Question:

Dear 80/20 Mentor,

We have a very concentrated customer list and the bulk of what we sell are custom engineered solutions. How can 80/20 help me?

- Curious and Concentrated

Answer:

Dear Curious and Concentrated,

The wonderful thing about 80/20 is that it isn't a tool, and it isn't a playbook. Tools are great, but they are task-specific. When you need to drive a nail, a screwdriver won't help you. Playbooks are also nice when the conditions are exactly what the playbook was written for. Seldom is that the case.

80/20, on the other hand, is a lens through which all situations should be viewed, and that lens provides a simpler, better way of approaching the problem and, hence, solving it.

Many believe their business is too unique for 80/20. In reality, the 80/20 perspective is universally applicable: it helps and works all the time.

Consider your (quite common) situation: a focused customer list and custom solutions. No 80/20 there, right? Well, nothing could be further from the truth. First, let's allow the data to have some say. Let's see that customer list; let's see that product list; let's confirm that indeed there is no significant customer and/or product complexity. Often, the data surprises and uncovers underlying complexities. So, get your customer and product data, run the quartile analysis, and let's validate your assumption.

Even if the data shows minimal complexity, remember: custom businesses typically have a mix of highly profitable and less profitable projects. Those unprofitable ones (often just a handful) are enough to put a serious dent in the overall profits of the company. Even in a custom business, there are what we call “80s” (elements we do well), and “20s” (elements we don't do well). Identifying these can significantly impact your bottom line. It’s about recognizing the 80% of your efforts that yield the best results and addressing the 20% that don’t. The data will help you decide, going forward, which jobs to take, which jobs to attempt to alter, which jobs to steer clear of...and how to price those we do take.

Furthermore, there is the inevitable parts business that comes out of custom businesses...something to segment, understand fully and optimize. This segment might represent a substantial portion (if not all) of your profits and deserves careful consideration.

A strategic move for custom businesses is usually not a complete “standard” offering nor a “fully custom” offering. Rather, the best solution is developing a “configure to order,” or “pseudo-standard” offering. This means, after 80/20 and voice of the customer data is understood, provide an offering with limited options but unlimited configurations. This hybrid model is highly profitable, easy to manufacture, and usually very, very good for the customer.

In the end, of course, everything is case-specific. The real value of 80/20 lies in its ability to adapt and reveal opportunities in any scenario. We never know what we'll find until we dig in, and all we know for sure is that digging in is 100% worth the effort. This lens is a powerful one!

If folks must label 80/20 as a tool, think of it as the Swiss Army Knife of business strategies—it’s that versatile.

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