Vilfredo was restless, something caught his attention in his garden. Why were a few plants responsible for the majority of the peas in your garden? Was it a mere coincidence or was there a further reason? That is how he began to investigate and was later able to find a pattern that was repeated in all areas of nature, the economy and society.
In Italy, 20% of the people owned 80% of the land. Corroborating many other similar situations was that the economist Vilfredo Pareto reached his famous 20/80 rule, which in essence says that a small percentage of actors or situations are always responsible for an expressive percentage of the results.
In soccer, both at the level of teams and national teams, a small percentage of the teams are responsible for the majority of titles. In basketball, in motorsports, in tennis and in most sports we see the same thing. The examples are repeated in all areas and situations.
But why does that happen? Why do a small percentage of people, teams, and organizations get most of the rewards?
In the Amazon forest there are 16,000 species of trees, but there are 227 species (1.4%) that dominate almost 50% of the entire forest. Why? Let’s imagine 2 plants growing side by side, but one grows just a little bit faster than the other. That plant is going to be taller, catch more light and absorb more rain. The next day that extra energy will allow the plant to grow even more. And so the pattern continues until the winning plant manages to invade the space of the other and keeps most of the sunlight, the soil, the nutrients and will be able to better spread its seeds and reproduce. The process continues until the plant that was growing just a little bit faster ends up dominating the forest. This is what is called “cumulative advantage.” What starts out as a small advantage grows into something bigger.
And so it is in our lives and in business too. Like the plants in the forest, we compete for the same resources. Politicians compete for the same votes. Athletes for the same medals. Companies compete for the same customers. The writers by the same readers. TV shows by the same audience.
An Olympic runner can be barely a hundredth of a second faster than the rest, but that one takes the gold medal, all the glory, all the fame and all the money that comes from the above. The same when several good manufacturers of a product dispute the same customer. Or when many people of similar qualification apply for the same job. You just need to be a little bit better than your opponents to take all the rewards. We can say that the serve, the drive and the reverse of Federer are 50-100 times bigger than the tennis player who is ranked 20th or 30th in the world? Surely not, it is only slightly better, but its glory, fame and fortune is surely 50-100 times greater. Winner takes all!
Not everything in life happens like this, but it happens in almost all areas where there are limited resources such as time or money.
But the wheel doesn’t stop there. Because from this advantageous position (winner of an Olympic medal, more money in the bank, being president of the company or of a country, etc.) a process of virtuous accumulation of advantages begins. If one road is just a little bit more convenient than the other, more people are starting to use it and more businesses are going to set up alongside it. So more people have greater reasons to use that route and it receives more traffic. And we will quickly be remembering our friend Pareto seeing that 20% of the roads receive 80% of the traffic.
In companies it is the same. If one company is a little better than the other, more people will buy its products. You will then earn more money and can then invest in new technologies, hire more talented people, and pay better salaries. Suddenly that company dominates the market. Sound familiar to Google or Apple? Sound familiar to so many store networks that seem to currently have no competition?
What begins as a small advantage over the competition is strengthened in each instance. Winning one increases your chances of winning the next. Each winning cycle solidifies more and more the position of those companies that are at the top and that end up with all the rewards.
Small differences can lead to disproportionate advantages over time. That is why habits are important. People, teams, and organizations that can consistently do the right things are much more likely to maintain a small lead and thus rack up disproportionate rewards.
Small acts that lead to great achievements are neither sexy nor glamorous. That is why they are rarely practiced, rarely thought about, and therefore rarely learned. We do not need to be 10 times better, but just a little better than our competition and for that it is worth studying it thoroughly and finding its weaknesses.
And how are you going to implement this principle in your company? And in your life?
To win we just need to be a little bit better than our competition. Slowly, step by step.