Transcript of Unlocking the Power of 80/20
John Jantsch: Hello and welcome to another episode of the Duct Tape Marketing Podcast. This is your host, John Jantsch, and my guest today is Perry Marshall. He’s an online marketing strategist, entrepreneur, and author of numerous books, including one we’re gonna talk about today, the 80-20 of sales and marketing. So, Perry, thanks for joining me.
Perry Marshall: John, it’s great to be here. It was great to be at your summit a couple of years ago where I met a lot of your people. The world just seems to be getting more and more eccentric, and there’s a lot for us to talk about today. Man, you’re either harnessing the eccentricity, or it’s pounding you on the back of the head with a two by four. And there’s not much in the middle, so very timely.
John Jantsch: Let’s get kind of a baseline. I mean, everybody’s heard the 80-20 thing. It’s almost become cliché how people apply it. But I don’t know that that many people, and this is your contention with the book, that many people get the leverage that it provides at a business level, do they?
Perry Marshall: No. First off, it’s not just a business rule of thumb. It’s a fact of nature. And, in fact, if I go to the beach with a bucket, and I pull out a bucket of sand, the sizes of the sand grains is gonna be 80-20. And how much water is in all the rivers is 80-20. The dirt on your carpet is 80-20, and the files in your hard drive. Okay? That’s the first thing. The second thing is that there’s an 80-20 inside every 80-20. When people really get this, it kind of flips them out. And so I can run a spreadsheet or a sales report of all my customers, and if I sort it from top to bottom, 20% of my customers are gonna generate 80% of the sales, but then if I chop off the bottom 80% that only produces 20%, whatever’s left, that top 20%, it’s still 80-20.
And I can do that again. And 4% of my customers are 64% of my business. And then I could do it again, and 1% of the customers are 50%. Well, this is true in almost any part of your business, and we’ll get into that. But then there’s a third thing. And this is probably a little bit new to most people, but the world is really becoming much more 95-5 where 5% of your efforts or your customers produce 95% of your results, and the other 95% only produces 5%. And this is especially true online. I’ve been watching this develop. People really need to understand this. The world is not … Cause and effect in the world operate fundamentally different than they did even 15 years ago. And I don’t think most people have gotten the memo. There’s a lot of examples of this out there.
John Jantsch: Let me stop you there, because I want to clarify something. And we’ll get, obviously, into examples, and I want to go back to the nature comment.
Perry Marshall: Yes.
John Jantsch: But it’s the simple kind of no-brainer lesson, then, to say, “Look, 95%” or if we want to use 80-20, still, to not scare too many people, is 80% of what you’re doing a waste of your time almost? I mean, especially when you get 95-5. It’s like 95% of my effort is on 5%? Quit doing that?
Perry Marshall: Well, yeah or almost, okay? You’ll always find that there’s a bunch of those things that somebody’s gotta do. It might not be you. It shouldn’t be you, but it’s gotta be somebody. But for example, 80 to 95% of all businesses fail or most entrepreneurs, we have all these little projects that we get into, and the project is a miniature little business, truth be told. Even if we didn’t go form an LLC or something. But actually anywhere from four-fifths to nine-tenths of those really don’t produce anything at the end of the day. And what’s happening in the world is that there’s more and more people kind of getting nowhere or just treading water or altogether losing, and then there’s this minority of people that are just absolutely slamming the ball out of the park, like it’s a triple. It’s a home run and then some. There’s less and less that’s in the middle. And so I think people today have to be more ruthless about how they spend their time than they’ve ever been before. There’s never been a time when busy work would get you less far than it does right now.
John Jantsch: And there’s probably never been more busy work.
Perry Marshall: Oh my gah. Yeah. Like, amazing amounts of busy work, and it doesn’t even look like busy work on the surface. You have to be really discerning. Lots of things, they just sound like good ideas, and a lot of them are based on, well, it’s really what was working in 2003, and it’s not really based on what’s going on right now. So I am issuing a wake up call.
