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The 80-19-1 Rule

Written by: Brad Feld

Article Overview: I expect that many of you are familiar with the Pareto principle (also known as the 80–20 rule.) If you aren’t, the simple definition is that for many phenomena 80% of the consequences come from 20% of the causes. Or – more practically – 80% of your company’s revenue comes from 20% of your customers, or 80% of your problems come from 20% of your customers, or 80% of your employee problems come from 20% of your employees. While it’s overused, it’s a good rule of thumb.

The 80-19-1 Rule

I expect that many of you are familiar with the Pareto principle (also known as the 80–20 rule.) If you aren’t, the simple definition is that for many phenomena 80% of the consequences come from 20% of the causes. Or – more practically – 80% of your company’s revenue comes from 20% of your customers, or 80% of your problems come from 20% of your customers, or 80% of your employee problems come from 20% of your employees. While it’s overused, it’s a good rule of thumb.

I was in a meeting the other day where we were talking about the concept I described in my post “The First 25,000 Users Are Irrelevant” that built off of Josh Kopelman’s superb post titled “53,651” (which appears to need to be updated to 100K due to the ever increasing readership of TechCrunch.) We were deep into a discussion about user generated content and how communities tended to grow. I’ve had plenty of experience observing this at Judy’s Book, working with several new content companies that I’ve invested in, and closely following the discussion that made the rounds about the 1% rule as it applies to Digg (e.g. 1% of the Digg users generate most of the Digg’s – resulting in Jason Calacanis offering to pay these 1% of Digg users to bookmark for Netscape.)

I get the 80–20 rule. I get the 1% Rule. But what about those other 19%?

It dawned on me that the gold is in the other 19%. Maybe this is obvious, but here’s how I’m thinking about it. Assume a web site content business (or social network, or bookmarking service, or something else along those lines) that incorporates user generated content (or user interaction) as a core part of it. Apply the 1% Rule. You’ve got your active users - these are the folks that are going to create content “just because.” In some communities I’m part of that 1% and - when I think about why I participate as actively as I do – I always have some non-standard rationale or motivation (or – more abstractly – the behavior and motivation of the 1% doesn’t scale to the rest of the community.)

Now apply the 80–20 rule. 80% of the users are the site are simply going to be fly bys. They won’t engage deeply – they are merely skimming / scanning content. It’s nice to have them, but they are the consumers, not the contributors.

That leaves 19%. This is the golden segment. If you can figure out how to engage these folks, you win. If you don’t, you’ll have a site driven merely by the 1%, which ultimately won’t scale. While theoretically the law of large numbers should apply (e.g. as N (= number of users) gets big enough, life is good), I hypothesize that if you don’t figure out how to engage this 19%, you won’t drive growth in N that will get you big enough to have the law of large numbers effect deliver you to happiness. There’s a virtuous cycle here – the 1% disproportionately seeds the activity of the site, the 80% consume content, and the 19% sit on the fence. If you can get the 19% to engage, this drives more vibrant content, which increases reach, which increases N, which means the activity driven by the 1% and 19% increases, which drives more content, etc.

Now – the 19% don’t have to contribute as much as the 1% (in fact, if you believe in the power law or are a long tail disciple – the sum of the contribution of the 19% probably equals the sum of the contribution of the 1%.) In addition, the critical mass associated with the 19% gets you to a true 80/20 rule (vs. a 99/1 rule) – which – if you buy into the Pareto principle – has very powerful (positive) implications.

Read this article in Brad's blog.

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Article Tags: 8020 rule, bookmarking service, consequences, content business, content companies, diggs, gold, interaction, jason calacanis, motivation, pareto principle, phenomena, rationale, readership, rule of thumb, techcrunch, user generated content, web site content



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