The 80/20 rule, The Long Tail and your market

Ever since Chris Anderson published “The Long Tail” it’s been argued about. Anderson himself is still trying to redefine what the market is- and how it’s measured. Does Netflix count as part of the category “video rental stores” or not. You can read some of his analysis in this article- where he takes some time to talk about the poor debunked Italian mathematician¬† Vilfredo Parteto:

The Long Tail: The real meaning of 80/20

I am as guilty as, well, nearly everyone else of sloppily defining the “80/20 Rule” to mean whatever I want. Pareto’s principle really is an all-purpose widget, broadly applicable to almost anything humans do (and, of course, the behavior of atoms in a Bose-Einstein condensate)…

The general articulation of the principle is: “for many phenomena 80% of consequences stem from 20% of the causes.” (Vilfredo Pareto [shown] first articulated this in 1906 when he noticed that 80% of the property in Italy was owned by 20% of its population).

In a world of category killers- and mega stores like WalMart- the small business has to work harder to find and define the scraps left over of which to build a business model on. When almost any commodity can be sourced at the touch of a button, service has become the number one way of differentiating your business.

There is hope to be found in finding the niche that 20% of the market needs filled. Not every hit has to be a homerun for your business to build and grow, just one thing becomes essential- making sure you are able to come in first with top of mind awareness for your little bit of the pie.

Businesses that can tell their story better, can connect with a small segment of customers well- that have figured out that infinite choices are too many- that they want to do business with people they know best- those are the ones that have a chance.

We’ve been watching a small old Wympee building that seats 35 at most- be turned into a hipster dive, by focusing on a message that big can’t own- that their food is local, organic and fresher than anything anyone else can provide. In the highly competitive market where size seems to matter, being small is working as a competitive advantage.

Thinking in terms of the 80/20 rule- it doesn’t matter if 80% of your business comes from 20% of your customers- as long as you have enough customers to make your model work.