John Jantsch: So let me go back to the nature comment about the grains of sand on the beach or all the things you cited from nature. I mean, is there some sort of principle that suggests why that’s the case?
Perry Marshall: Yes. Yes, and I’m not gonna get super theoretical. I could go into all kinds of stuff about chaos theory. This is really what it’s based on. But, John, I just want you to imagine that we put a table in the middle of your living room, and we went to some machine shop, and we machined the top of that table to be absolutely flat to within 100,000th of an inch, and it was a mirror finish. But then I want you to imagine that there’s a leak in your roof, and now we’re gonna drip water on that table, and the water is gonna drip into the middle of the table. So here’s a question of, “If I have the table perfectly level, and it’s perfectly flat, does that mean that the water is going to evenly spread out on the table, and then drip off the edge of the table in a smooth-flowing stream?
John Jantsch: My guess is it would probably gather as much energy to spread itself out in a very small section of where it landed.
Perry Marshall: Well, right. Right. And what would happen is no matter how flat you try to make that table, it’s gonna be a little bit easier for the water to go in one direction than the other ones, and then it starts going. And once it starts going, well, the erosion will wear, and then a million years later, there’s gonna be this big giant groove in the middle of your table that started out as flat. There’s nothing you could do to make the water flow equally. And here’s the thing is everything in life and nature is like that. So how water erodes or, for example, you’ve 10 14-year-old kids yesterday tried Jack Daniels for the first time. And maybe they all sort of liked it. But one of them liked it a little more than the rest of them, and so 30 years from now the rest of them all take a drink a week or two drinks a week and one of them has five drinks before breakfast, and he’s an alcoholic.
Okay? So your customers are like that. And my customers are like that. Everything is unequal. And the thing is is education conditions treat everything like it’s equal, treat everybody like they’re equal. The teachers try to make all the kids equal. Well, I just want everybody to get A’s and B’s. It’s like, “Well, they’re not going to.” And so entrepreneurs harness the eccentricities where a lot of more ivory tower people, they kind of try to pretend they’re not there. And so you have to just completely reverse the normal way that you think.
John Jantsch: Okay. So for that person out there that’s thinking, “Where in the world is this going and why is this gonna apply to my business?” Let’s bring it back to something very practical inside a business. How could somebody start spotting that 95% opportunity?
Perry Marshall: Let me tell you a story, and maybe a couple of your people have heard this one before, but this is my favorite 80-20 story. I have a friend named John Paul [inaudible 00:10:15] who dropped out of high school when he was 17, and he hitchhiked from Denver to Las Vegas with a couple of gambling books under his arm, and he’s like, “I’m gonna become a professional gambler.” He starts going to casinos and playing poker every day and living by his whits at age 17. And after a few weeks of this he was like, “Dang. This is harder than I thought.” He bumps into this guy who runs a gambling ring named Rob, and he starts talking to him. And he says, “Well, could you teach me how to do this?” And Rob says, “For a percentage of your winnings I could teach you how to do this.” And so they shake on it.
And after they do that, “Hey, jump in the jeep, John. We’re going for a ride.” So they get in the car, and they’re going down the highway, and John says, “Okay. So how do I win more poker games?” And Rob goes, “You have to play people who are going to lose. And those people are called marks, and you need to find the marks in the room, and you need to play poker with them, and you don’t play poker with anybody else.” And he says, “Well, how do I find the marks?” And he says, “Here. I’ll show you.” And he pulls into a parking lot of a strip club, and they go in there. And there’s women and there’s rock and roll, and there’s people drinking and all this commotion and noise in there.
