Vilfredo Pareto and Product Management

Vilfredo Pareto was an Italian economist of the nineteenth century, inventor of the 80/20 rule (also known as the law of the vital few, or the principle of the factor sparsity). The principle is so strikingly simple but at the same time so universally valid that it is almost scary.

Vilfredo PAreto
Portrait of V. Pareto
  • 20% of the pea pods contain 80% of the plant’s peas
  • 20% of a company’s customers contribute for 80% of revenues
  • 20% of the world population own 80% of the total wealth
  • 20% of a football team’s players score 80% of goals

The first time I encountered the Pareto distribution concept I could not believe it. So I started trying to prove it wrong. 20% of my investment were giving 80% of my returns; 80% of my productive ideas were coming from 20% of my working time; in my product portfolio, 20% of the products were giving 80% of the revenues. I recalculated this 3 times! Then I looked at another product area and it was the same. I started noticing that among the 50 different recipes we normally cook at home, most of the time we were just going back to the top 10 (yes, exactly 20%!)…

I found one thing defying Pareto: I have thought about many different strategies to become rich, but none has worked so far. Maybe I have just not tried hard enough…

Pareto and Product Design Strategies

Going back to the point, many could argue that the 20/80 principle is often abused, but it is an undeniably useful rule of thumb. In business, if 80% of your customers produce only 20% of your cash, why not focusing on the productive 20% reducing your effort by 80%? Tim Ferriss in fact recommends this strategy in his 4-Hour Work Week book that should be on your shelf or desk.

Coming to product management, 80% of the customers will use 20% of the functionalities of your product. In case of a portfolio, 80% of customers will just care about 20% of the products in it. How do you identify the valuable 20% and eliminate the wasteful 80% ?

It seems a very “Lean” question to ask.

An approach that we designed and found very useful is what we called the Pareto Design Strategy. It is a very simple iterative process of ideas generation, prioritisation and categorisation. In a nutshell, it means challenging each single idea leading to a product “feature”.

I have prepared a public Trello Board that can be accessed at this link as a template to refer to.

For the few who don’t know it, Trello is a very intuitive online tool that reproduces the Kanban Board concept. Hence it is a set of lists each one containing items represented by cards. The cards can be anything, in project management they are usually tasks, or mini-projects and the board collecting them represents the full project. The lists can be categories or stages. There are lots of inspiring ways to use Trello but that is beyond the objectives of this post.

In the Pareto Design Strategy we have 5 lists:

  • Ideas Containers
  • Essential Features
  • 20%
  • 80%
  • Discarded Ideas

The process consists in reviewing the board regularly focusing on 4 actions:

  • generating new ideas
  • moving the new ideas in any of the other list
  • prioritising the ideas/features in each list (the higher position means higher priority)
  • moving ideas between lists if necessary (higher priority ideas can be promoted to the previous list, on the left, and lower priority ones relegated to the following list, on the right)
Pareto DesignTrello Board
Snapshot of the Trello Board

 

Let’s look at each list in more details.

The Idea Container is the wildest of them, collecting all of the new ideas. I would recommend that anyone involved in the product design/development contributes with ideas of any kind. From experience, nothing is stupid and I would recommend you ask friends and family as well (well, this depends on the product really…). Ideas stay in this list until they are reviewed. After review they need to move to one of the other lists. Ideally nothing sits in the Idea Container for a long time. I recommend activating Trello’s card ageing function to ensure ideas get reviewed regularly.

The Essential Features list is the least wild of them. This list must contains the minimum number of features to make the product barely viable. I recommend to keep it down to the bone. Anything that is not strictly necessary to make the product work should not be here. No nice to have, only must have! If there is no perfect alignment to the core of the product vision, a feature does not belong here.

The 20% are the ideas that really make the product. The top 20% features. They can be not essential (the product could still work without them), but they are something most people involved in the design are uncomfortable not to have. You must be tough here. You should not have too many thing and the idea is try to keep everything down to the minimum. If too many things are essential or top 20%, nothing really is and you are diluting your top ideas’ value.

The 80% list contains all the other ideas. Please note that the number of cards in this list must be 4 times the 20% list. The strictest Pareto fans would actually consider the 20/80 rule as the sum of the essential+20% vs the remaining 80%. As an example if you have 5 essential and 10 20% ideas, you must have 40 or 60 80% ideas. The total number of cards/ideas is very important. If a lot of questionable features must be “promoted” to the 20% list in order to keep the 20/80 ratio, it means that you are not killing enough ideas.

The Discarded Ideas list is self explanatory. An idea can jump here from the Idea Container or it can be progressively demoted until it gets discarded. Importantly, retain the list of the ideas discarded during the process, not to replicate them at any phase, but also because they could be re-evaluated at any stage and go back into the product.

How to manage the process

The way the review process is managed is very important, as well as the prioritisation criteria. Regular meetings (more frequent at the beginning of the design/development, less frequent at more advanced stages) involving the whole team should be the core of it. However there are many different ways this can be done depending on the team structure and the work culture, so I want to leave this open. The use of data is paramount: business intelligence, voice of the customer, marketing analytics.

In other words, the decision making process at the basis of the ideas review is what makes it successful, the strategy is the script that keeps things together. This goes hand in hand with a solid and clear product vision. If you know exactly which problem you want to solve – why you are doing it – you can control the process easily – how you are going to do it.

Once the Product/Portfolio is reasonably defined, project management must start from the Essential Features and move on towards the right hand side as things get to completion. No 80% idea should be developed and implemented before all the essential and 20% ones are finalised. Failing to follow this rule defeats the whole purpose of the design/management strategy.

The Pareto Design Strategy is very intuitive for product features (e.g. functions in a software application; features of a hardware product) but it also applies perfectly to product portfolio design and management. In the latter case, cards can represent single products in a portfolio or features/characteristics of each product or sets of products.

In my experience in the chemical industry, I have found this process invaluable for killing products that were sitting in product lists or development targets lists for no real reason, demanding resources and efforts. Ultimately this has allowed re-focusing on new, higher value product introductions leading to tangible business growth.

What Pareto teaches us is efficiency: do less things, do them better, avoid wasting efforts.

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