How the 80/20 principle transformed my business
80/20 case-study from a publishing company in Belgium
We started our business in 1992 with a great idea: a free publication (yearbook) for young graduates that would help them to launch their career successfully after they graduate. The idea was super, the advertising market too. We found lots of recruiting companies who were willing to advertise in our book, so this project became very quickly successful and profitable.
Doubling turnovers and staff, year after year We then wanted more of this. We tried to multiply our success formula in other branches: a ‘marketing yearbook’, ‘management yearbook’, ‘quality yearbook’, ‘telecom yearbook’, ‘home and decoration yearbook’ and so on.
We doubled our turnover and staff every year from 1994 until 2000. In the year 2001 we were publishing 12 titles and we employed 20 people. “You guys are doing great”, is what everybody told us. And we believed it too. Everything went well, besides that one ‘minor’ thing: our margins did not follow our path of growth. We thought this was 'OK' since we were investing in lots of new titles. Top
Shit happens…
In 2001 we were confronted with the enormous impact of 9/11 followed by a phenomenal stagnation of our economy. Advertising budgets were limited, sometimes radically skipped, companies stopped recruiting and many of them stopped advertising in our publications too. All of a sudden we found ourselves in trouble. Year after year we had invested our margins in new products.
Now our markets shrunk, up to -50% compared to the previous year. We were not ready for this. Over the years, we had treated ourselves with a pile of fixed costs, and we had far too many employees in the actual circumstances.
This was something we did not see coming. We had to take lessons out of this. We realized that we are operating in an industry (recruitment advertising) that will always be very volatile.
When the economy grows, companies need to recruit, they have to advertise and so we do (very) good business. But after some years of economic growth, the economy always slows down and companies will stop recruiting again for a while. And when companies stop recruiting, they stop their recruitment advertising efforts.
There is really nothing we can do about it. So we needed an organization that was fully adapted to these periodically changing circumstances. Top
Looking for answers
I started to look for answers the best thing I did was buying Richard Koch's book "The 80/20 principle'. I read this book, over and over again, and became fascinated by the 80/20 principle and 80/20 thinking. Would our problem be resolved by focusing on ‘the vital few’ and ignoring the ‘trivial many’? We had to find out.
We started with an in depth 80/20 analysis of our situation and worked out a whole new strategy. We wanted to become an 80/20 organization.
We focused on two of our 12 publications, those that were far out the most successful and profitable. We sold and stopped all other publications that provided us too little margins and happiness regarding the 80/20 principle. By concentrating on our two champion-products (our 20%), we immediately got rid of an enormous waste of energy and money to products that did not deserve this kind of attention. We decided to implement this change radically. Top
An 80/20 breakthrough
In one single year we were able to cut all of our losses and we started to make money again, even though the economy was still far from favorable for recruitment advertising. Our EBIT margin now is above 30% while 15% EBIT is known as ‘outstanding’ in our industry. As you can imagine, we made a progression by many hundreds of percents in a very short period of time
Thanks to our focus on our product-champions, we found many new ways and ideas for selling more of these products and for selling more to our most important customers.
We reviewed our business processes and skipped lots of unnecessary steps in our workflows. By simplifying our workflows, we regained a lot of precious time and money that we dedicated to higher value activities. Top
80% outsourcing
We also defined more accurately what our 'core business' is and started outsourcing everything else. We see our core business now as ‘the creation of concepts for successful products and services' and the 'selling of advertisements'. For all other activities (layout, printing, mailings, photography, writing, translations, website, ICT, distribution, promotion,) e now rely on partners who do this far better we did.
This outsourcing strategy also makes us much more flexible. And we no longer have to recruit skilled employees for those activities, train them, provide desk space and computers, cars, No; we learned to focus on what really adds value to our company and our margins. All this we do now, with only 3 employees and me as the manager. Top
We experienced a dazzling time revolution as Richard also explains in his books. Believe me, once you start implementing 80/20 ideas and 80/20 thinking, time will no longer be your enemy.
Once it was a very hectic working place here. Now, everyone is still busy, off course, but we all go home on time now. The 20% work that counts is done. We rarely work overtime and we all have time now for other important things. I know, it sounds too good to be true. You probably will have to find out for yourself.
Addicted to 80/20 thinking
Today, I’m a real addict of 80/20 thinking. I think 80/20 in everything I do and I love it. Although I’m a successful entrepreneur with a very healthy and growing business, I now have plenty of time for my family, sports, music, sailing, even for obtaining a private pilot license, something I always wanted to do. Top
I also decided to dedicate some of my time to help other people and organizations benefiting from the amazing impact of 80/20 thinking.
So I joined Richards Koch's network of 80/20 consultants. You can contact me if you like with an email to ron.maes@80-20.be.