80/20 again

Business is getting tougher. Markets are slowing down, competition is increasing and politicians seem out of control. Because you need to grow in order to survive, you may be tempted to pursue many growth opportunities. However, heed McKinsey’s warning in a study of 53 consumer goods companies. “Players typically managed hundreds or even thousands of business “cells”—defined as specific combinations of products and geographies, such as facial moisturizers in South Korea. But within these broad portfolios, most revenue growth came from the top 20 percent of cells. The top players obtained about 75 percent of their revenue growth from only 13 percent of their business cells. In the bottom quartile, it took 33 percent of cells to generate the same amount of revenue growth. These findings suggest that companies can win big by concentrating their efforts on a small number of promising cells, rather than dispersing their time and resources among many opportunities.”

This 80/20 principle keeps proving itself over and over. In professional services organizations, the top return on business development activities is to provide exceptional service to your top 20% existing clients. Doing so makes them more likely to give you more business, are less fee sensitive on the new projects and are willing to go out of their way to refer you to their friends/network. Trying to provide excellent service to all your clients will result in diluted service to the ones who could really drive growth.

Avoid the temptation to pursue many opportunities/clients. Instead focus, focus, focus.