And he sits down at the table, and Rob pulls a sawed off shotgun out of his jacket. And he opens the chamber, and under the table, then he snaps it shut and it goes “chitch.” And all these guys look around. And John sees them. And the owner come over, and he says, “Hey, what’s going on over here?” And Rob goes, “Hey, we’re just fine. There’s no problem here. We’re just teaching the lad a lesson, not gonna cause any trouble. Don’t worry about us.” And then Rob turns to John and he says, “John, did you see those guys who turned around when I made that noise?” And he’s like, “Yeah. Those biker guys over there?” “Yeah, those guys.” And John goes, “Yeah.” And he says, “Don’t play poker with them. They’re not marks. Play poker with everybody else.”
Now, that was what I call racking the shotgun, and everything you do in marketing is rack the shotgun. In fact, I’ve trained my customers and clients to use that phrase all the time. Rack the shotgun is when you … You know who racks the shotgun all the time is Donald Trump, okay? Now, I’m not saying he does it for good reasons or whatever. I’m not making any statements about any of that, but he does it. Okay? And he gets a response. Now, what I have always found out is most people are instinctively afraid to rack the shotgun. They’re afraid to find out the truth. They’re afraid to go make that big noise out there and see, “Okay, who’s gonna turn their head and who’s gonna ignore?” Or, “Who’s gonna say no and who’s gonna say yes.”
I mean, it could even go all the way down to your teenager like, “Well, you know, I don’t want to … She came in at 2:30 in the morning last night, and I don’t really want to ruffle any feathers, and we seem to be getting” … Well, that’s like being afraid to rack the shotgun. Like, well, if you don’t know why your teenager came in at 2:30 in the morning, then whatever the reason is is probably not a good one, right? But you have to ask.
John Jantsch: Ignorance is bliss, right? Yeah.
Perry Marshall: I talked to a guy about … He owned a smoothie store, and he was doing all this Facebook and social media stuff, and I’d go, “Well, do you ever send them emails?” He goes, “No, I’m afraid of them unsubscribing.” Well, that’s racking the shotgun, man. I said, “Email is 10 times better than social media. You’re not emailing, because you’re afraid some people won’t like it? Send them an email. Let them unsubscribe. It’s fine.” In fact, if you’re unsubscribe rate is less than 5% or even 10, you’re probably not selling hard enough. So everything you do, everything you do in marketing is racking the shotgun.
John Jantsch: So what you’re, again, coming back to my original question on that, what you’re suggesting is that’s how you’re gonna find the leverage?
Perry Marshall: Yeah. With people, right, you’re gonna find that most people actually aren’t gonna respond to anything that you do. They’re never gonna buy, okay? And maybe it’s 80% aren’t gonna buy or maybe it’s 60% or maybe it’s 95% aren’t gonna buy. But there is a rack the shotgun just with buying. Now, the interesting part about 80-20 is that if you rack a shotgun, and you get, let’s call it $100 shotgun. It’s a $100 transaction, let’s say, and you get 100 people to respond. Well, if you quadruple the price, if you rack a $400 shotgun, 20% of those people will respond again. And if you rack a $1,600 shotgun, 20% of those people will respond again. If you rack a $6,400 shotgun, 20% of those people will respond again. And so you’ll find that even though you started with only 100 people, let’s say, who would spend $100, you might find one person who would spend $50,000. And you didn’t know it, and that person was already there. That person is already in your audience. And what I am seeing is that all of this is becoming more pronounced than it used to be.
John Jantsch: So it really, I mean, again, one of the sort of core principles was you build a business, you got customers. You need to be trying to sell them more. I mean, essentially you’re saying that, but maybe at a level people haven’t considered, that not just is there an opportunity to maybe sell more, but that there is a sort of almost mathematical equation that says what you should you sell them and how much it should cost and who’s gonna respond?
