The 80/20 Rule - Increasing Market Share in a Recession

One of the most often cited rules of business success is the fabled 80/20 rule which has long been used by speakers and authors to help people focus on the important.

Originally conceived by the nineteenth century economist, Pareto, in its original construct what became known as Pareto's Principle suggested that -- commonly -- 80% of an enterprise's revenue came from 20% of its customers. The logical conclusion coming from such a ratio is that one's primary focus should be on the 20% of the customers, rather than paying tons of attention to the other customers.

Well, although this may apply to some businesses, there are many businesses where this rule clearly does not apply. As just one example of where it does not apply, a supermarket doesn't get 80% of its revenues from 20% of its customers. Nor does a McDonald's restaurant. Nor do most retailers.

But, the underlying point is still a good one. Every business should focus on the customers that really make a difference to the business, especially in these challenging times.

Lately, I have been seeing a lot of businesses who should use 80/20 for a new construct. These are the businesses that have lost 20% of their business. Many who have done so, for example the domestic auto companies, are crying doom.

Now, I don't want to make light of losing 20% of one's revenue. For many companies, absent a dramatic change in the expense structure of the business, a 20% loss in revenues will throw the company into a loss position.

But, who says that if industry volume is down by 20% that one's revenue has to decline by a similar percentage. If industry volume is down by 20%, then that means 80% of the market is still available for those willing to go after it. The challenge in this economy is to take market share away from competitors, and to do so on a profitable basis. Certainly not easy! But, far from impossible.

I see far too many business owners and managers accepting the notion that they should expect their revenues to decline by an amount similar to those of the industry. That is fatal logic!

Think 80/20. Eighty percent of the market still exists after a twenty percent decline in industry or market revenues. Instead of crying over the loss, focus all your creative energy in taking market share away from competitors.

It can be done. And, it is being done by aggressive companies...right now!

Of course, not every company can't take market share away from others. There will be winners (or market share) and there will be losers. For the losers, lights out will likely be the result. So, there is a lot at stake. We are operating in a time when only the strong will survive.