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The New 80/20 Rule

I’ve had lots of ups and downs. The bad times in my life have come when I’ve gone against the rules and as a result, I lost everything.

A rule is a fact. It works whether you believe it or not. For example, pi will always equal 3.1415…. That’s a rule.

And you must have your own rules in life that govern your behavior.

Some people have already written books about the rule I’m going to talk about. I’m not going to repeat what they say. You can read their excellent books.

Instead, I’m going to enhance the rule they give because every rule can be enhanced or better applied to make it work for you or me. It doesn’t help if you know pi but still don’t know how to calculate the area of a circle.

If you have rules, please add them to the comments. If you think this isn’t really a rule, do not disagree, but just try not following it, see what happens, and then report back.

The 4/64 Rule

Everybody has heard of the 80/20 rule but this post is going to make it a lot more useful.

When I worked in the IT department at HBO there were about 100 programmers. But 20 of the programmers did 80% of the ultimate work that was created.

The rest was dead weight. The financial crisis of 2008 gave every company the excuse to start firing the 80% and they are still doing it. That’s why there is still so much economic uncertainty now.

That’s the 80/20 rule. Another famous example in science is if you plant a garden, 20% of the seeds you plant will fill up 80% of the garden.

Another famous application of the 80/20 rule is: 20% of your customers make up 80% of your profits.

This is described very well in Tim Ferriss’s book, The 4 Hour Work Week. Basically, you can fire 80% of your clients and still get most of the profits if not more (because once you fire clients you can cut some costs to increase profits.) And that’s a big part of how you get to a 4 hour work week.

But…. and this is important. I still think 80/20 is too hard. I’d rather get rid of 96% or 99% of my clients (or acquaintances or work that I do during the day, etc).

I prefer what I call the 4/64 rule. Do the 80/20 rule and then Do It Again.

In other words, in whatever area you are focused on (clients, employees, seeds, activities, acquaintances, meetings, etc) first identify the 20% that is providing 80% of the value.

And then on that 20%, find the 20% that is providing 80% of the 80% of the initial value. (ugh, math! But bear with me).

Now you are left with 4% providing 64% of the value. For instance, 4% of your employees create 64% of the value of your company. 4% of your customers, provide 64% of your profits. 4% of your acquaintances provide 64% of the benefits of friendship. 4% of meetings you can take (of any sort: business meetings, dates, lunches, movies) provide 64% of your enjoyment in life. Or more.

I’m a big believer in minimalism. Not materialist minimalism although that’s part of it but time and energy minimalism. The body is given only so much energy a day.

You can expand your energy in various ways: sleep more, stress less, exercise, eat food (to a limit), laughter, etc. But if you spend a lot of energy on things that are wastes of time then you waste energy, get sick, and die faster.

So I don’t like the 80/20 rule. It’s still too much energy used. I like the 4/64 rule.

And take it one step further you have the 1/50 rule. But when you have too much free time on your hands that can be dangerous also.

This is not a rule but a theory: free time expands into the maximum unhealthy uses of it.

[Ed Note: James is the host of the #1 business podcast, The James Altucher Show. In the incredible first episode, James interviews a man that essentially reinvented the book-publishing industry. After writing a book and receiving hundreds of rejection notices, this man changed the rules and has since sold nearly 3 million copies of his book and he’s also made a lot of money. You don’t want to miss what he had to say. The easiest way to listen is to subscribe to his podcast through iTunes. Click here to listen.]