Billion-dollar CEO prioritizes the 80/20 principle

For small businesses — both for-profit and nonprofit — and for independent workers, winning has never been more important. And for many, it’s a question of survival.

So, what is winning for your business? One of the simplest and most straightforward definitions is (to paraphrase Peter Drucker) “to create customers and keep customers by serving them better than any competitor can.” Now is definitely the time to take care of your customers and hold on to as many of them as possible. 

Now is also the time to make sure you have enough cash or financing to sustain your business while you secure customers and adequate sales. 

A winning business strategy is a set of choices that enables a company to deliver superior value to its customers and acceptable returns to its owners on a reliable, sustainable basis. Ideally, the choices a company makes create a sustainable advantage manifested in better performance, quality and value for customers and better value creation for the firm. 

Narrowed focus

Because what gets measured gets done, clear indicators of customer response and clear measures of the drivers of value creation are required.

First and foremost, the most basic question you must ask and clearly answer: Who is my customer? Or, more precisely, who should be my customer?  

While not a hard-and-fast rule in business, I have been struck over the course of my 50-plus years in business by how often the 80/20 rule applies. That means 80% percent of sales in many businesses come from 20% of customers. And 80% of profits and cash come from 20% of sales. 

Who are your best customers? Do you have enough of these customers? Do you do enough business with these customers to generate an acceptable return on the investment you’re making in your business?  

In challenging times like the ones we are in, narrowing your focus to your best current customers and your best customer prospects, and getting crystal clear about what it takes to deliver both superior customer value and sustainably sufficient returns, could very well be the difference between success and failure — and, ultimately, survival.  

Second, and equally critical, maximizing profitable sales, avoiding unprofitable sales, eliminating all costs your customers should not have to pay for and paying close attention to every penny of cash matter now more than ever. 

A.G. Lafley, the former CEO of Procter & Gamble, worked for decades in and with large public companies. Over the past 15 years, he has turned more of his attention and energy to small businesses and nonprofit organizations. He currently serves on the boards of Omeza, Snapchat, Tulco, Hamilton College and the Sarasota Bay Park Conservancy. A Sarasota resident, Lafley has written best-selling books on innovation and strategy as well as numerous Harvard Business Review articles on leadership and management. His new website, LeadingToWin.com, comprises practical, how-to insights for small businesses, nonprofits and freelancers rooted in his five-plus decades of business experience.