Perry Marshall: That’s right. There is a hunger in the marketplace that there’s a small percentage of people who they have an extreme itch that they would like to scratch. And it’s almost unscratchable. When it’s just your product line, there’s some other things I want to get into, but let’s just restrict it to your product line right now. So 80-20 says, “If I have a Starbucks, and a thousand a people a month are buying a $5 latte, one of those people will buy a $2,700 gleaming stainless steel espresso machine.” And it’s just about a law of physics. Now, I started to notice something really interesting when I started teaching Google AdWords. I wrote the world’s best selling books on Google and Facebook advertising, and all of a sudden when AdWords came into existence, all of these new businesses that might not have even been able to exist before suddenly popped up.
And it was this giant feeding frenzy and gold rush. And what I noticed was that if somebody could get to the top in AdWords, they could get the number one position, which gets the most traffic. And then if they could streamline all the stuff in their website, the shopping cart, the sales pages, the landing pages, the offer, the unique selling proposition, if they could dial all that in and test it to the hilt, they would get to a point where nobody could shove them out of the way. They’re number one, they might be number on TV, and they might not be number one on the radio, and they might not be number one on main street, but if they’re number one in Google AdWords, and if they got their sales machine dialed in, they’re almost unstoppable.
Now, here’s why this was. It was because number two, number three, number four, number five, they all have to test their way to success, and they have to experimentally find what works, but you’re already getting more traffic than they are, and you can already do more tests than they are. And so you’re previous success greases the skids for you to continue to be successful, because you’re the incumbent. Well, I’ve been watching very carefully, and what I’ve seen is that an incumbent in the brick and mortar world is 80-20, but an incumbent in the digital world is 95-5. So here’s an example of this. You could go ask your 10-year-old kid, “Can you name a dozen car manufacturers?” And any 10-year-old kid could think of a dozen, Ferrari and Toyota and Kia. They could come up with a list. But can anybody name 12 search engines or 12 auction sites or 12 bookstores where you can buy any book?
John Jantsch: Well, I don’t know about you, but I have the top 100 search engines that every business should be in sitting right here next to me. I’m being facetious, of course, but remember when people used to talk about that.
Perry Marshall: Right. Right. And they all got washed out. Well, that’s because the internet is frictionless. So making cars, that’s friction all the way. Whether you go to the Toyota dealership or the Ford dealership, you have to drive across town, right? Okay. And so that supports there being 12 different car manufacturers. But if it’s Bing versus Google, there’s literally no difference whether you type in B-I-N-G or G-O-O-G-L-E on your browser. The only thing that makes a difference is how much you enjoy the experience. If Google is 10% better, then pretty soon everybody’s gonna use Google, and the Google’s gonna become 1,000% better, because they have more data and more customers and more bells and whistles and more everything. And pretty soon Bing doesn’t really have a chance.
And, see, everything in online marketing is like this. Basically, you’re either number one or you’re nobody. And I don’t think most people have really gotten this that this has happened. You’re either number one or you’re nothing. So that old phrase being a category of one, oh, it’s dead serious no. In a 95-5 world you have to be the number one. Whatever you do, you have to be the only one or you are hamburger.
John Jantsch: I think you can see that at a very real level for the local plumber, for example. I mean, all the searches are being done on a mobile device, and Google is determining, “Here’s the three positions that they’re gonna show.” And certainly if you don’t show up in those three, and as you suggest maybe number one of those three, you really don’t exist, I think. And so the digital world is even cutting into the world of friction.
Perry Marshall: It is.
John Jantsch: We may see a day when there’s only one car sale search engine, and the manufacturers are really, I think, playing basically to be there.
Perry Marshall: So I’ll make a prediction right now is that 10 years from now self-driving cars will be extremely common, and half of the auto manufacturers will either be out of business or bought out by the winners.
John Jantsch: Yeah. Yeah, because to some extent the brand won’t matter anymore.
