take the 80% or the 95% you know you shouldn't be doing and hand it off to somebody overnight. You're probably going to take 5 or 10%, you'll hand it off to somebody else, and then you're going to take that 5-10% that you were wasting you're going to invest it into the 20% of efforts that you know need and will produce the most results.

When you do that that has this fascinating snowball effect of opening up money to be able to invest into reclaiming more of that 80% or 95% of your time you've been wasting on things that actually aren't producing results, aren't moving the needle, or that you're doing simply because you feel like you have to when in reality, you don't. Somebody else could be doing it. So that's what we're going to do.

And, as you go through this process buying 5%, 10% of your time back [00:18:00] at a time, what happens is you start to liberate your life.

And you know why this is so important?

I was in a Mastermind, one of the guys mentioned that he had to relatives, one a 40-year-old man, the other one a 21-year-old man, who suddenly passed away in accidents.

You don't know how much time you have on this Earth. If you have people that are relying upon you, which as a small business owner I know you do, whether it's your customer, whether it's the people that you love that you're doing all this work for, or even your team, and hopefully you like them too.

Whoever it is, you have people counting on you, you have things that you want to do in your life, and you can't do them if you're trapped by the 95%. You can't accomplish what you hope to accomplish if you're trapped by the 95%. You can't spend time with the people you actually want to spend time with when you're trapped by the [00:19:00] 95%.

You have to pay attention to this because if you don't, life will consume you. It's interesting, they say that the time to do a task will fill whatever time is allotted to it. So if you give a task 2 hours, it'll take 2 hours plus. It never takes less, interestingly enough. Almost never, unless you have someone who is very disciplined. Usually the time allotted to a task is what's taken, plus a little bit more.

Because of that, you have to take control of life or life will take control of you. There's two principles in the universal; one that acts and one that is acted upon. You get to decide which you're going to be. That's the cool part.

You have this thing called agency, the ability to choose for yourself what you're going to do. Because of that agency, you can choose to either act or to be acted upon. When you leave yourself to chance, you end up in the Pareto Distribution wherever it drops you.

But when you actually look at it, you can use the Pareto [00:20:00] Principle to actually modify the way everything works in your life. That means you're going to be able to take that 5% that you identify that really is going to move the needle and you're going to throw in 10, 20, 30, 40% of your time into it. What happens is, the results it produces are so phenomenal that you can then make decisions about the other 60% of your time and where you're going to put it.

It may be that you choose not to work with that time. It may be that you choose to form closer relationships with those that you love and care about around you. It may be that you choose to throw a portion of that found time into the business and you grow it even quicker. You make it even more helpful for other people, even more valuable to the marketplace, and you produce even more profit for yourself.

What you do with it is up to you, but if you don't make the choice to do something with that, then it does it to you.

I hope you'll use the Pareto Principle and you'll use this distribution that this Italian engineer and economist fell [00:21:00] upon to change your life because I know that it can if you'll actually focus in on the right things.

I've also offered you a couple of resources. One, you should absolutely have The Messaging Connection. I believe it's a business changing book because it'll help you to see the world in a way that you maybe haven't been looking at it before that holds all of the great opportunities. So look at the The Messaging Connection, that's $10 on Amazon. Everybody can afford to do that.

Then, while you're at it, you can just get a bundle and get How to Fix Your Funnel. That book, I think, will really change the way that you see your business and allow your business start talking to you, if that makes any sense. I think it will once you read the book.

Your business is trying to tell you how to grow it because it wants to survive and thrive. How to Fix Your Funnel will teach you how to do that. Go get those two books, it'll cost you about 15 bucks, but it'll be very worth it. I would recommend getting the paper copy versus the Kindle even though the Kindle is cheaper because the paper copy is going to connect with you better.

And as you go [00:22:00] through it, you're gonna have a chance to maybe mark some stuff, write in the margins, think about things as you're holding that book it'll force you to step away from your device, your computer, and give you this opportunity just to connect with yourself as you go through the concepts and principles I teach in those books.

If you have any questions about how to get those, I mean the easy part is just go to amazon.com, but feel free to reach out to my team and FixYourFunnel.

This is Ryan Chapman. Keep moving forward.