Perry Marshall: No. It won’t. So watch out. Now, if you know this, if you know this, you can make predictions about the future. In many cases if you project 10 years in the future, if you are already pretty much know who the winner is, then you can bet on the winner, and you’ll gain. If there’s somebody out there … I don’t know. I don’t know who it might be, but if somebody out there already pretty much knows who’s gonna control the self-driving car thing, then you buy stock in that company. In 10 years from now you’ll be happy about it, because there probably isn’t that much that anybody can do even right now to change it. To give you another idea, there’s Bitcoin and there’s Ethereum, and there’s all these other little cryptocurrencies. Bitcoin already won. All the rest of them, that’s like .net, .cc, .name, .whatever. It’s just like domain names. They’ll have their little day in the sun and people will think. Bitcoin’s already won. It’s the winner-take-all phenomenon is on steroids.
John Jantsch: I’m trying to figure out which direction to take this, because there’s so many we can go, and we’re really already out of time. So let me ask you how somebody would … And I’m trying to, again, end it on a really practical note. How would somebody apply this to an existing business? I can see a lot of people thinking, “Okay. If I could figure out this thing and predict the future, and I’ll create a business around that.” But how could somebody apply this? I mean, is this something that you have to have an epiphany? Or is this something that you have to just go out and start testing things in a certain way?
Perry Marshall: So here’s what you can do, and this is extremely practical. Richard [inaudible 00:26:29] and I put together this website called StarPrinciple.com. It’s free, and you can go click a dozen radio buttons and score your business. Basically it tells you how likely it is that you can dominate the niche that you’re in right now. It’s kind of a truth serum of this winner-take-all thing. So the score goes from zero to 200 points, and anything over 100 points is a home run. Okay? Now, some businesses will get a 25, and some will get a 75, and some will get 150. If you’re 150, man, you’re good, and you should pour on the gas. Well, so here’s what you do. Most of our businesses are really three or four businesses or three or four product lines or three or four markets, and they’re all kind of one umbrella. Here’s what you need to do. This could save somebody years of heartache and frustration right here. Okay?
You go, “All right. Well, I have product A, B, C, D. I have market A, B, C, D.” You score each one individually, because in one of your markets you’re really the number six player. In one of your markets you’re the number one player. One market is shrinking, and one market is growing. And you score that. And you break it up, and you need to figure out which part of my business do I pour the gas on and which part do I really just kind of ignore or I let coast? Right? Just give it as little gas I can get away with while I build the others, because 20% of your business is gonna produce 80% of the growth in the future, and the rest of it’s just gonna waste your time.
I think a lot of us aren’t really honest with ourselves about where our business is actually at and what it can really produce, and you need to be the winner. There is probably some part of your market where if you’re like, “Well, this part of the market isn’t very well served right now. Nobody else is really truly paying attention to this aspect, and I could totally nail it. And if I really put my resources into it, I could emerge as the absolute dominant player within six or 12 months,” and that’s what you should do.
John Jantsch: Visiting with Perry Marshal. We’re talking about the 80-20 principle, which is now 95-5 online. Winner take all is the game that we’re playing. Perry, thanks so much for joining us. Where can people find probably the best place to plug in to your, kind of, vast universe?
Perry Marshall: You can go to PerryMarshall.com/8020. And just start by reading 80-20 in sales and marketing and just know that it’s even more true now than it was in 2013 when I wrote it. And the race is on. The race is on. It’s winner take it all, and whatever it is that you do, you need to find the thing where you can be number one, and you can totally dominate and be a category of one, because all the other stuff you’re doing is a waste of time.
John Jantsch: Awesome. Thanks, Perry, for joining us. Again, this conversation could ramble out of control for hours. But hopefully people got a little hint of the passion and maybe the urgency, probably, of this message.
Perry Marshall: Well, John, it’s always an honor to talk to you, and I love what you’ve done. You’ve made this little empire over there with Duct Tape Marketing. So thanks for having me on your show.
John Jantsch: You bet.
Perry Marshall: Hey, thanks for listening to this episode of The Duct Tape Marketing Podcast. I wonder if you could do me a favor. Could you leave an honest review on iTunes? Your ratings and reviews really help, and I promise I read each and every one. Thanks.